news analysis of new local government cash distribution system

For some, last week’s deadline for responses to the Office of
the Deputy Prime Minister’s proposals for the future of local
government finance came and went without so much as the blink of an
eye. For others, it was a race against time – the last chance to
get the government to change what many have called its
“ill-conceived” plans.

There are winners and losers under the formula spending share
(FSS), just as there were under the standard spending assessment,
the system it is due to replace in April. Following its publication
in December, the press branded it as a mechanism to move resources
from local authorities in the south east to those further
north.

Although an annual average of 6 per cent more money is being put
into social services for the next three years, under FSS 27
councils will have their local budget increases pegged to the 3.5
per cent minimum. Only 38 councils will get the 8 per cent maximum
rise, and the rest will be somewhere in between.

Despite government denials, the regional breakdowns of these
figures support the claim that money is moving north. London
boroughs and the south east will receive a 5.4 per cent and 4.5 per
cent average increase in funding respectively, while those in the
Midlands and north west will receive 7.1 and 6.6 per cent.

While the stir caused by the budget rises in the so-called winning
councils seems largely underwhelming, the reaction of London
councils has been far more urgent. Overall, the social services and
education budget for England is to increase by 6.2 per cent next
year, but London’s share of social services funding will drop by
£89m from April according to the Association of London
Government, with nine of the 10 losers being in the capital.

It points out that London already has five of the most deprived
authorities in England, two-thirds of the country’s most deprived
local authority estates, and supports 56,000 homeless
households.

“Londoners will be the losers from this very inadequate
settlement,” says ALG chairperson Robin Wales. “Boroughs will now
be forced to decide between cutbacks or increasing council taxes to
provide the services their residents need to deliver on the
commitments of the government.”

The London Borough of Westminster faces a reduction in its 2003-4
social services budget of around £18m or 24 per cent compared
with 2002-3 on a like for like basis (once inflation has been taken
into account) largely due to what it calls “flawed” information
from the 2001 census which showed that its population had
significantly dropped.

“Any reduction in funding of this magnitude will put the poor and
disadvantaged at risk and would seriously damage our ability to
deliver effective care to the large number of vulnerable children
and adults who are drawn to Westminster because of its location at
the heart of the capital,” its submission to the consultation
states.

The personal social services element of the FSS has built-in
indicators that are supposed to reflect the needs of the population
in children’s, younger adults’ and older people’s services.

The allocation for children’s services is based on a figure of
£92.71 per child with a number of additional top-up grants to
reflect the deprivation of an area, its population density and type
of accommodation, the number of children who have long-term
illnesses, and the number of single parents and families claiming
income support. There is also extra money for areas with large
numbers of looked-after children in foster care, calculated on
social class and country of birth factors.

However, Westminster council believes that looking at the
demographics of a council area in isolation can skew the larger
picture because of the large numbers of inter-borough foster
placements in London and the high costs in London associated with
the use of independent foster care agencies for hard-to-place
children. It also criticises the absence of an ethnicity
indicator.

In designing the younger adult block of the grant, the government
appears to have chosen simplification over complexity. Deprivation
indicators, for example, have been cut from 12 to three and there
is no recognition of mental health needs.

Westminster council argues that the formula should include an
adjustment to take into account the needs of the large number of
rough sleepers, a group with large levels of mental health and
substance abuse problems.

The London Borough of Kensington and Chelsea says in its response:
“It is perverse to have implemented… a formula that shifts
resources away from London largely on the basis that it is
simpler.”

It calculates it will lose more than £5m from its social
services budget because of the changes. “Lack of research
underpinning the changes and failure to demonstrate their
statistical robustness and transparency are key concerns,” it
adds.

The older person’s part of the social services allocation has
merged the existing domiciliary and residential care sections,
something welcomed by many London councils. The deprivation
indicators used in this section have remained the same with greater
emphasis given to scarcity issues.

But the County Council Network believes the FSS has moved money
from older people’s services to children’s services, a move it
believes is worrying at a time when the government is about to
introduce the controversial delayed discharge fines.

“It will mean fewer resources for local authorities. And less money
will be passed on to private sector care homes at a time when homes
are increasing charges in an attempt to stay in business. The end
result will be more delayed discharges, which is in direct
contradiction to government policy,” the network states.

Surrey council says it is facing a £23m shortfall from the
move to FSS, with children’s and older people’ s care budgets most
severely hit. Like other low-spending councils, it has suffered
because its grant has been allocated based on historical spending
patterns as opposed to the amount of grant it receives.

“The new system is meant to better reflect the actual spending
levels of councils so that local authorities that spend more get
more, but we are being penalised because we keep within our
budget,” explains David Munro, executive member for adults and
community care.

Surrey has received a 4.6 per cent increase overall – around
£4m – but Munro says that will only just cover the rise in
public sector pay and will mean a council tax rise of 15 to 20 per
cent to meet service demand.

Norfolk Council says it too will need to find £50m, or nearly
10 per cent of its budget, to meet its spending plans for next
year, with social services expecting an overspend of £2m this
year alone.

Council leader Alison King, who chairs the Local Government
Association social affairs committee, says she is disappointed that
the settlement has no mention of mental health factors and has
asked the Office of the Deputy Prime Minister to review its
methodology.

David Behan, president of the Association of Directors of Social
Services, says there are many positive things about the new system
but admits some social services departments will be under “immense
budgetary pressures that could lead to service cuts”.

The LGA believes the situation will be exacerbated by government
promises on education that will force cuts in other services. The
Education Act 2002 gives the education secretary reserve powers to
force councils to spend a certain amount of its budget on
schools.

“Nearly half of the average local authority’s budget is allocated
to education, with social services being the second largest block,”
says a member of the LGA’s finance team.

“This means that a council pegged to the floor and being pushed to
increase education spending faces a difficult choice to restrict
spending in other areas or increase council tax.

“Invariably the biggest loser in that situation will be social
services.”

More on local government finance at www.local.odpm.gov.uk/