Department for Transport,
Local Government and the Regions

Modernising Local Government Finance: A Green Paper

Part 6:
Different services and authorities

Introduction

6.1 With two important exceptions (parish councils and housing), the local government finance system has tried to adopt a standardised approach to the funding of different types of service and different types of local authority. We need to consider whether this is right. This chapter looks at how the local government finance regime treats:

Education

6.2 Education is the largest area of local government expenditure. It is also a vital national priority. Raising educational standards is the key to economic success and to tackling many social problems. For this reason, education deserves its place as a key priority at local level too. The fact that many authorities provide higher levels of funding than that indicated by education SSA alone underlines the priority which is given to it.

6.3 The Government believes that local authorities should continue to play a major role in the planning and delivery of high quality education. It does not feel that it would be appropriate for the Government to determine individual schools’ budgets from the centre. But the role of local authorities has changed significantly over recent years. Schools have been given more responsibility and have become directly accountable for their performance and the delivery of high standards of education. The Government believes there should be greater clarity about the respective roles of Government, the local authority and the school. It considers that there is a strong case for amending the finance system so that it better reflects these responsibilities.

6.4 The existing system is based on the principle that local authorities should be entirely free to determine how much they spend on education; how much within that total they delegate to schools; and how they allocate funding between schools. Local authorities are also free to determine what they spend on other educational services. The current funding system provides no direct means by which the Government can meet its manifesto commitment to increase education spending as a proportion of national income, or by which it can ensure that schools secure the funding they need to raise standards. Nor does it reflect the changes that have seen financial responsibility and accountability for delivery passed to schools. Schools are now the key unit of delivery for education, and changes to the funding system should reflect this.

6.5 Under the current system, the Government has relied on indirect pressure on local authorities and the use of increased ring-fenced funding for specific purposes, such as the literacy and numeracy strategies, to achieve its goals. These measures have achieved considerable success in terms of encouraging local authorities to pass funding through to education and promoting continuous improvement. However, if this were to be carried to its logical conclusion, with greater proportions of the budget being allocated through the Standards Fund, this would not only reduce accountability at local level but would also prescribe the budget at school level in a way which would be undesirable.

6.6 There are three key issues which the Government believes need to be addressed:

6.7 On the first issue, the Government believes that identifying separately the aggregate funding for schools at both national and local level would enable parents, teachers, heads and governors to see what level of expenditure on schools the Government has planned for each year. The Government believes that the best way forward is to assess and separately identify the resources which it believes should be devoted to schools on the one hand; and the resources required by local authorities on the other. Funding for authorities would support their direct responsibilities in education, including:

Such resources would of course be augmented by funding from, for example the Learning and Skills Council for adult education and community learning and separately from Government for the Connexions4 service. This separate identification of budgets would recognise the reality of the current roles and responsibilities in the school system.

6.8 The next issue is how to ensure that resources intended for schools reach them. There are two main options discussed in paragraphs 6.9 to 6.13.

6.9 The first option would be to ring-fence the whole of expenditure for schools through a legal requirement on local authorities to allocate the resources identified by central Government to schools. There are two ways in which such an arrangement might be implemented:

Either of these arrangements would ring-fence school budgets and require legislation. They would guarantee that schools would receive all the funding intended for them and enable schools and parents to have a clearer framework for forward planning.

6.10 But there are arguments against ring-fencing, too:

it could weaken local accountability and democracy and encourage some local authorities to give less attention to their proper responsibilities for strategic planning and quality improvement in schools;

6.11 An alternative option, which would not involve a legal duty on authorities to pass on a given level of funding, would instead be based on transparency around schools funding. Under such a system, the funding intended for schools’ delegated budgets and for other local education authority responsibilities would be separately identified by central Government as described in paragraph 6.7. Authorities would be required to give their council tax payers and schools a full account of money delivered through spending assessments and through special and specific grants both for schools and for authorities’ own service provision; with an indication of the proportions funded through national Government and locally-raised finance; and a comparison with the previous year.

6.12 Such transparency would assist in ensuring local accountability for decisions on funding taken by authorities as it would greatly improve clarity and would put pressure on local authorities to pass on in full the assessments for school budgets. The Government believes that this option would also be more likely to lead local education authorities to continue to add their own resources to the level of funding indicated by central Government.

