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The Audit Commission has been criticised for refusing to consider levels of funding and deprivation when classifying councils in the comprehensive performance assessment.

Despite initially saying the CPA grading must take deprivation and funding levels into account, the commission's new consultation framework for single-tier and county councils makes it clear it is not planning to do so.

Following research with reference groups and pathfinders, the commission believes quality management can overcome these two issues. Its research showed there was a weak correlation between current performance and social deprivation and overall spending levels when using the "more balanced" assessment used in the CPA.

The commission argues that the funding formula is already weighted to take into account deprivation so that areas with high levels of deprivation get more money.

However, Peter Rogers, chief executive of Westminster Council, says there is a link between levels of deprivation and service performance. "In individual authorities there are changes in deprivation and changes in need. If funding levels increase in good local authorities then performance could increase, and bad authorities need the funding to make it happen," said Rogers.

The CPA model will assess performance on both the quality of current services and the council's proven capacity to improve, leading to an annual "report card".

The commission has decided to scrap its controversial CPA classification terms "high-performing", "striving", "coasting" and "failing", and replace them with either "excellent", "good", "fair", "weak" and "poor", or "excellent", "good", "fair" and "poor".

The move comes after councils expressed dissatisfaction with the original terms, but both new proposals failed to meet with the approval of Dennis Reed, director of the Local Government Information Unit. He said: "It's a step in the right direction, but broad, crude categories are the same no matter what they are called."

The consultation runs until 9 August. Submissions should be sent to cpa@audit-commission.gov.uk

Comprehensive Performance Assessment Framework for Single Tier and County Councils is available at www.audit-commission.gov.uk