Council funding is formula for disaster, say Ministers

To prevent big spikes or dips in the money awarded to local authorities under the formula grant the Government prioritises stability over need, according to MPs.

That means one in five authorities receive funding that is more than 10 per cent higher or lower than they should, they claim.

The Public Accounts Committee found Wokingham in Berkshire received double the cash it should while other councils were awarded well below what they needed.

MPs also reported that basing education allocations on spending patterns dating back to the 1980s meant the money being awarded to similar schools can vary by as much as 40 per cent.

The committee was examining the way three grants – the Primary Care Trust allocation, the dedicated schools grant and the formula grant – are allocated.

They fund health, education, local government, police and fire and rescue services and account for one-fifth – £152 billion – of all Government spending.

Some of the cash awarded is made on the basis of out of date information, including the 2001 Census, the report found.

All the formulas are under review, providing the “perfect opportunity to address the weaknesses”, MPs said.

Margaret Hodge, who chairs the committee, said: “It is essential that this money is distributed fairly, consistently and transparently, but we found that this is not always the case.

“There are a lot of things wrong with the formulae that have led to very unfair allocations which have failed to meet local needs. Under the formula grant, the actual needs of local authorities are assessed but, because priority is given to stability of funding, 20 per cent of the authorities receive funding more than 10 per cent higher or lower than they need.

“It cannot be right at a time of budget cuts that this results in Wokingham receiving double the funding it actually needs, while many other local authorities, such as Dorset County Council, get much less than they require.”

Local government minister Bob Neill said: “The local government is confusing, arbitrary, complex, fails to support growth and is widely seen as unfair.

“Councils routinely have had to talk up circumstances that downplay their locality to get more money from Whitehall rather than talk up their opportunities for growth and success.

“The system has weakened local accountability, given councils no reason to promote economic growth, and meant local funding was dictated by bureaucratic formula not local need.

“By letting councils keep the products of enterprise, we will end their demoralising dependence on Government handouts, finally start rewarding economic growth and support local firms and new jobs.”