6.13 In view of the potential difficulties set out in paragraph 6.10 associated with legal ring-fencing, the Government believes that there is a strong case for introducing a system based on transparency as set out in paragraph 6.11. However, the Government would be prepared to legislate to introduce a legal requirement on authorities to pass on funding to their schools if insufficient progress were made through a system based on transparency.

6.14 The third key issue set out in paragraph 6.6 is the need to ensure fairness, on the one hand in the distribution of aggregate resources for schools between local authorities, and on the other, in the distribution of resources between schools within authorities. Some ideas for general revenue grant distribution reform are discussed in part 3. But particularly powerful representations have been made indicating disquiet about the fairness of the distribution of grant for schools between authorities and there is a strong case for reform of the distribution of grant at this level.

6.15 Schools funding could be based on a simpler and more transparent formula. This might comprise a basic entitlement per primary or secondary school pupil, plus enhancements for schools and pupils in authorities where significant deprivation adds to education costs; and a separate enhancement for areas where schools need to pay more to recruit and retain staff. The level of these enhancements would be decided following analysis of evidence about variations in pupil characteristics, cost and achievement, rather than as in the current system by regression analysis against past expenditure. The advantages of such an approach would be greatly increased transparency compared with the existing SSA system; and a system which would be acknowledged as fairer. In introducing such changes, it would be necessary to ensure that no authorities’ schools lost in real terms, but that those who are disadvantaged by the current system were subject to levelling up to a fair amount of funding per pupil.

6.16 Under any of these options, the Government would wish to retain the mechanisms for allocating specific grants for specific purposes to help with key programmes of change such as the literacy and numeracy strategies; or to address specific deprivation or need, as with the Excellence in Cities programme.

6.17 Responsibility for allocating funds between schools should remain at local level with the authority and its schools working together. Local stakeholders best understand what variations in funding are needed: it is not possible to devise a national formula that reflects every variation in local need. But the Government intends to work with local authorities and other stakeholders to secure greater simplicity in the Fair Funding formulae and ensure that the needs of deprived pupils are properly addressed through the allocations to schools and hence to the pupils they serve.

Personal social services

6.18 Many of the same arguments apply to personal social services (PSS), local government’s second largest expenditure programme. Social services provide vital support to a wide range of people, including disadvantaged children, those with physical and learning disabilities and frail older people. Social services need to work in partnership with other agencies in order to deliver effective services. This is so not only in relation to other local government services such as housing and education but also, crucially, in relation to the NHS. Along with the NHS, social care has a high priority in the Government’s plans for reform and modernisation. It is important to note that local authorities provide more resources for social care than is indicated by PSS SSAs. However, unlike education, social services does not have a uniform model of delivery.

6.19 Nevertheless it is important that developments in local government funding arrangements keep in step with developments in the organisation of health and social care. The Government has recently published its NHS Plan which heralds ever-closer joint working between the NHS and social services. In particular, it introduces the concept of Care Trusts. The Trusts could go beyond the partnership arrangements sanctioned by the Health Act 1999, such as the pooling of resources to secure integrated service delivery. They would be able to commission and provide health and social care services for particular clients such as older people or those with mental health problems, with structures that reflect this expanded role. As with education, there would need to be sufficient transparency in the funding that supports such service delivery. The Government will be considering how a reformed local government funding system can best support the new integrated arrangements in health and social care.

Police and fire authorities

6.20 Police and most fire authorities differ from other parts of local government because they provide a single service and because they are not directly elected bodies. Policing is based on ‘tripartite governance’, which gives statutory responsibilities to chief officers, police authorities and the Government. The aim is to strike the right balance between operational autonomy and accountability to national and local politicians with a democratic mandate. Police authorities have a mix of local government and other members. The constitutions of fire authorities vary, although all consist entirely of locally elected members. Police authorities, in particular, need to work in close partnership with other local authorities to tackle crime in the community and other cross-cutting local problems. Emergency services, including the ambulance service, need to co-operate on operational issues and are, increasingly, sharing facilities and pooling expertise.

