Public service funding allocations inequitable and complex, say MPs

A report by the Public Accounts Committee concluded that three formula-based grants used to fund sectors including health, education, local government and police, fire and rescue services were "complex, difficult to understand and have led to inequitable allocations".

Prioritising funding stability had resulted in one in five authorities receiving amounts more than 10% higher or lower than their actual needs, the Committee said.

The report considered Primary Care Trust allocations, administered by the Department of Health (DoH); the Dedicated Schools Grant, administered by the Department for Education (DFE); and the Formula Grant distributed by the Department for Communities and Local Government (DCLG). These three grants accounted for over £150 billion in total Government spending in 2011-12, the committee said.

Margaret Hodge, chair of the committee, said that this money was not always distributed "fairly, consistently and transparently".

"There are a lot of things wrong with the formulae that have led to very unfair allocations which have failed to meet local needs. For example, the Dedicated Schools Grant is based not on current need but on historical spending patterns, with the result that similar schools can vary in the amount of funding they receive per pupil by as much as 40%," she said.

Hodge said that although the DCLG assessed the actual needs of local authorities when allocating its Formula Grant, as priority is given to keeping funding levels stable one in five authorities ended up receiving funding that was more than 10% higher or lower than their actual needs.

"It cannot be right at a time of budget cuts that this results in Wokingham receiving double the funding it actually needs while many other local authorities, such as Dorset County Council, get much less than they require," she said.

In some cases the basis for awarding funding was guided by authoritative, published independent advice, the report said. However, it found that in other cases funding judgements "lacked transparency" while external advice lacked "status and influence".

"The highly complex four-block model that has been used to distribute Formula Grant since 2006-07 is one example... it is highly complex and not sufficiently transparent, making it virtually impossible to follow the link between calculated service needs and funding allocations," the report said.

It added that only 4% of respondents to a recent DCLG consultation on its funding model supported the current system, with the majority suggesting there was too much scope for ministerial judgement.

"The departments are transparent about the consultation and calculation of the various elements of their funding models. However, the basis of judgements that have significant effects on allocations is not explained in the same way. The departments told us that where judgement was required, it was appropriate that this should ultimately depend on the decisions of Ministers," the report said.

In addition, the report found that some of the data used by departments in calculating relative need was out of date by as much as ten years. Population figures used to assess relative need were in some cases based on 2001 census data. "Departments seemed to accept the 'best available' data, rather than collecting more timely and accurate data," the report said.

Hodge pointed out that the three approaches to formula funding considered by the committee were currently under review.

"This is the perfect opportunity to address the weaknesses this Committee has identified, and we will examine closely how those government departments respond," she said.