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ITEM EX18

EXECUTIVE - 20 JULY 2004

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

Report by Head of Finance

1. The Council has an opportunity to comment on the government’s proposals to issue ‘Amending reports’. The Amending reports will affect the amount of Revenue Support Grant (RSG) that we are allocated for 2003/04 and later years. Any changes to our grant entitlements for 2003/04 and 2004/05 would affect the amount of grant that is actually paid to us in 2005/06. This report presents a draft response to this consultation opportunity. Our response must be sent to the Office of the Deputy Prime Minister (ODPM) by Tuesday 10 August 2004.
2. The main cause of change is likely to be revisions to the population estimates that are used in the RSG calculations.
3. We do not know what the new population estimates will be, so do not know their effects on our RSG. This makes it difficult to respond to the consultation. At worst, we believe that we might lose as much as £1m of grant for 2003/04 and 2004/05, but we really don’t know what the effects are at this stage. Our RSG figures for relevant years are currently:

• 2003/04 £147.655m
• 2004/05 £174.483m

4. Normally, the amount of RSG announced for the Council each year at the Settlement is fixed. However, there are legal powers to amend the Settlements and the government plans to use them more frequently.
5. As an example, an amending report for the financial year 2001/02 was issued at the 2003/04 Settlement. This increased the amount of RSG paid to the County Council for 2001/02 from £123,211,769 to £123,211,770. As this gave us just £1 extra, there was no cause for concern.
6. However, revisions to all the mid-year population estimates for all authorities are planned and they are likely to have a more significant effect on our RSG entitlements. The population estimates, which are produced by the Office of National Statistics (ONS), will be fed into the Formula Spending Share (FSS) calculations and so they will affect our RSG. Population estimates are now based on the results of the 2001 Census and this has proved to be controversial.
7. The 2001 Census figures were contentious because they showed large reductions in Oxfordshire’s population compared to previous estimates. The estimated population of the County was reduced from 632,113 for 2000 to only 605,892 for 2001 (a reduction of 26,221). The population estimate for 2000 has been built up, year after year, in the 9 years from the 1991 Census. We are beginning to understand and accept that at least part of the reduction in 2001 is explained by:

• the 1991 population of the County having been over-estimated, so the starting point was too high.
• growth since 1991 having been over-estimated.

8. The population estimate of 632,113 in 2000 was used to calculate our RSG for 2002/03. For 2003/04 this was replaced by the much lower 2001 figure of 605,892. Using this lower 2001 figure reduced the amount of RSG we received by around £4m from 2002/03 to 2003/04. It can therefore be argued that we were paid too much RSG in the Settlements before 2003/04.
9. A revised 2001 population estimate for Oxfordshire 607,470 was issued last year. This is 0.26% higher than the original figure of 605,892. However, as this percentage increase is lower than experienced in the rest of England, so our share of the population of England has fallen. This means that when the revised figure of 607,470 is plugged into the FSS system, our RSG will be reduced. One early estimate suggested that we would lose around £0.3m of grant in 2003/04 if this revised population figure was used. We have allowed for this £0.3m loss in the 2004/05 budget.
10. Another population estimate for Oxfordshire has been issued. This estimates the population of the County to be 607,457 in 2002. This figure has been used in calculating our RSG for 2004/05.

