DRAFT FORMULA GRANT CONSULTATION RESPONSE LONDON BOROUGH OF ISLINGTON

Transcription

1 APPENDIX A DRAFT FORMULA GRANT CONSULTATION RESPONSE Summary LONDON BOROUGH OF ISLINGTON The London Borough of Islington welcomes the opportunity to contribute to the Consultation on the proposed changes to Formula Grant Distribution. We are concerned that the consultation was incomplete when issued, even though ministers have been working on the review of formula funding for the last three years. It is also disappointing that further amendments are being made to the consultation in late September, some nine weeks into the consultation period. Under these circumstances it is perhaps not surprising that a number of the proposals appear ill thought through. In particular, we have a number of concerns in relation to the proposed formula changes to Children s and Younger Adults social services formula spending shares, which do not recognise London s needs. We are also concerned that the impact of the move to Dedicated Schools Grant has not been adequately exemplified. Islington s responses to the specific questions raised in the consultation follow: Schools Transfer Question 1: Do you think that there should be a customised damping system? The change to ring-fenced funding for the schools budget is a Government policy, and as such individual authorities and their taxpayers should not be penalised for such a change. We support a customised damping system, however with the proviso that damping should be fully funded from Central Government. We would object to a customised damping system that was funded by scaling back above-floor authorities. Question 2: Do you have comments on the Government's other proposals, to adjust the base using spend figures and to isolate police, fire and shire district authorities from the effects of the transfer? We favour adjusting the national base figure using the quantum of the Schools FSS as this would not adversely impact other FSS blocks, to whom the transfer of schools funding should remain neutral. The adjustment to an individual authority s FSS should not be on the basis of an individual authority s Schools FSS, but aligned to budgeted base spend. This would achieve the preferred position of no losers from the new system, particularly where authorities, such as Islington, are spending significantly under Schools FSS. It would be entirely inequitable if we got only the prescribed minimum increase in DSG to schools, but had the full amount of Schools FSS taken out of our overall formula grant allocation. This would have severe implications for the funding of our remaining non-schools services, and would be hard to contain within Government council tax capping limits.

2 If shire districts are to be protected then district services in areas with single tier authorities, particularly London boroughs, should also be protected. It should be noted that the requirement to passport has affected funding available for non-schools services over recent years. It would be inequitable that these services should continue to be adversely affected for single tier authorities only. New Grant System Question 3: Whether we should use the proposed alternative grant system? Without much more work it is not possible to say if an alternative system would be better. No details have been provided about how the new system would actually be implemented. There is no indication as to the added value of a new grants system, either in terms of process or service outcomes. The proposals are not clear on how relative needs are determined. Currently, this is done at sub-block level through service specific indicators (such as deprivation measures, the Area Cost Adjustment, etc), but given the apparent inadequacies of the recent research into the Personal Social Services (PSS) formulae, we would need to be satisfied that the distributional element is sufficiently robust. This is not yet the case. In addition, we are opposed in principle to the sizing of the resources and relative needs block being determined by ministerial judgement. This should be based on evidence only. Education LEA Block Question 4: Do you think we should remove the element for Further Education residual pensions? We support the continued use of further education residual pension expenditure data in the Formula Spending Share (FSS) formula. The consultation paper cites the reason for removing the element for further education residual pensions as being that the section 52 budget returns show an increase in planned expenditure on this, and this might indicate that some manipulation is occurring. However, a more reasonable explanation could be the effect of considerable pension fund deficits across authorities. Question 5: Do you think the LEA damping block should be removed? We support the principle of removing LEA damping. Damping should only be used where it is to get to a finite position (i.e. where the damping ends) and where it is mitigating significant distributional impacts. Personal Social Services Question 6: Do you agree with the Government's proposal to implement option SSC1? If not, what alternative would you propose? No, we strongly oppose this proposal. Any new formula would need to better target levels of need. Until a technically robust alternative is developed that recognises the

