Grants to local authorities are targeted on deprivation, missing parts of the country that might be more affluent overall, but have some of the lowest levels of social mobility. Inner-city boroughs are the winners while smaller towns and rural areas are missing out. There is a “social mobility penalty”: after taking deprivation into account, an area in the top decile for social mobility receives 50% more in Whitehall grants than an area in the bottom decile.
The Settlement Funding Assessment (SFA) is one of the largest sources of funding from central government for local authorities, making up over a quarter of their budgets. It is calculated using the Relative Needs Formulas (RNF) which is primarily a measure of deprivation. The SFA uses data from 2013/14 and the formula has not changed since 2006/7, meaning that it has been almost two decades since the formulas used to allocate funding to local authorities were overhauled.
The current funding model explicitly targets funds towards areas with higher deprivation. This is an important measure, as these areas have high levels of need and their services may be more expensive to provide. But basing grants on any single measure can ignore the broader picture.
Mostly, high deprivation and low social mobility align:
But some local authorities with low levels of deprivation face entrenched low social mobility while areas with high deprivation are extremely socially mobile:
This disparity is driven by outcomes for the poorest children and young people. Indicators used to measure opportunity by the Social Mobility Commission focus on the performance of vulnerable groups, such as children on free school meals. On these measures, inner-city areas often perform well despite their overall levels of deprivation, while smaller towns and rural areas often perform more poorly. These are precisely the problems where council spending can make a difference, supporting vulnerable children and families through local services.
Yet overall, high social mobility areas are receiving up to £173 more funding per household compared to households in the least socially mobile areas. After controlling for deprivation targeting, this rises to £245.
Government funding for councils should instead target social mobility alongside deprivation. We have calculated two alternative funding arrangements:
The places that receive the largest allocations under the Balanced Model are still on average the most deprived places. Of the 10 authorities receiving the most funding, three are in the top five for deprivation and seven are in the top 25. This is driven by the fact that many deprived areas are also low social mobility: the most deprived area (Blackpool) is also the eighth least socially mobile and so its allocation changes by only £1 per household between the current system and the Balanced Model.
Where social mobility and deprivation do not align, however, there are greater differences under the Balanced Model. The largest increase is in Newark & Sherwood where the per household allocation increases from £27 to £49. Newark & Sherwood has average levels of deprivation (a rank of 142) and so received no particular advantage under the current model, but using the Balanced Model the fact that it is the least socially mobile area was also taken into account leaving it with the 13th highest allocation.
Any government looking to promote social mobility as well as tackle deprivation should consider the implications of this analysis. It has been almost two decades since the formulas used to allocate funding to local authorities were overhauled. It is time to look again.
Alun Francis, Chair of the Social Mobility Commission, said:
“The Social Mobility Commission is very interested in the geographical spread of opportunity across the country. This report contributes positively to this debate and has developed some credible and interesting proposals… It is certainly worth serious consideration from policy makers.”
The Social Mobility Penalty was produced as part of our Levelling Up research programme.
Our work on the UK’s regional disparities has been the engine behind the levelling up agenda. This programme focuses on bridging the UK’s longstanding spatial inequalities and bringing economic opportunity to places which have lagged behind for too long. You can read more of our Levelling Up research here.
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