New Onward research: Fair Funding

2021-09-14T16:00:42+00:00 September 14th, 2021|Levelling Up, Onward, Research|

Today we publish Fair Funding, authored by Chris Tambini. The report analyses the current formula used to direct funding to local authorities and reveals a system that is outdated and poorly related to the demand experienced by some places.

Read the research

The research reveals that the current formula not only relies on 1991 property values but also:

  • Traffic flow data based on flows observed in 2009 to 2011.
  • Child tax credit information based on amounts received between 2008 and 2011.
  • Unemployment data based on claimant numbers between 2009 and 2012
  • Highways relating to the “number of days with snow lying” and “predicted number of gritting days” based on averages between 1978-1990 and 1991-2002 respectively.
  • Census data from 2001 relating to country of birth, population density, and inflow/outflow of people working but not resident.

This formula results in the core spending power of local authorities being highly regressive, benefiting more prosperous regions and adding disproportionate cost in poorer regions. 

For example, average council tax per head in London is the lowest in England (£481), despite house prices being much higher in the capital than elsewhere. London per capita rates are a fifth lower than in much poorer regions such as the East of England (£593) and South West (£620). Council tax as a share of disposable income (GDHI) in London (1.64%) is the lowest in the UK, just over half that of Yorkshire and the Humber (3.06%) and the North East (2.91%).

The Government has committed to a fundamental review of local government funding but this has been repeatedly delayed by the pandemic. Even in the absence of wholesale change, the report argues for the Government to introduce a funding floor, as recently introduced for school funding, to quickly bring the least well-resourced local authorities up to a respectable level.

If a funding floor were set at 90% of the average core spending power of local authorities, the estimated costs would be around £300 million a year, with around 30 poorer local authorities mainly based in the Midlands and the North of England benefiting from the change. This would mean that underfunded councils receive increases in their per capita funding, but no area would lose out. York would receive £78 extra per capita, Leicestershire an extra £63 per head and Coventry £55 per head.

Ben Bradley MP for Mansfield said:

Levelling up will only succeed if we introduce a fair system of funding for local government – so that every area can reach its potential and no place is left underfunded. But at the moment councils are being funded on the basis of property values and public service data from the 1990s. 

“As this report sets out, reform need not mean the pain of replacing the entire system. A funding floor for the most underfunded councils would cost relatively little, significantly boost spending in the Red Wall, and level the playing field with richer areas. It is vital that the Government consider this proposal.”

 

Alicia Kearns MP for Rutland and Melton said:

“The proposed funding floor immediately addresses a considerable fiscal imbalance that needs to be addressed. Leicestershire in particular will benefit from these proposed reforms, which will help authorities across the Midlands and North address pressing challenges affecting their communities and help deliver better public services.

Onward’s report provides a viable and sensible roadmap to deliver an immediate benefit for communities across Leicestershire, and I hope this report is considered closely by the Government. I am also conscious too that the broader issue of council funding, in places like Rutland, remains. This report is an excellent starting point for future reform, so that every council gets the funding they need.”

 

Will Tanner, Director of Onward, said:

As this report shows, the way we currently determine local government funding is out of date, poorly related to demand and deeply unfair to some places. The Government has rightly said they will grasp the nettle of reform but time is ticking and the problem is getting worse. This report sets out a simple way for the most underfunded local authorities to be offered a safety net while the Government develops its favoured long term approach. I hope ministers take note.”

 

Chris Tambini is Director of Corporate Resources and Finance at Leicestershire County Council.

For media enquiries please contact Will Tanner.