Rsg Formula Grant Distribution - Government Consultation Paper 8/7/02

PART 1
(OPEN TO THE PUBLIC) / ITEM NO.

REPORT OF THE DIRECTOR OF CORPORATE SERVICES

TO THE LEAD MEMBER FOR CORPORATE SERVICES ON 2ND SEPTEMBER, 2002

CABINET BRIEFING ON 10TH SEPTEMBER, 2002

CABINET ON 17TH SEPTEMBER, 2002

Subject : RSG FORMULA GRANT DISTRIBUTION – GOVERNMENT CONSULTATION PAPER

RECOMMENDATIONS :

That the response to the Government’s consultation paper proposed in this report be approved for sending to the Government by the deadline of 30th September, that the detailed response be approved by the Leader of the Council before despatch and that it be copied to all members and Salford's MPs.

EXECUTIVE SUMMARY :

This report summarises the contents of the consultation paper on changes to the formula and data to be used for the calculation of RSG from 2003/04 issued by the Government on 8th July, identifies the financial implications for Salford and a draft response to the consultation paper.

BACKGROUND DOCUMENTS :

Letter from ODPM dated 8th July, 2002 and associated paper entitled “Consultation on the Local Government Finance Formula Grant Distribution”.

CONTACT OFFICER : John Spink Tel : 0161 793 3230

WARD(S) TO WHICH REPORT RELATES : All

KEY COUNCIL POLICIES : Budget Strategy

DETAILS : Continued overleaf

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A. EXECUTIVE SUMMARY

The review has potential to benefit Salford considerably, although it is a bit like the curate's egg.

The main areas which could give major resource gain, and which Salford should press strongly for, are:-

Ø  Area Cost Adjustment - Salford could gain by over £5m from the most beneficial option, would be a gainer in 4 out of the 5 options and only a marginal loser from the other. There seems to be an intent to move resources away from London and the SE to the N and NW and redress the anomalies of recent years.

Ø  Resource Equalisation - this would move resources from the high resource, low need authorities to the low resource, high need (ie Salford) authorities and would address the problem of apparently high Council Tax bills (using Band D amounts as the benchmark) in areas of need. 3 options are exemplified, all of which benefit Salford, by between £2.3m and £4m.

The aspects where Salford is less likely to benefit are, surprisingly, in the Education and Social Services blocks, where Salford is a loser from most options. This is possibly due to the deprivation top-up element of the calculation putting too much weight upon ethnicity, although it is somewhat difficult even at a technical level to wade through the minefield of data to draw firm conclusions.

The Environmental, Protective and Cultural Services (EPCS) block contains 4 options that have a widely fluctuating impact upon Salford, between a £3.7m loss and a £3.2m gain. With the diversity of services included in this block there is real difficulty in deriving a truly representative formula. Some of the major elements, such as transport and waste disposal could be extracted and dealt with separately.

An area where an inappropriate approach has been taken is over population decline and growth. On the basis of the proposals, insufficient resource would be put into the former and too much into the latter. The respective calculations are perverse, and there is also an argument for dropping funding for rapid population growth (as such areas will naturally gain resource from a growing Council Tax base) and transferring it to support population decline.

Overall, Salford's preferred options would result in a gain of £7.7m in Revenue Support Grant, predominantly from the area cost adjustment and resource equalisation, although the actual impact could be anywhere between the two extremes of a £12.5m gain if all the most beneficial options were chosen and a £7.3m loss if all the least beneficial options were chosen.

The detailed report follows, which goes into further detail on the reaction to the proposals and Salford's proposed response to the consultation paper. It is proposed that the detailed response be referred to the Leader of the Council for approval before despatch and that it will be copied to all members and Salford's MPs.

B. REPORT DETAIL

1.  INTRODUCTION

1.1.  The consultation paper contains 199 pages of narrative covering 47 options for change and tables of exemplifications.

1.2.  The proposals plan to incorporate NNDR into formula grant.

1.3.  The floors and ceilings principle is to be maintained

1.4.  The aims of the new grant system are to :

-  improve transparency and accountability

-  balancing population, deprivation and variable pay costs

-  recognise other factors, eg sparsity.

