High inflation and a precarious fiscal situation, exacerbated by unfunded tax cuts, mean that real-terms spending on many public services is highly likely to fall over next few years.
The Prime Minister tried to deny it for a while, but absent a sharp tumble in gas prices and rebound in economic performance, or big cuts to capital investment and benefits, it is hard to draw any other conclusion – as her new chancellor recognises.
When funding is limited it is especially important to ensure that maximum value is being squeezed from every pound. This includes ensuring funding is allocated between different parts of the country in an effective way that properly takes account of their differing needs. And, while little has been said about the ‘levelling up’ agenda by the Government since the changing of the guard, it apparently remains committed to ambitious targets for tackling geographical inequalities. With little – if any – new funding available, it therefore better make sure existing funding is aligned with those ambitions.
New Institute for Fiscal Studies research, funded by the Health Foundation, finds current systems for allocating funding across England for schools, public health, other council services and the police do not pass these tests. In many instances assessments of spending needs are years out of date, and in any case, are largely ignored for the allocation of funding between areas. And funding decisions have often worked against levelling up.
Take schools. Recent years have seen the welcome introduction of a proper formula for allocating funding for schools between areas for the first time since the early 2000s. But the specific design of the formula has effectively redistributed funding from poorer to richer areas.
For example, over the last five years, while schools with the fewest deprived pupils have seen 3-4% real-terms increases in funding per pupil, schools with the most deprived pupils have seen little change.
This comes on top of the fact that schools in poorer areas saw the biggest cuts in spending per pupil in previous years, with a 15% drop in spending per pupil for the most deprived secondary schools outside London between 2010 and 2019. It is precisely these schools that have worst educational outcomes.
We know school funding matters for outcomes. Yet funding has been redistributed away from these schools.
For public health, funding allocations for these vital services bear little resemblance to estimates of spending needs. The last time spending needs estimates were updated in the mid-2010s, some councils in inner London were receiving over 1.5 times the share of public health spending that they were estimated to need, while other councils – from relatively deprived Slough to relatively affluent Windsor & Maidenhead – were receiving up to one-third less than they were estimated to need.
There is currently no plan to address these gaps; since 2015, each council has seen the same percentage change in funding each year, taking no account of differences in population growth, let alone whether they are estimated to be relatively ‘under’ or ‘over’ funded.
The situation for general local government funding is arguably even worse. The Government has not updated its main estimates of councils’ spending needs since 2013, and they were based on even earlier data – sometimes from as far back as the 2001 census.
The 2010s saw bigger cuts in poorer areas. As a result, the most deprived tenth of councils’ share of spending on adults’ and children’s social care is estimated to be 15% and 10% below their share of needs, while richer areas’ share of spending is above their share of estimated needs.
The fair funding review was meant to help address these issues for local government.
A few months ago, I pondered in The MJ’s venerable pages whether the review would end up being ‘a damp squib’. It may not even be a squib at all, at least in the foreseeable future.
In response to questions at the Conservative Party conference, the minister for local government (and building safety, (as if the job was not already important enough), Paul Scully, suggested the implementation of the review could be pushed back until after the end of the current Spending Review period in March 2025. Given an election is due before then, and Labour is currently odds-on favourites to win, that would suggest an even longer delay. A new Government would almost certainly want to put its own stamp on the system, pushing back changes by at least another year or two.
If the Government sticks to plans set out at last year’s Spending Review, total grants to local government will be flat in cash terms for the next two years, meaning a substantial real-terms cut. This makes it even more vital that limited funds are ‘fairly’ distributed and go to those areas with particularly high and/or rising spending needs. So why delay reform? It is probably because when funding is being cut, redistributing funding to areas that are estimated to be relatively ‘underfunded’, or in need of levelling up, requires making even larger cuts to funding in other parts of the country. That is politically difficult to do.
So, it is perhaps not surprising the Government has got cold feet on local government funding reform. But alongside the issues with schools and public health funding, it means progress on levelling up health, education and wellbeing across the country is likely to be glacial, at best.
David Phillips is an associate director at the Institute for Fiscal Studies
@theifs
David Phillips and his colleagues’ report: Does funding follow need? An analysis of the geographic distribution of public spending in England is free to read at: www.ifs.org.uk