3 level of need, particularly in London, we favour no change to the Children s PSS FSS formula. We have a number of concerns with this option, in particular that the Children in Need data only uses a single week so it is not easy to see how this represents a reliable source of information. In addition, removing the Children in Flats has removed a good implicit indicator for density. There is no obvious replacement for this indicator in the proposed formula. Added to this, the weighting for density has reduced from approximately 3% nationally to around 0.3%, with no obvious explanation as to why. Finally, there is an increase in the amount being distributed by income support/dwp data. This had a number of problems in terms of robustness and reliability during the last settlement, so to increase reliance on it is not sensible. Question 7: Which option for updating the Foster Cost Adjustment do you prefer? We favour SSC3 on the basis that the variables cover a wider range of indicators. Question 8: Do you think that there should be specific floors with either ceilings or scaling factors on the Children s Social Services FSS to limit the extent of the changes? We favour the implementation of robust FSS formulae which, ideally, should therefore not need to be damped. However, there is a need to damp FSS where a reasonable formula cannot be determined and where turbulence created by the formula change is significant. Damping does, however, mask the underlying problem of an inappropriate formula. Clearly, Social Services specific grants distributed on the basis of FSS will also need to be distributed on the basis of any damped FSS. Question 9: Which needs formula option do you prefer SSE1 or SSE2? We favour SSE2 on the basis that it uses a larger sample size, and is therefore more representative of the costs and level of older people services provided within the borough. Question 10: Do you agree with the proposal to revise the Low Income Adjustment to include 2001 Census data? We do not support this proposal. It is not appropriate to rely on a single indicator that results in such a high level of turbulence. As a general rule, we cannot see the logic in having separate elements of the formula in SSE3-5. If one of the drivers for an effective formula grant system is for more transparency and simplicity, then we should be looking to bring these factors into the main part of the Elderly formula, with a basic amount plus top-ups. Further work in this area would be supported.

4 Question 11: Which method of distributing the sparsity top up do you prefer? We welcome the move away from a crude sparsity measure. We have no preference for either SSE4 or SSE5. Question 12: Do you favour increasing the quantum for the sparsity adjustment to more than 0.4%? There is no evidence that the weight on the proposed indicators needs to be increased, so we do not favour increasing the quantum for the sparsity adjustment. Hopefully, the use of a more robust, and less crude, measure of sparsity will result in resources being targeted more appropriately. Question 13: Which option do you prefer for the Younger Adults Social Services formula? Neither option recognises London s need. We strongly oppose both options. The proposals appear rushed and ill thought out. The main problem in respect of younger adults is the quantum of funding. This is not improved by moving resources away from high-need areas as a result of amending the formula. Of particular concern is the inclusion of an indicator for adults in receipt of disability living allowance. Although, this would appear to allow physical/learning difficulties to be taken into account, there are a number of issues with this and other DWP variables, such as significant volatility in the data and potential abuse (to varying and unpredictable levels across authorities) of the benefits system. In addition, the use of people in routine occupations has many factors associated with it which would not make it appropriate as an indicator of social services need for the younger adults client group. For example, regional economies such as such as coastal towns, or those near major airports, would get a relatively large number of people in routine occupations that are not potential Social Services clients. We would favour updating the existing formula with the 2001 census data if a workable alternative option cannot be found. Police and Fire Questions 14 to 19 relate to Police and Fire Authorities. We have no views in respect of these proposals. Highway Maintenance Question 20: Do you agree that back lanes should be included in the highway maintenance formula? We support the principle that factors increasing the cost of providing services should be appropriately reflected in formula and therefore support introducing this option, provided that the data is of appropriate quality.

5 Environmental, Protective and Cultural Services Question 21: Do you think we should adjust the coefficients for concessionary fares? We support adjusting the coefficients for concessionary fares, with the proviso that the share of additional resources is adequate to cover the additional costs of free bus fares. Within London, the ALG already operate the freedom pass scheme, and the formula proposed does not adequately reflect the cost pressures associated with this. Question 22: Do you think we should make any further changes to coefficients; for example, it has been argued that we should do so to take into account the increasing expenditure on waste? We support the need to review the weights of the coefficients where it is evident there is increasing demand for services. However, proposals would need to be properly worked up, so it is too soon to be incorporated in this formula review. Question 23: Do you think we should update the fixed cost element? It is not appropriate to over protect shire districts at the expense of other service areas. We would favour removing the fixed cost element. Question 24: Do you agree with the proposed method for transferring Critically Ordinary Waterways to the Environment agency? We have no views in respect of this proposal. Capital Financing Question 25: Do you think we should remove the Interest Receipt elements? and Question 26: If we retain one or both of the Interest Receipt elements, do you have any views on how they should be distributed? and Question 27: If so, should we reduce other FSS totals to compensate, or not? And if we reduce other FSS elements, where should we make the reductions? It is important to consider factors such as the interaction of the Education transfer and the quantum of the other interest receipts control total, in particular that the transfer be reduced to reflect the Schools FSS share of other interest receipts. Without having the appropriate exemplifications provided at the time of the consultation, it is hard to comment further on these proposals.

