Fair Funding

Local government funding is comprehensively broken

This report analyses the current funding system used to direct funding to different local authorities each year, revealing a system that is outdated, opaque and politically unsustainable.

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 data 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.

These methodological faults contribute directly to a flawed set of allocations to local authorities every year which is also 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%).

How to fix it

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.