DCLG research contributes to fair funding review

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The Communities and Local Government Committee has published independent analysis suggesting ways in which the current needs and funding assessments for councils could be made simpler

Fair Funding Review

The research is aimed at contributing to the Government’s Fair Funding Review and the work implementing 100% retention of business rates for local authorities.

The analysis suggests a method for simplifying the needs assessment formula, reducing the number of indicators used, and for simplifying the wider funding model that translates these assessed needs into funding. The research also reviews the data that is used in the calculations.

It also assesses the implications of two potential models for the on-going ‘resetting’ of the funding system in light of the introduction of 100% retention of business rates for local authorities.

Formulating a simple, transparent and fair funding system

Clive Betts MP, Chair of the Committee, said:

“Councils are currently facing an uncertain future when it comes to funding with current settlements coming to an end in 2020.

“The Secretary of State told us when he appeared before the Committee in October that the Government was committed to a review of the funding formula and the implementation of 100% retention of business rates for councils.

“We hope that Ministers will find this a useful piece of research and that it makes a valuable contribution to the debate on how best to formulate a funding system that is both simple, transparent and fair.”

Scope of the research

The research was undertaken by public sector funding and financial management specialists LG Futures.

The Committee requested research exploring:

  • A potential approach to simplifying the current needs assessment formula
  • Options for simplifying the wider funding system;
  • The timeliness of the data sources used in the current needs assessment formula;
  • A comparison of potential approaches to the ‘reset’ – ‘fixed period’ or ‘rolling’ – of the business rates baseline.

Additional cost drivers mentioned by DCLG, are not already included as indicators in the existing Relative Needs Formula.

Homelessness does not currently have its own Relative Needs Formula, but suggested cost drivers include:

  • The number of local authority acceptances
  • Cases of prevention/relief achieved by securing a private rented sector tenancy
  • Differing rental costs across the country
  • Additional cost of housing larger families in some areas
  • High numbers of historic temporary accommodation in some areas.

DCLG’s paper also mentions the fact that benefit data might not be sufficiently robust in future formulae, given the introduction of Universal Credit. They state that another way to reflect deprivation would be to use the Index of Multiple Deprivation. This measures seven aspects of deprivation, namely: income; employment; health and disability; education, skills and training; barriers to housing and services; crime; and living environment.

Click here to read the full report.

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