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Sharing isn't easy. ‘I cut, you choose,' might be the time-honoured way parents use in dividing the spoils of cake. But since 1929, when formula funding made its first appearance in local government, attempts to engineer a rational distribution of funds have hit a few problems. In the week when communities secretary, Eric Pickles, invited local authorities to enter the exciting new era of business rate reform, the National Audit Office issued a timely landscape review into formula funding of local public services, which accounts for £152bn, roughly one-fifth of annual government expenditure. Allocations made by the Department of Health to 151 primary care trusts worth £85bn and the Department for Education's parcelling of £37.5bn through the dedicated schools grant dwarf the £20.5bn council funding reallocated from collection of business rates. Within this colossal spend is a massive variation in funding by area. Health funding varies from £1,298-2,268 per head. Spending per pupil varies from £4,429-8,051, while the familiar formula grant disburses £142-1,075 per capita. Health funding is the most successful of the three in directly linking funding to stated twin objectives of ensuring equal opportunity of access to health for people at equal risk while reducing avoidable health inequalities. For local government, the main objectives of reallocation have been to provide funding based on the relative needs and resources of each local authority, deliver stability and predictability and, for 2011/12, ‘damping' measures, ensuring authorities most dependent on formula grant get smaller reductions. Nevertheless, the spending watchdog concludes the DCLG has failed to set out clearly or prioritise its multiple objectives –110 and counting. Taking up the LGA's cudgels, it finds the four block model – supported by only 4% of respondents when introduced in 2005 – for distributing formula grant gives too much control to ministerial judgment In short, the link between needs, resources and funding has been made complex to the point of obscurity. The report also states the system hampers a flexible response to calculated needs, with almost one in five of all authorities receiving allocations varying by more than 10% from their needs. It has, however, been a source of southern comfort. Surrey CC has been the biggest winner, securing £739m since 2006/7 as against a £385m assessment. In proportional terms Richmond-upon-Thames has done best, receiving £161m, more than double its estimated £75m needs. Adding to inaccuracy, fault is found with Office for National Statistics population projections. When they are not backward looking, making assumptions on past growth figures, they have failed to adapt to new housing short-term patterns of migration. Reliance on census information often over a decade old for a quarter of all grant indicators also suggests this formula has reached its use-by date.

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Jonathan Werran

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