ITEM CA10
CABINET – 18 SEPTEMBER 2007
CONSULTATION ON FORMULA GRANT DISTRIBUTION SUPPLEMENTARY PAPER
Report by the Head of Finance & Procurement
Introduction
1. Paragraph 12 of the main paper on this topic noted that our knowledge and understanding of the details of the formula grant consultation could change. This has now happened, so this Supplementary paper has been prepared to explain the proposed changes to our response.
Figures Just Published Show Minimal Effects for Our Districts
2. Since the Cabinet paper was circulated, Communities and Local Government (CLG) have released exemplifications for all authorities of the effects of partial and complete removal of the specific formula floor damping for Children and Younger adults. Previously, CLG had not issued figures showing the effects of these changes on district councils and this raised a lot of concerns.
3. The new figures from CLG show that our five districts (and districts generally) will not be significantly affected by this possible change. Local changes are:
The underlying grant for all our five districts is over £46m, so the above changes have minimal effects.
4. Thus the concerns expressed about our districts in the ‘Any further comments’ following Question 2 (Annex 2 of the original Cabinet paper) prove to be unfounded.
5. This change reduces the amount that districts receive from the first two formula grant ‘blocks’ (which equalise needs and taxbase). However districts are then protected by increases in the third formula grant ‘block’ – the amount per head allocated to districts - which increases. This increase in the district share is due to the removal of the floors on the relative need figures for Children and Younger adults. Removing the floors lowers the minimum figures that are used in the grant calculation. Lower minimum figures for these two services reduce the county share of the amount per head.
Revised Response to Consultation
6. Thus we can reconsider our responses to Question 2 and to the related Questions 3, 4 and 5. There are three options. We could:
(a) Ask for ALL the specific formula floor damping for Children and Younger adults to be removed. This reduces our underlying grant be £0.923m as noted in the table above. This would simplify the system by removing one of the two damping systems. It would remove the longer-term threat to our formula grant that this system produces. Authorities, including ourselves, would continue to be protected from large changes in our actual grant by the overall damping system.
(b) Ask for the protection to be phased out much faster than in the past, by allowing reductions of up to 10% in relative needs (instead of the guaranteed 2.7% increase as at present). This reduces our underlying grant by £3.372m. This is a larger loss than is produced by complete removal, so this option has little to recommend it.
(c) Ask for protection to continue. In both 2006/07 and 2007/08 increases in relative need of 2.7% were guaranteed for Children and Younger adults. This policy could continue. The complications to the system would continue and this would leave us with uncertainty about when and how the protection that we get for Younger adults will ‘unwind’ in the future.
7. Ministers seem likely to make this decision by considering the broader picture. Complete removal of the damping for Children and Younger adults reduces the underlying grant for London by £418m. Metropolitan areas gain by £86m and Shire areas by £332m. Partial removal (allowing reductions of 10%) reduces underlying grant for London by £211m. Metropolitan areas gain by £90m and Shire areas by £121m.
8. On balance it seems preferable to support complete removal of damping for both Children and Younger adults. This produces a loss of £0.923m in our underlying grant, but would simplify the system and remove our uncertainty about how this issue will be resolved in future.
RECOMMENDATION
9. The Cabinet is RECOMMENDED to amend the response to the formula grant consultation set out in Annex 2 as follows:
· Question 2 – change the response of ‘Yes’ to ‘No’ (so we favour removal of the floor for Children’s services).
· Also delete the extensive comments in the following ‘Any further comments’ section
· Question 3 – change the response to ‘Immediately’.
· Question 4 – change the response of ‘Yes’ to ‘No’ (so we favour the removal of the floor for Younger adults services).
· Also retain the comments in the following ‘Any further comments’ section about the inadequacy of our relative needs share for Younger Adults. Thus keep the first and second paragraphs, apart from the last sentence of the first paragraph. Delete the third and fourth paragraphs
· Question 5 – change the response to ‘Immediately’.
SUE SCANE Head of Finance & Procurement Corporate Core
Background papers: Local Government Finance, Formula Grant Distribution, Consultation Paper, Communities and Local Government: London, July 2007
Available at: http://www.local.communities.gov.uk/finance/0809/sumcon/index.htm
Contact Officer: David Illingworth, Financial Planning Manger (01865) 815352
12 September 2007
|