1.5.  The construction of the new formula grant is based upon a standard approach across all services, as follows :-

BASIC ALLOCATION

+ DEPRIVATION TOP-UP

+ PAY COST TOP-UP

+ OTHER TOP-UPS

= RSG

1.6.  The guiding principles for the formulae are that they :

-  reflect all circumstances

-  are not infallible

-  are based on objective and factual evidence of need

-  are more predictable and stable

-  use most recent available data

-  are rational and non-volatile

-  do not create perverse incentives or penalise efficiency

-  give as much advance notice of changes as possible

1.7.  Constraints which must be recognised in any new grant system are :

-  there will be some rough justice - it cannot reflect all possible circumstances

-  some elements of judgement will be necessary where information not available or formulae not objective

-  competing pressures may need to be balanced

-  pragmatic decisions needed.

1.8.  Consultation responses are required to be with the Government by 30th September.

1.9.  The following paragraphs deal with the issues for each service block within the RSG formula in turn.

2.  EDUCATION

2.1.  The following change to the structure of the sub-blocks is proposed :

Current Proposed

Under 5s LEA

Primary Schools - sub-blocks

Secondary Under 5s

Post 16 Primary

Other Education Secondary

High cost pupils

2.2.  Schools will take 88% of the block, the LEA 12%, subject to information from 2002/03 Section 52 returns.

2.3.  Under 5s, primary and secondary sub-blocks will all have a similar structure :

basic per-pupil entitlement

+ deprivation top-up

+ teacher recruitment and retention top-up

+ sparsity top-up for primary only

2.4.  The deprivation top-up will be based on :

-  Incidence - number of pupils with additional educational needs (AEN) in each LA

-  Cost - amount that each AEN pupil attracts

-  Threshold - below which it would be over-exact to make a distinction between LAs

2.5.  The high-cost pupils sub-block is intended to deliver additional funding for pupils with high levels of need, eg pupils in special schools and pupil referral units (PRUs) and statemented pupils.

2.6.  The structure of the LEA funding block is proving problematical, but recent patterns of expenditure have been used, resulting in a proposed distribution according to :

-  26% according to numbers of pupils

-  37% according to number of resident pupils

-  10% according to sparsity

-  27% according to a mix of IS and English as an additional language to reflect AEN of deprived areas

2.7.  Consideration is being given to how to implement a guarantee that no school will lose out in terms of funding.

2.8.  Options put forward by the Government for consideration are as follows :

2.9.  The gainers and losers from each option by type of authority and region are :

Gainers : Losers :

EDU1 London £169m, Mets £102m (WM,Y) Shires £271m (SW,SE,E,EM)

EDU2 Shire counties £48m (WM,Y) London £29m, Unitaries £24m (SE,NW)

EDU3 London £75m, Mets £80m (WM,Y) Shire counties/unitaries £155m (SW,SE,E,NW)

EDU4 London £111m, Mets £43m (WM,Y) Shire counties/unitaries £155m (SW,SE,E,NW)

2.10.  Questions posed by the Government on the options are :

which of the above options for education formulae do you prefer ?

are there any alternative or additional changes you would wish to see made ?

2.11.  The views of SIGOMA are as follows :

-  The favourable elements for SIGOMA authorities are :

Ø  Recognition of deprivation as a key issue in the formulae

Ø  Taking account of unmet educational needs

Ø  Applying thresholds to deprivation measures

-  Issues which SIGOMA would like to see considered further are :

Ø  More index of multiple deprivation (IMD) measures used as proxies for deprivation

Ø  Greater clarity in the breakdown of the schools and LEA blocks

Ø  Explanation for using different ethnicity measures in the primary and secondary sub-blocks

Ø  The use of a specific cost approach to the Education area cost adjustment (ACA) which was not based on house prices but on teachers' salaries

Ø  Developing activity-led funding for the LEA block

Ø  Clarity as to whether low birth weight is appropriate for estimating high cost pupils

2.12.  Salford's views :

-  Surprisingly, given that it is high in the IMD, Salford does not come out very well from the proposed options, eg SIGOMA authorities gain £109.4m from EDU1, yet Salford's gain is £0.1m, whilst SIGOMA authorities lose £5.2m from EDU2 of which Salford loses £1.8m.

-  It would appear that the lower the threshold used to determine the deprivation top-up the better the impact for Salford, although this would appear contrary to SIGOMA's support for having a threshold

-  There appears to be too much weighting towards ethnicity judging from some of the gains to be made by authorities with a higher ethnic mix in EDU1 and EDU3

-  Philosophically, EDU3 is favoured in that it contains more inclusive indicators of deprivation and AEN, ie WFTC and unmet need

-  Salford’s delegated proportion to schools is 87% for 2002/03 against the proposed 88% - we will need to identify what impact this might have, although its effect could be dampened by spending above SSA

2.13.  Salford's proposed response should be that it supports SIGOMA's views, but in addition :

Supports EDU3 of the options proposed on the basis that it contains more inclusive indicators of deprivation and AEN, but prefers a lower deprivation threshold

The ethnicity weighting should be reviewed.

