Children's social services in London could lose funding to county councils under a government shake-up of local authority finances.
Proposals to reform the funding formula for children's social care, being considered by the government, could see authorities in the capital lose up to £25m with the shires enjoying many of the gains.

The proposals, under discussion as part of a root-and-branch review of the way councils are funded from 2006-7, reflect research showing that deprivation is not as concentrated in urban areas as had been assumed.

Under one proposal, children's social services funding for Tower Hamlets Council, including both government grant and an assumed contribution from council tax, would fall by almost £25m. Westminster Council's would drop by nearly £18m, representing almost half its current funding.

While the largest monetary gain - almost £12m - would accrue to Birmingham Council, in percentage terms the biggest winners are county councils, with Somerset's 24.9 per cent increase the most significant.

Dave Hill, head of children's services at Tower Hamlets, said funding cuts would eat into preventive work which had helped the council keep the number of children in care low.

Chris Undrell, assistant director of finance at Westminster, said: "We would be opposed to anything that would shift money and resources out of London because we have significant needs and that is reflected in what we spend."

The formula is being discussed by a working group that includes council representatives and proposals are likely to go out for wider consultation in July.

Ministers are likely to make a decision on the formula in the autumn ahead of the funding settlement in November.

Mike Heiser, senior project officer at the Local Government Association, said the proposed shift in funds for children's services "suggests the pattern of distribution [of deprivation] between authorities is flatter" than previously thought.

He added: "This means authorities at the higher end of current funding lose out and those at the middle and bottom will do better, so it tends to be redistributed away from London and towards the shire counties."