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: 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.
 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 :
Options
EDU1
EDU2
EDU3
EDU4
Deprivation Indicator
AEN Unit Cost
Threshold
ACA
Impact on
Salford
Income Support
Met and Unmet Need Low - 5 LEAs
Current
+ £0.1m
IS and Working Families Tax Credit Met Needs Only
High - 50 LEAs
Current
- £1.8m
IS and Working Families Tax Credit Met and Unmet Need Medium - 30 LEAs Current
- £0.7m
Income Support
Met Needs Only
Low - 5 LEAs
House Price - £0.8m
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.
2.12.
The views of SIGOMA are as follows :
-
The favourable elements for SIGOMA authorities are :
 Recognition of deprivation as a key issue in the formulae
 Taking account of unmet educational needs
 Applying thresholds to deprivation measures
-
Issues which SIGOMA would like to see considered further are :
 More index of multiple deprivation (IMD) measures used as proxies for
deprivation
 Greater clarity in the breakdown of the schools and LEA blocks
 Explanation for using different ethnicity measures in the primary and secondary
sub-blocks
 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
 Developing activity-led funding for the LEA block
 Clarity as to whether low birth weight is appropriate for estimating high cost
pupils
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)
(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
SSR2 As SSSR1, plus number of elderly in residential care
SSD1 Uses 1998 survey data, reflecting different services for different clients ;
Updated fee income to 2000/01 ; sparsity factor increased 0.5% to 1%
or
(b) where a combined formula is to be used :
SSE1 Combined residential and domiciliary care formula, using data as SSD1
SSE2 As SSE1, but data as SSR2
SSE3 As SSE2, but includes ethnicity
Impact on
Salford
- £0.1m
- £0.5m
- £0.2m
- £0.8m
- £0.4m
- £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
 Increasing the weighting given to foster care
 Using more up to date data for regression
Younger Adults
 The use of IMD deprivation measures and the move away from regression
techniques in SSO3
 The updating of regression data in other options
Elderly
 Basing the amount an authority can raise to cover its charges on the number of
people on income support
 Using more up to date data for elderly residential and domiciliary clients
-
Issues which SIGOMA would like to see considered further are :
Children
 The reason for ethnicity appearing in SSC3 when it was previously found not
to be significant
 The use of alternative deprivation measures to those coming from census data,
particularly what might replace low social class in the future
 The future use of the Children in Need Census when that data becomes more
widely available
Younger Adults
 Use of IMD deprivation measures in all options
 Development of techniques which avoid the regression of past spending
 Further work to develop a separate mental health block
Elderly
 Explaining the magnitude of the sparsity adjustments of 1% to elderly
domiciliary clients in SSD1
 Determining how ethnicity has been treated and its magnitude
3.7.Salford's views :
Children
- The options take no account of client numbers ; they do not address problems like
Salford’s of rapid increases in children taken into care – is this a case for targeted grant if
not to be recognised in formula grant ?
- The impact of ethnicity on option SSC3 appears to perverse when compared with the
results of other options and with the results of the Education options
- Philosophically, SSC2 would seem to be the most appropriate option due to using the most
up to date information.
Young Adults
- Using regression of expenditure does not reflect need, but more likely reflects the squeeze
on this sector because of the need for authorities to put more resource into children and the
elderly, but is there any better indicator ?
- SSO1 and SSO2 are therefore skewed downwards
- SSO3 would appear to be the more comprehensive with the inclusion of a mental health
indicator.
Elderly
- the initial choice here is between either separate residential and domiciliary formulae or a
combined elderly formulae – separate formulae is preferred because a combined formula
would not support or drive Government policy towards domiciliary care over residential
care – this would therefore eliminate options SSE1, 2 and 3
- another possible argument against SSE1, 2 and 3 is that they contain a stronger ethnicity
factor – do ethnic families not better look after their elderly within the family ?
- SSR1 is preferred over SSR2 because it incorporates unmet need and hence potential
demand
- With SSD1, a further understanding of the appropriateness of the proposed sparsity factor
is required.
3.8.Salford's proposed response should be that it supports SIGOMA's views, but in addition :
Children
- If it is not possible or favoured to use client numbers in preference to population, then
consideration should be given to the use of targeted grant to compensate those
authorities like Salford who face sudden surges in demand for care
- Option SSC2 is preferred on the basis that it contains the most up to date data
- The impact of ethnicity on option SSC3 appears perverse.
Young Adults
- Support option SSO3 as it would appear to be the more comprehensive with the
inclusion of a mental health indicator, but aim for better indicators of need than
regression of past expenditure due to this sector being squeezed for funding in the
past by pressures from the children and elderly services.
Elderly
- SSR1 is preferred (in conjunction with SSD1) on the basis that it contains the most up
to date data, incorporating unmet need and hence potential demand as well as
current demand.
