Funding formula or local fuddle

30 Nov 00
Local authorities may be set to receive £44bn in next year's finance settlement, an inflation-busting increase of 6.7% but, with two different funding options on offer, 47 councils are left more in the dark than ever about their eventual allocations.

01 December 2000

Outlining the provisional settlement on November 27, local government minister Hilary Armstrong said data changes to Standard Spending Assessments had thrown up an `unacceptably wide' range of funding for 2001/02, with some councils in line for increases of 10%, compared with real cuts for others.

To smooth these discrepancies, and to protect the politically sensitive services of education and social services, Armstrong is proposing a system of `floors' and `ceilings'. These would set a minimum increase in funding, in this case, 3.2%, but limit any increases to 6.5%.

The alternative would be to increase the Central Support Protection Grant to 1.5%.

This situation follows weeks of political infighting, with Education Secretary David Blunkett attempting to limit changes to the area cost adjustment to protect Labour's traditional heartlands. London authorities have effectively won this fight and an extra £49m, but the 12 biggest beneficiaries all face being capped under the proposed ceiling.

In contrast, 35 authorities will have to wait until the New Year to hear if they will benefit under the proposal for a floor level.

Stephen Fitzgerald, head of finance at the Association of London Government, said ministers had only succeeded in making the settlement more complex and even less transparent for authorities.

He told Public Finance: `The settlement has become too political and its complexities reflect just how hard the DETR has worked to find a solution.'

The ALG will call for the Treasury to fund fully the cost of the floor for the councils concerned, which otherwise would shave around £45m off the allocations of other councils.

Metropolitan authorities, among some of the biggest casualties in this settlement, also expressed frustration at the government's solution.

The Local Government Association reacted cautiously to the idea of floors and ceilings and expressed greater concern over the 18.3% increase in specific ringfenced grants, details of which are still to be announced.

Out of the extra 8.1% in total spending for education, only 4.8% is now left to the discretion of councils. `We regret the increase of expenditure being passed through specific grants, which are too tightly controlled by Whitehall,' said Sir Jeremy Beecham, chair of the LGA.

There is also an extra £100m for social services, due to be outlined by Health Secretary Alan Milburn.


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