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ITEM EX18 - ANNEX B

EXECUTIVE - 20 JULY 2004

LOCAL GOVERNMENT FINANCE: CONSULTATION ON GRANT AMENDMENTS FOR 2003/04 AND 2004/05

Draft response to consultation on the Amending Reports

To:

Ms Arvind Thandi
Zone 5/F5
Office of the Deputy Prime Minister
Eland House
Bressenden Place
London
SW1E 5DU

Dear Ms Thandi,

AMENDING REPORTS FOR THE 2003/04 AND 2004/05 GOVERNMENT FINANCE SETTLEMENTS

Thank you for the opportunity to comment on the proposals for including 2001 Census data in the Settlements for 2003/04 and 2004/05. Census data is central to the calculation of Formula Spending Shares, so it is inevitable that any changes to it are likely to have far-reaching and sometimes unexpected effects on our Formula Spending Share (FSS) and grant.

We are concerned that no exemplifications of the likely effects of change have been provided. This means that we cannot be sure that what we say is not detrimental to our position. Estimates would give us some idea about the likely scale of changes and allow us to plan for them. Thus this response assumes that any change does not have a serious detrimental effect on our grant payments. We reserve the right to comment further if there are serious effects.

Before answering your specific questions it will be helpful to set out our general position on the use of 2001 Census data in the grant calculations. In summary:

  • Population estimates for 2001 were derived from the 2001 Census data. They showed that fewer people were living in Oxfordshire than ONS had previously estimated. When the 2001 population estimates were introduced into the grant calculations for 2003/04, they caused a reduction in the amount of grant that we were paid. We do not have a reliable estimate of the loss due to the complexity of the system, but consider that we lost around £4million.

  • Similarly, the population estimates for 2002 have been used in the 2004/05 grant calculations and will have led to a similar reduction.

  • We were of course, concerned about this loss. We considered that we had to accept it, as we had no means of proving that the Census figures were inaccurate. Recently though, we have been able to compare the numbers of addresses recorded by the Census and in local council tax records. This suggests that many addresses in central Oxford may have been missed by the 2001 Census. We have contacted ONS about this issue but their response is dismissive. Our perception is that having sorted out problems in one or two areas (notably Manchester), ONS do not seem to be giving problems in other parts of the country a very high priority. They say that the results of work in other areas will be applied across the country but we have yet to see and be convinced about the results of this.

  • Other data from the Census became available last summer. This includes counts of the number of children living in households with only one adult for example. This information comes from exactly the same Census forms as those used to make the population estimates. Feeding this other Census data directly into the existing formulae increase our grant by around £2.4m. We do however understand that this raises some technical issues and that the formulae used to distribute grant might have to be changed to reflect the new 2001 Census data.

  • We were then dismayed to find that Ministers had decided that the late availability of the second set of Census data had supposedly ‘restricted the options for using it’, so it was not used in the 2004/05 Settlement.

  • You now tell us that ONS intend to announce the results of work on the population estimates for nine authorities (not including Oxford or any part of Oxfordshire) in August 2004. This work may lead to further retrospective changes to population estimates for all authorities for both 2001 and 2002. This would mean that the grant calculations for 2003/04 and 2004/05 were inaccurate – though we have no idea whether the differences are likely to be gains or losses, or large or small.

  • We also note that, given the amount of work that needs to be done, there will be very little time between the planned August announcement of yet another set of population figures and the provisional Settlement. This would give you (and ourselves) little time to consider the new figures that ONS plan to produce.

Thus we have continuing concerns about the accuracy of the 2001 Census population data, particularly in Oxford City but also for Cherwell and the rest of the County. We are very concerned that counts of the total population that reduced our grant has been included very quickly and may be applied retrospectively. In contrast there is delay in using other 2001 Census data that might increase our grant (or rather, recoup some of our losses). All this data comes from the same 2001 Census forms.

In circumstances such as these, we consider that it is reasonable to open previous Settlements for 2003/04 and 2004/05 and recalculate grants. If this is done, it should be done as fairly, accurately, reasonably and completely as possible. If large losses result for authorities, we consider that the government should meet these costs. It is bad enough having to wait until January each year before being told what our grants will be – it is unacceptable to find, years later, that they were ‘too high’ and that you are going to enforce an unspecified and possibly large repayment .