4.
POLICE AND FIRE
Ignored for purposes of this report
5.
HIGHWAY MAINTENANCE
5.1.The structure of this sub-block will be :
Replace current basis of regression against 1990/91 spend, traffic flows and snow lying days with:
Basic amount per km of road
+ Traffic flow top-up
+ Winter maintenance costs top-up
+ Pay costs top-up
with road lengths weighted for principal and non-principal roads and built-up and non-built-up
areas, and winter maintenance based on relative temperatures.
5.2.Options put forward by the Government for consideration are as follows :
Impact on
Salford
HM1 Update spending base to 1998/99 but retain current population density as proxy
For road maintenance spending
- £0.1m
HM2 As HM1, but removing population density
- £0.2m
5.3.The gainers and losers from each option by type of authority and region are :
Gainers :
Losers :
HM1
negligible effect
HM2
Shire counties £55m (SW,E,EM,Y,NE)
London £50m
5.4.Questions :
- which of the above options for highway maintenance formulae do you prefer ?
- are there any alternative or additional changes you would wish to see ?
- do you agree that we should remove thresholds from the formula ?
- do you agree that we should use average temperature instead of days with snow lying ?
5.5.The views of SIGOMA are as follows :
-
The favourable elements for SIGOMA authorities are :
 The use of population density
 Updating the expenditure base from 1990/91 to 1998/99
-
Issues which SIGOMA would like to see considered further are :
 The timing of when any GIS data might be used in any settlement
 The precise way that traffic thresholds might be abolished
 The treatment of back lanes when counting road lengths
 The methodology for calculating bridge maintenance
5.6.Salford's views :
- The winter maintenance change appears logical
- HM1 preferred because it includes population density, which can reflect the need for more
safety measures in urban areas
5.7.Salford's proposed response should be that it supports SIGOMA's views.
6.
ENVIRONMENTAL, PROTECTIVE AND CULTURAL SERVICES
6.1.The structure of this sub-block will be :
Replace current system of formulae using regression of 1990/91 expenditure covering a wide
range of services with :
Basic allocation per resident
+ Deprivation top-up
+ Population density top-up
+ Other top-uos for sparsity, ethnicity, visitors and commuters
+ Area cost top-up
and continue with other sub-blocks for flood defence, coast protection, rent allowances, HB admin
and national parks, but review funding arrangements.
6.2.Options put forward by the Government for consideration are as follows :
Impact on
Salford
EPC1 Contains factors for resident population, deprivation, population density and
other top-ups for day visitors, commuters, population sparsity and “super”
sparsity and ethnicity
+ £1.0m
EPC2 As EPC1, but removing commuters and visitors, but greater proportion to
unit cost base and lesser weights for other factors
- £3.7m
EPC3 As EPC1, but reduces deprivation weighting, and varies weighting of others - £1.5m
EPC4 As EPC1, but increases deprivation weighting, removes commuters and visitors
and higher weights for other factors
+ £3.2m
6.3.The gainers and losers from each option by type of authority and region are :
Gainers :
Losers :
EPC1
Mets £140m, Unitaries £30m,
London £168m, Shire counties £56m
Shire dists £54m (EM,WM,Y,NE,NW)
(SE,E)
EPC2
Shire dists £150m (SW,SE,E,EM)
London £68m, Mets £87m (WM,Y,NE,NW)
EPC3
Shires £219m (inc Counties £188m),
London £272m
Mets £53m (all regions)
EPC4
Mets £205m, inner London £27m
Shire dists £94m, counties £166m (SW,SE,E)
(WM,Y,NE,NW)
6.4.Questions :
- which of the above options for EPCS formulae do you prefer ?
- are there any alternative or additional changes you would wish to see ?
- how should concurrent services in two-tier areas be handled ?
- how should the adjustments for transport in London and the GLA be made ?
- are there any structural changes you would wish to see, such as a separate block for waste
management ?
6.5.The views of SIGOMA are as follows :
-
The favourable elements for SIGOMA authorities are :
 The use of the IMD
 Increasing the resource weighting towards deprived areas
 Removing the adjustment for commuters and visitors when it is demonstrated
that they do not influence markedly the costs incurred within EPCS activity
-
Issues which SIGOMA would like to see considered further are :
 Extending the use of IMD measures at the possible expense of claimant
measures
 Justification for any of the sparsity weightings used
 Clarifying the importance of population density and any thresholds used
 Specific grant proposals for items of expenditure not directly related to the
EPCS formulae, eg housing benefits and rent allowances
 Reviewing the position of passenger transport authorities as the formulae is not
consistent with the way that levies are raised (ie population)
6.6.Salford's views :
- There are some big resource shifts from all options
- Accept the need for the deprivation index as the major cost driver
- Question the significance of the use of commuters as a cost driver, other than for transport,
therefore, should there be a separate transport sub-block ?