ONS Plans for Further Revisions to the Mid-Year Population Estimates

11. ONS are planning further revisions to the mid-year estimates. They will produce a figure for 2003 in August this year. In addition, they may use the results of studies that are underway in a number of authorities to revise the figures for 2001 and 2002. Thus a third estimate of the population of Oxfordshire in 2001 and a second estimate for 2002 may be produced in August.
12. Revising the 2001 and 2002 figures will affect the RSG figures for all authorities for 2003/04 and 2004/05. ODPM is now consulting us on how this should be done. ‘Amending reports’ would need to be issued for 2003/04 and 2004/05 to calculate the effects of these changes. As we do not know what population figures will be used, we cannot estimate what the effects on our RSG for these years will be. If there are reductions in our RSG for these years, these would reduce the amount of grant that we get paid in 2005/06, putting pressure on council tax or spending.
13. Annex A sets out all the relevant population figures for Oxfordshire and shows which RSG Settlement uses them.
14. This issue is further complicated because a series of ‘floors’ and ‘ceilings’ limit the RSG changes for authorities from year to year. Thus changing the RSG for 2003/04 affects the starting point for floors and ceilings in the following year, 2004/05. Similarly, changing the RSG in 2004/05 may affect the floors and ceilings for 2005/06 and hence the RSG for that future year.

Our Concerns about the Use of Census Data

15. We have continuing concerns about the population estimates for Oxfordshire that have been produced using information from the 2001 Census. There is some evidence that not all houses were included in the Census, notably in central Oxford. We have asked ONS to carry out more detailed work to check this, but our requests have been turned down. ONS is working in other parts of England and may apply lessons learned there to Oxfordshire. However, until we have seen the new figures due to be released in August and considered any explanations of them, our concerns about the ONS population estimates will continue.

Other Census data is used to calculate our FSS and RSG

16. Population estimates are used in the FSS system as already mentioned. Typically, population estimates are multiplied by a calculated amount of FSS per head to give our total FSS figures. As discussed, introducing the lower population estimates reduced our FSS by around £4m.
17. The Census also produced a great deal of other information about the population of Oxfordshire. This became available last summer. For example, it reveals the number of children living in households with only one adult. Data of this sort is used in the FSS system to estimate the needs of Oxfordshire relative to other areas. It is used to calculate the amounts of FSS per head that are multiplied by a population figure to give our total FSS figures.
18. Last year, ministers decided that this other Census information would not be used in calculating our 2004/05 FSS figures. We were concerned about this as just feeding this information directly into the FSS system increased our grant by around £2.4m, allowing us to recoup some of the £4m lost. We do however accept that a more sophisticated approach would be needed and this might produce a different result.
19. Thus we are in a position where some information from the Census (that disadvantages Oxfordshire) is used, whereas other information that might increase our RSG, from the very same Census forms, is not used.
20. This makes little sense. Consider a household with only one adult and several children in Oxfordshire who completed their Census form in 2001. The Government is taking note of the number of people who live in that household, but ignoring the fact that the children are living in a lone adult household. Instead, 1991 Census data about children in lone adult households, that is more than 13 years old, is used to calculate our RSG.

Our draft response to the Consultation

21. Our draft response to the Government’s consultation about the Amending reports sets out our concerns about the use of Census data. It also answers the ten specific questions asked in the consultation paper. It is often difficult to know what response is best for Oxfordshire. However we are sure that all up-to-date information about circumstances in the County should be used when calculating our RSG. We also have concerns about the plans to issue an Amending report for 2004/05 earlier than is strictly necessary. We think that when new population estimates are issued in August this year, we will need some time to consider them.
22. A draft response to the consultation follows as Annex B. It is proposed that the Leader of the Council should respond on behalf of the Council.

RECOMMENDATIONS

23. The Executive is RECOMMENDED to:

1. note the concerns set out in the report about the way that 2001 Census data is used in calculating Oxfordshire’s RSG figures;
2. note that the proposals to issue Amending reports increase the uncertainty about Oxfordshire’s RSG figure for 2005/06 and grant payments in that year;
3. endorse the principle that the Government should use all the most up-to-date 2001 Census data and not just some of it;
4. authorise the Leader of the Council to respond to the government’s consultation paper as proposed in Annex B subject, in consultation with the Head of Finance, to amendment in the light of any other technical information that becomes available before the deadline expires.

CHRIS GRAY
Head of Finance

Contact Officer David Illingworth Tel (01865) 815352

Background Papers Letter from Robert Davis of ODPM, dated 19 May 2004:

July 2004

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