6 Area Cost Adjustment Question 28: Do you have any comments on our intention to use the full ASHE data set to calculate the Area Cost Adjustment (ACA)? We agree that it is better to use as much robust data as possible. Question 29: Do you think that we should remove the very small rates cost adjustment, or do you think that we should update the weighting of the RCA in line with 2003/4 expenditure data? We strongly favour keeping the rates cost adjustment. The significant cost of higher business rates at the local level, particularly for authorities in London, needs to be reflected in the formula. The rates cost adjustment, although a small adjustment nationally, does have a large distributional impact, which if removed would have an adverse impact on high cost areas such as London. Removing the rates cost adjustment would further disadvantage Islington, following on from the announcement on 21 July 2005 of the final Local Authorities Business Growth Incentives (LABGI) scheme. The proposed changes to the LABGI scheme adversely affect the borough given that we now need to achieve 0.5% more growth from the scheme compared to the original consultation, with projected income from the scheme of zero. The removal of the rates cost adjustment would have no mitigating gains from LABGI income. Question 30: Do you agree with the Government s proposal to retain the current method of setting the lower limit for options ACA1-3? We do not favour levelling-up as a principle. Authorities should only receive the Rest of England ACA of Factor 1 when this is supported by the appropriate wage data. Question 31: Do you think that we should calculate a separate ACA factor for each upper tier authority? Yes, we support calculating a separate ACA factor for each authority. In principle, we favour individual ACAs which are more likely to reflect local variations in labour costs, particularly in London. This will factor-in the wage evidence being experienced at the local level, and enable us to be more appropriately funded for the significant, additional staff costs that we face as a borough. Question 32: If we implement the change above, which option for setting the lower limit do you prefer? Given that there is likely to be levelling up in the system, which we do not support in principle, we prefer ACA5 on the grounds of consistency with the present system.

7 Additional Resource Equalisation Question 33: Do you think we should increase resource equalisation? and Question 34: Which of the options do you prefer? We support a transparent and accountable approach, setting each control total at the appropriate level of spending, so that every authority can be seen to have a fair opportunity to spend and tax accordingly, and ensuring that grant levels are targeted to those areas with the highest spending pressures, for example in relation to Younger Adults as mentioned earlier in our response. The exemplifications provided within the consultation paper provide figures after damping (based on current FSS formulae with the schools block included), and as such, they do not provide a meaningful way to determine the impact of the proposed control total changes. Floor Damping Question 35: Do you consider that the capital adjustment should be abolished? Changes in how capital spending is financed make the capital adjustment less appropriate. In addition the capital adjustment on floor damping is less than transparent. We support the case for the capital adjustment to be abolished provided the floor is set at a suitable level to recognise cost pressures faced by authorities. Question 36: Which approach for paying for damping you prefer (i.e. the existing method, DMP2 or DMP3)? We would prefer the existing method, on the basis that the impact on floor and other authorities would be minimised as far as possible. Day Visitors Question 37: Would you prefer us to use the new day visitors indicator? Yes, we favour using the new day visitors indicator, on the basis that using the most up to date data is preferable. Additional Questions following publication Question 38: Do you agree that the January pupil count should be used instead of the September pupil count as the source for pupils aged 11 and over? In principle we believe that, the most up to date data should be used within formulae. Therefore we support the proposal within the Consultation on a Modified Method of Distributing the Dedicated Schools Grant in and issued by the DfES, to use the January 2006 pupil count, subject to the following concerns.

8 We would be concerned if using the January 2006 pupil count delayed publishing the final settlement, or interfered in the schools budget setting process. The data from the January pupil count will not be available until the end of February, by which time the schools forum will have agreed individual schools budgets and retrospective adjustments would need to be made in the past when DSG was a part of the overall RSG settlement this would be easier to manage. In addition, we would request that any changes from the provisional settlement, as a result of updated pupil numbers, are managed from within the DSG total resources, to avoid any further unnecessary turbulence on revenue support grant allocations. Question 39: Do you agree that an adjustment to the 2001 Census based country of birth indicator used in EPCS should be made? In principle we believe that, the most up to date data should be used within formulae. Therefore we support the proposal. Question 40: If you agree that there should be floors on the children s social services FSS, would you prefer a damping scheme based on a floor, ceiling and scaling factor or just on a floor and scaling factor? As previously stated, we believe that a better formula should be found which more accurately reflects the levels of need, particularly in London, for children s social services. If floors on children s social services are implemented, then we would favour just a floor and scaling factor. Question 41: Do you agree that an adjustment to the 2001 Census based output area density indicator, used in both EPCS and Police blocks, should be made? In principle we believe that, the most up to date data should be used within formulae. Therefore we support the proposal.