6.21 In deciding the right approach for police and fire authorities, we shall want to take account of their views as well as those of other respondents to this green paper. But we are clear that most of the aims of a good local government finance system, in paragraph 1.3, apply just as strongly to police and fire authorities as they do to other bodies. In particular, the system needs to:

6.22 Responsibility for financing policing in Wales is shared with the Welsh Assembly. We will take account of the Assembly’s views in the review.

Shire district councils

6.23 Shire district councils represent over 50 per cent of all local authorities in England, but account for less than 5 per cent of local government expenditure, excluding housing. They are smaller than ‘upper tier’ authorities, with less staff resource to devote to corporate management and planning. To the extent that it is meaningful to distinguish between national and local issues, the work of district councils tends to have a more local focus. We need to consider whether the local government finance system in general, and the grant distribution system in particular, should be tailored to meet their needs. For example, if grant distribution were to take account of plans, it would be difficult for Ministers to give personal attention to the proposals of all 238 shire district councils.

6.24 The balance between the costs and benefits of ‘safety valve’ and local PSA schemes would also be different for shire district councils. We need to consider whether plan-based grant distribution, ‘safety valves’ and local PSAs can be tailored to encourage genuine partnership working as well as to ease the workload on both district councils and on Government. We also need to consider whether separate funding formulae could be designed to take account of the particular needs and circumstances of district councils. AÊmore radical approach – and in the Government’s view, an extremely challenging one – would be for the shire district councils to design and administer the formula themselves, working within a pre-determined grant total.

Parish and town councils

6.25 There are around 8,000 town and parish councils – the ‘local councils’ – in England. Their budgets range from under £100 to over £1 million. This reflects an equally wide variation in their roles. Some play a very modest and very local role. Others have a role scarcely distinguishable from that of a district council. They also vary in terms of the strength of their democratic mandate. Some elections are fiercely contested, but there are also councils where co-option is the norm.

6.26 In general, the existing financial regime for local councils works well, and prompts few complaints from the councils themselves, from their taxpayers or their billing authorities. However, there are concerns about whether the regime gives adequate freedom to the larger councils or provides adequate protection for their taxpayers. At the other end of the spectrum, there are concerns that the audit regime for smaller councils may be too oppressive. As part of our fundamental review of the local government finance system, we wish to promote a debate about the funding of parish councils. We want to establish whether there is scope to improve their financial regime, to make it more responsive to the current needs and future aspirations of the councils and of those that use and pay for the services which they provide. In particular, we want to consider whether it is right to persevere with a single financial and audit regime covering all local councils. Annex J to this green paper looks more closely at potential reforms and invites views about them.

6.27 The future role of parish councils in contributing to effective local governance in rural communities will be considered further in the forthcoming rural white paper. Consultees may wish to consider the proposals in that paper alongside this one before responding.

Housing

6.28 The Government believes that the present arrangements should continue with local authorities accounting for expenditure on their stock in a housing revenue account (HRA), and keeping a clear separation between their HRA and their General Fund. A ‘ring-fence’ was introduced in 1990 to avoid cross-subsidy between housing and other functions of the authority, and to improve the efficiency of the housing function.

6.29 The arguments for retaining the HRA ring-fence are as strong now as they were for introducing it in 1990. Most other local authority services are funded through council tax and central government support for the benefit of all local taxpayers. However housing is provided directly to a relatively small sub-group of local taxpayers-council tenants-and funded by the rents they pay and by central government subsidy. Cross-subsidisation would be seen as inequitable to both council tenants and local taxpayers.

6.30 Furthermore, the Government's proposals to introduce resource accounting to the HRA strengthen the rationale for the ring-fence. Particularly the requirement for authorities to:

By encouraging a more efficient asset-based approach to the management of council housing, the proposed resource accounting system is consistent with Modern Local Government: In Touch with the People.

6.31 Other housing services provided by local authorities, in particular help for homeless households and grants for improvement to poor condition private sector properties occupied by low income households, will continue to be financed through authorities general funds and supported by general revenue grant. The reform proposals in this document will have implications for the resources available to meet these types of housing expenditure.

[ Part5 ] [ Contents ] [ Part7 ]

Published 19 September 2000
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