3.  PERSONAL SOCIAL SERVICES

3.1.  The proposals retain the existing structure of 3 sub-blocks :

Children

Younger Adults

Elderly

3.2.  Children

3.2.1.  The structure of this sub-block will be :

Basic amount per child 0 - 17

+ Deprivation top-up

+ fostering cost top-up

+ Area cost top-up

3.2.2.  Options put forward by the Government for consideration are as follows :

Impact on

Salford

SSC1 Increase foster care weighting from 17.5% to 19.4% based on 2000/01 data Nil

SSC2 Update foster care regression from 1995/96 to 2000/01; weighting 19.4% - £0.1m

SSC3 new foster care adjustment based on 2000/01 data using social class

and ethnicity indicators - £0.5m

3.2.3.  The gainers and losers from each option by type of authority and region are :

Gainers : Losers :

SSC1 negligible effect

SSC2 Shire counties/unitaries £25m (all) London £27m

SSC3 Shire counties £18m (all except NE,NW) London £15m

3.3.  Younger Adults

3.3.1.  The structure of this sub-block will be :

Basic amount per adult 18 – 64

+ Deprivation top-up

+ Area cost top-up

3.3.2.  Options put forward by the Government for consideration are as follows :

Impact on

Salford

SSO1 Updates regression analysis of spending patterns to 2000/01 and simplifies

Indicators from 12 to 3 : IS, single people away from families, those in

Public sector rented flats + £0.1m

SSO2 As SSO1 but retaining 12 indicators, which includes ethnicity - £0.4m

SSO3 Includes separate formula for mental health + £0.2m

3.3.3.  The gainers and losers from each option by type of authority and region are :

Gainers : Losers :

SSO1 Shire counties £49m (all) London £50m

SSO2 Shire counties £50m (all) London £47m

SSO3 Shire counties £72m (all) London £81m

3.4.  Elderly

3.4.1.  The structure of this sub-block will be :

abolish separate sub-blocks for residential and domiciliary care and replace by :

Basic amount per elderly person

+ Age top-up for 75 – 84s and 85s +

+ Deprivation top-up

+ Sparsity top-up

+ Low income top-up

+ Area cost top-up

3.4.2.  Options put forward by the Government for consideration are as follows :

(NB. Options to be chosen from either of (a) or (b) below) Impact on

Salford

(a) where separate residential and domiciliary formulae are to be used :

SSR1 Update data from 1994 to 1998 General Household Survey and regression of estimated fee income 2000/01 ; use number of elderly in households - £0.1m

SSR2 As SSSR1, plus number of elderly in residential care - £0.5m

SSD1 Uses 1998 survey data, reflecting different services for different clients ;

Updated fee income to 2000/01 ; sparsity factor increased 0.5% to 1% - £0.2m

or

(b) where a combined formula is to be used :

SSE1 Combined residential and domiciliary care formula, using data as SSD1 - £0.8m

SSE2 As SSE1, but data as SSR2 - £0.4m

SSE3 As SSE2, but includes ethnicity - £0.1m

3.4.3.  The gainers and losers from each option by type of authority and region are :

Gainers : Losers :

SSR1 London £20m Shire counties £26m (all except SE,WM)

SSR2 negligible effect

SSD1 Shire counties £18m (SW,E,EM,WM,NW) London £13m

3.5.  Questions :

-  which of the above options for social services formulae do you prefer ?

-  are there any alternative or additional changes you would wish to see ?

3.6.  The views of SIGOMA are as follows :

-  The favourable elements for SIGOMA authorities are :

Children

Ø  Increasing the weighting given to foster care

Ø  Using more up to date data for regression

Younger Adults

Ø  The use of IMD deprivation measures and the move away from regression techniques in SSO3

Ø  The updating of regression data in other options

Elderly

Ø  Basing the amount an authority can raise to cover its charges on the number of people on income support

Ø  Using more up to date data for elderly residential and domiciliary clients

-  Issues which SIGOMA would like to see considered further are :

Children

Ø  The reason for ethnicity appearing in SSC3 when it was previously found not to be significant