You really should take this opportunity to include all the effects of the 2001 Census data. This will mean that formulae used to distribute grant will need to be considered. We consider that if possible these changes should be made on technical grounds, taking into consideration ministers existing decisions about the formulae. Thus for example, if ministers have already decided that local needs are linked to the number of children living in households with only one adult, then the formulae should continue to do this unless there are overwhelming technical reasons not to. If any further decisions must be made by ministers, these should be more limited than they are during a full-scale review. Ministers have already expressed their views about these Settlements and we would expect them not to change them more than absolutely necessary. You should apply their existing decisions consistently. We certainly do not think that this should be an opportunity for a full-scale review of formulae for 2003/04 and 2004/05.

You say that only one amending report can be issued for each year and that the amending report for 2003/04 must be made by 31 March 2005. This gives us a deadline, effectively in a few months time, for establishing if Oxford or Cherwell’s population figure needs to be revised. The new ONS figures will not emerge until August, so we will have very little time to consider them. We are not happy about this. Our concerns about population are unlikely to be reflected in any 2003/04 grant calculations, whereas concerns for other parts of England have been hastily addressed.

Similarly, the deadline for the amending report for 2004/05 will be 31 March 2006. You propose that it should be issued a year earlier. We consider that this is unfair. To give us a reasonable opportunity to sort out the concerns about Oxford’s population figure, we think that you should delay the 2004/05 amending report until as late as possible. We are still likely to be ‘in dispute’ about the basic population data next year and would not want 2004/05 to have been closed down earlier than it has to be.

Turning now to your specific questions:

Question 1: Which of the three options for changing the FSS formulae to take account of revised population estimates would you prefer to be implemented?

Option 3 (change the judgmental FSS formulae used for the 2003/04 settlement, as well as those depending on regressions) is the most technically correct approach and we would support this. However we consider that any ministerial discretion should be constrained and should:

    • Be less than during a full-scale formula review,

    • Respect their existing decisions for that year,

    • Only make minimal changes, and

    • Should not choose options that radically alter the distribution formulae.

Question 2: Do you have any comments on the proposed data corrections to be included in the Amending Reports?

We think it is reasonable to correct other known data errors, given that there is this opportunity to do so.

Question 3: Do you have any comments on the ODPM's proposal not to use the 2001 Census data for the Amending Reports?

We consider that you should use other 2001 Census data in the Amending Reports. We do not think that it is fair, reasonable or accurate to use some information that is derived from the 2001 Census forms (that is, the population estimates) but not other information (for example the numbers of children living in households with one adult).

The 2004/05 FSS calculations are an odd mixture of 1991 and 2001 Census data. For example the EPCS calculation is based on a total population derived from the 2001 Census, but also uses data about in-commuters and residents country of birth from the 1991 Census. Worse than that, a ‘Population density’ indicator is used in the EPCS formulae which combines small area data from the 1991 Census with a population estimate derived from the 2001 Census. This makes no sense at all.

You should take this opportunity to use all the 2001 Census data. You surely cannot justify feeding in minor changes to population data based on the 2001 Census whilst ignoring whole swathes of other data from the same Census?

Question 4: Do you have any comments on the ODPM's proposal not to revisit the population data used for 2002/03 grants used in the base position for floors and ceilings in 2003/04?

Revisiting 2002/03 as well seems a step too far so we are content with your proposal not to do this. In theory, you could go back through ten or more Settlements, introducing revised population data and calculating changes, but we do not think this is appropriate or necessary.

Question 5: Do you have any comments on the ODPM's proposal to change shares of ANCT to better reflect the increase in FSS, if necessary?

Any changes should minimise the effects on grant and respect the intentions of ministers when they agreed these Settlements.

We would expect ministers’ discretion to be more restricted on this issue than it normally is. Amending reports should not become a general opportunity to retrospectively change every grant figure.

