London set to lose out as politics takes precedence

12 Oct 00
Ministerial interference in next year's finance settlement is threatening to divide local government, with London boroughs accusing the government of trying to cheat them out of £49m to placate its heartlands.

13 October 2000

According to sources, several Cabinet ministers, including Education and Employment Secretary David Blunkett, have raised concerns at the potential political and policy implications of distributional changes to the 2001/02 finance settlement.

Data from the New Earnings Survey, which feeds into Area Cost Adjustment figures, would shift around £49m to London and some Southeast authorities while metropolitan boroughs, including Blunkett's own constituency in Sheffield, would lose up to £5m each.

On the advice of ministers, the Department of the Environment, Transport and the Regions has written to authorities warning them of the Cabinet's concerns. It claims that the move in resources could 'take authorities by surprise' and if the data is included in Standard Spending Assessments, 'the promised predictability and stability' of the finance regime could be undermined.

The Association of London Government, which last year saw London authorities lose £37m under the ACA, reacted furiously to the DETR's consultation and accused ministers of geographical bias. 'This is double standards. To use data changes one year when they are detrimental to London authorities, but not the following year when they would gain is blatantly unfair,' said ALG vice chair Richard Arthur.

The association is arguing that 'smoothing' the data changes would be a major departure from the government's own pledge of a three-year freeze on SSA formulas. 'We understand that most of the concerns have come from the DfEE,' added Stephen Fitzgerald, the ALG's head of local government finance. 'The minister is concerned that more money will be going to what are seen as wealthier local education authorities, but the system is supposed to take in wage levels.'

Metropolitan authorities, set to be the biggest losers, are demanding a freeze on any ACA changes. For example, Birmingham faces a reduction of £4.7m and Leeds £2.7m. The Special Interest Group of Municipal Authorities claims that its members will lose around £51m in the 2001/02 settlement and warns that it will have 'adverse effects' on service delivery.

The Local Government Association, which has members on both the winning and losing sides, is expected not to take a position on the changes. Steve Lord, head of grant distribution, played down the row. He said as overall grants are set to rise by 5% next year, no authority would actually lose money.

The DETR conceded that failing to update ACAs would be departing from 'established practice'. But, with Cabinet members set to debate the issue in the next two weeks, local authorities fear that the decision has already been taken out of their hands.


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