Funding changes hit London councils

The figure of £863m constitutes a pretty big hole in London’s adult social care budget, but this is how much London Councils claims the city’s services would lose over the next three years without “formula damping” – a form of revenue protection that the government is heavily modifying.

Don’t be surprised if you haven’t heard of this change, though: it involves such a complex shift in funding formula that despite the potential ramifications for services, many in the sector are unclear about what exactly is happening.

The change in the funding landscape stems from alterations to the personal social services (PSS) formula, the main distribution method of social services funding that comes via the general grant. The formula’s criteria were changed in 2006, bringing in a heavier weighting for the number of people claiming disability living allowance. And this, claims Nick Stanton, leader of Southwark Council, would penalise areas where there are more people with complex needs. “For some reason in London there isn’t a very high take-up of DLA, and that has hit us very badly,” he says.

“We’ve just set a three-year budget, and we’ve had to take out about 10% of it.”

Damage limitation

The cut in Southwark is, in fact, not as bad as it could have been. When the formula was first adjusted in 2006, the results of these changes would have been so dramatic – cutting many budgets by almost half – that ministers brought in a “damping effect” to mitigate some of the changes.

However, following much public wrangling between London Councils and a group representing northern councils – the main beneficiaries of the change – ministers removed the damping earlier this year, meaning the modified formula’s will now begin to be felt.

The result is a much flatter distribution of funding, and the only guarantee of an increase for many councils are the grant floors, which provide a minimum increase every year. Without these floors, London would be receiving just 15.5% of England’s total expenditure on vulnerable adults (this adjustment means London gets 17.5%, to cater for 20% of England’s vulnerable adult needs). But the increase that the floors provide is being reduced year on year.

The effects being felt by the changes are leading to widely differing responses by councils. Kensington and Chelsea says it hasn’t been affected at all and Hackney Council says that any cuts in their services can be avoided by efficiency savings. By contrast, Southwark will be cutting £6m from frontline services.

Eligibility criteria

Stanton says: “To cope with funding over the next three years, we’ve got to look again at our eligibility criteria. At the moment we’re providing moderate care, but we’re consulting on restricting down to critical or substantial. We’re putting up meals on wheels charges by 45%, we’ve shut a day care centre for people with learning disabilities, and had to close the children’s museum. It was not a good budget round.

“This time we were able to cushion the cuts with one-off efficiency savings, as we have consolidated our accommodation. But in three years’ time, if this formula carries on being used, we won’t have that.”

So how have these changes come about? Jo Mennell, head of local government finance at London Councils, says the PSS formula is far too simplistic. “This is the lowest possible common denominator formula. If you have got quite a lot of high profile clients and don’t have a formula that identifies that, it suggests that everyone has fairly even distribution of need.”

She adds that people in London are less likely to claim DLA than people in former industrial areas, and as the DLA now accounts for 40% of the weighting for the PSS budget, the results have been harsh on the most deprived boroughs.

Westminster Council says that it won’t change its eligibility criteria for now, but that future initiatives and services may suffer. Edward Argar, the Westminster councillor with responsibility for adult social services, says: “Westminster has an attraction for people with very complex needs – the bright lights and the anonymity of being in a big city attracts people, often substance abusers, the homeless, or those with mental health problems. Vulnerable people will turn up and we can’t predict that scale of demand. The funding formula for 2006-7 doesn’t reflect those people. And they are the ones that cost a lot more.”

Poor survey

Stanton says that the survey to measure need was so poor that other areas haven’t been allocated funding accurately either. “The difference between what the formula thinks we need to spend on these services and what we actually spend on these services is huge. The big one for us is physical disability, where we’re spending something like £5-9m over the odds. Either we’re running the services really badly, or the formula is completely out of kilter with reality.”

In contrast to much of the south, northern areas are broadly doing well from the formula changes. While nearly half of councils in Yorkshire are able to provide services to clients with low or moderate needs, three-quarters of London councils only offer services to those with critical or substantial. Despite this existing disparity, there are still sizeable increases being given to councils in Humberside and Hull.

But the pain for London social services doesn’t end there. The funding formula for children’s services also changed in April 2006, resulting in £180m less a year for inner London boroughs, despite them having little or no reduction in need. London Councils says the formula is too simplistic and overlooks London’s disproportionately high number of complex cases.

Both the adults’ and children’s formulas are based on population information which fails to reflect the fact that London is growing faster than the rest of the country. And new immigrants to the country are more likely to have more complicated cases to handle, says Stanton.

“The definition of complex cases isn’t the same across the whole country: in Southwark, we’re talking about things like unaccompanied minors coming across from war-torn Africa with huge psychological disturbances. They’re very different to needs in the North.”

Can the formula be changed before decisions are made for the 2008-11 funding round? Argar says no. “We would like a conversation about the formula for the next round, but equally in the short term we would like a conversation about how they might create grants for specific problems, be it substance misuse, learning difficulties or mental health to make up the shortfall that this grant has created.

“But every indication we’ve had so far is that isn’t going to happen.”

 London Councils briefing on damping

 Community Care coverage on the changes