Question 6: Do you have any comments on the ODPM’s proposal to revisit the floors and ceilings arrangements to reflect the changes in distribution, if necessary?

Floors and ceilings should remain as they are. If it becomes practically impossible to re-apply them, the government should fund the costs of keeping them in place and honour this commitment.

We do not think that 2004/05 should be amended until the last possible moment (ie 2006), to give us time to resolve our differences with ONS as explained earlier.

Question 7: Do you have any comments on the ODPM’s proposal that the passporting guarantee continues to reflect the increase in Schools FSS as announced in the 2004/05 settlement?

Passporting undermines local democracy and decision-making. However the Government persists with this requirement, so when 2004/05 is amended, these arrangements should continue.

We assume that no authority will be retrospectively required to increase the amount that it has passported to schools?

Question 8: Do you have any comments on the ODPM's proposal to issue the 2004/05 Amending Report at the time of the 2005/06 settlement?

We consider that you should not issue the 2004/05 Amending Report at the 2005/06 Settlement (presumably this will be in January 2005). This is an unnecessarily hasty move. You should wait until the 2006/07 Settlement. The 2004/05 Amending Report does not need to be issued until 31 March 2006. The extra year will give us more time to sort out problems with the population estimate for Oxford. As you mention, other reasonable concerns about data will emerge during this time. We do not see why our concerns about data should be ignored when others are to be hastily addressed.

As you say, one consequence of this is that you will also have to issue an Amending Report for the 2005/06 Settlement.

Question 9: Do you consider that reductions in grant resultant from the Amending Reports should be taken into account in the 2005/06 floors and ceilings?

The elaborate arrangements for floors and ceilings mean that the grant paid to each authority can be directly linked to what that authority was paid in the previous financial year. Problems arise when the figures for previous financial years are changed by Amending reports as this has knock-on effects on subsequent years.

We do not think that you should close down consideration of the 2004/05 Settlement until after the 2005/06 Settlement. Thus you will not be able to use revised grant figures for 2004/05 to amend the 2005/06 Settlement.

Our preference would be that retrospective grant losses should not be passed on to the authorities affected, especially if they turn out to be substantial. Authorities have set their budgets and taxrates for years up to and including 2004/05 on the understanding that they would be paid at least the amounts specified in the Settlements, and these promises should be honoured.

If you insist on passing losses on to authorities, it would be reasonable to allow for this when setting the 2005/06 floors.

We have never been happy with the consequences of ceilings and consider that if ministers wish to have floors, they should find the money to pay for them without imposing ceilings. Ministers promise minimum increases to one set of authorities when in reality all the other authorities are paying for them.

Question 10: Which option for the calculation of floors and ceilings for 2005/06 would you prefer to be implemented?

These calculations will be complicated by the introduction of separate fire authorities in 2004/05. A grant loss or gain due to an Amending report for 2003/04 will have to be divided between the new fire authority and other authorities for that area. Oxfordshire could only be affected indirectly, as we have our own Fire Authority.

All your options pre-suppose that you could close down consideration of the 2003/04 and 2004/05 Settlements and then consider 2005/06. This allows increases or decreases in grant arising from reconsidering 2003/04 and 2004/05 to affect 2005/06 through the floor and ceiling arrangements.

We do not think that you should close down consideration of the 2004/05 Settlement until after the 2005/06 Settlement. Thus we do not support any of your options. Under our proposals, you would only be able to close down 2003/04, early next year. Consideration of 2004/05, and its possible effects on grant in 2005/06 would have to wait another year.

To conclude, if you re-open past Settlements, we want this to be done fairly and to address all issues. At present you seem to be suggesting that you can take account of what the 2001 Census data tells us about the numbers of people living in Oxfordshire and amendments for some other areas, all of which lead to us losing. You plan to ignore our unease and concerns about the population figure for Oxfordshire. You also plan to ignore all the other characteristics of the population that the 2001 Census clearly revealed. You suggest moving in haste to shut down the figures for 2004/05. This would prevent our concerns being addressed. We do not think that your proposals are fair or reasonable. We suggest a slower and more measured approach that will take account of all the 2001 Census data and our concerns.

Keith Mitchell
Leader

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