- There is equally an argument that there should be a separate sub-block for waste disposal
- Question the validity of SIGOMA's statement re the impact of visitors, eg Salford Quays
- The potential for income from car parking does not appear to be reflected (the Westminster
issue)
- EPC2 appears inadequate due to the elements removed
- Likewise EPC3, due to the reduced deprivation weighting
- EPC1 and EPC4 favoured, with EPC1 feeling the more comprehensive, even though EPC4 is
very attractive !
6.7.Salford's proposed response should be that it supports SIGOMA's views, but in addition :
- Supports option EPC1 of the options presented, but
- There should be separate sub-blocks for transport and waste disposal
7.
CAPITAL FINANCING
7.1.The structure of this sub-block will be to replace the current system of 3 sub-blocks comprising
debt charges, interest on reserved receipts and other interest receipts with the following options for
change :
Options :
Impact on
Salford
CF1 Eliminate interest receipt sub-blocks, reduce debt charges scaling factor and
leave control total for other service sub-blocks unchanged, keeping overall
national control total the same
- £1.9m
CF2 Allocate negative interest across service sub-blocks, with higher weighting for
reserved receipts than for other interest receipts in lower tier EPCS sub-block + £0.2m
CF3 As CF2, but higher proportion to lower tier EPCS sub-block to recognise this as
a major source of capital receipts
Nil
CF4 As CF2, but lower tier EPCS sub-block reduced by total for two interest receipt
sub-blocks
- £0.3m
7.2.The gainers and losers from each option by type of authority and region are :
Gainers :
Losers :
CF1
Shire dists £115m, unitaries £32m
Mets £63m, counties £78m
(SW,SE,E,EM)
(WM,Y,NE,NW)
CF2
Shire dists £121m, unitaries £31m (SE)
London £23m, Mets £16m, counties £94m
CF3
Shires £52m (SE)
London £39m Mets £12m
CF4
Counties £134m, unitaries £23m (SE,E)
London £57m, Shire dists £108m
7.3.Questions :
- which of the above options for capital finance formulae do you prefer ?
- are there any alternative or additional changes you would wish to see ?
7.4.The views of SIGOMA are as follows :
-
There are no favourable elements for SIGOMA authorities.
-
Issues which SIGOMA would like to see considered further are :
 It would be premature to introduce change given the lack of clarity on the
future of the Government's capital financing proposals in the Local
Government Bill
 Negative interest receipts need to be distributed between service blocks in such
a way as not to penalise those authorities that are in need of capital resource.
7.5.Salford's views :
- CF1 is inequitable in that it favours high resource authorities, including debt free authorities
- CF4 ignores receipts from non-EPCS services
- CF2 or CF3 are preferred as they recognise all services’ potential contribution towards receipts,
but the impact of the respective weightings needs to be understood.
7.6.Salford's proposed response should be that it supports SIGOMA's views, but in addition
would prefer options CF2 or CF3, subject to more clarity on the impact of their weightings.
8. AREA COST ADJUSTMENT (ACA)
8.1.The structure of this sub-block will be to replace the current system of 2 separate components, pay
costs and rates costs, with one with more weighting towards pay costs and also using three years'
data rather than one to smooth volatility. The ACA would, as now, continue to be applied to all the
service blocks.
8.2.Options put forward by the Government for consideration are as follows :
Impact on
Salford
ACA1 As existing, with wage evidence from NES, 3 years data, updated wage
data for inner and outer fringes, wider radius
+ £0.7m
ACA2 As ACA1, but more account of wage differences between areas with outer
London divided into two, and wage evidence from Labour Force Survey
rather than NES
+ £0.9m
ACA3 As ACA2, but based on wages in private sector only
- £0.1m
ACA4 NES based, wages in both sectors, but all counties receive its own ACA + £5.1m
ACA5 As ACA4, but private sector wages only
+ £4.1m
8.3.The gainers and losers from each option by type of authority and region are :
Gainers :
Losers
ACA1 Unitaries £18m (SW)
Counties £40m (SE)
ACA2 Mets £48m, unitaries £27m
London £17m, counties £53m (SE,E)
(SW,EM,WM Y,NE,NW)
ACA3 Unitaries £28m, inner London £37m
Mets £16m, outer London £51m
(SW,EM)
(SE,E)
ACA4 Mets £171m (WM,NW)
Counties £118m, outer London £34m
(SE,E,NE)
ACA5 Mets £118m, inner London £48m
Counties £78m, outer London £71m
(WM,NW)
(SE,E,EM,Y,NE)
8.4.Questions :
- which of the above options for an area cost adjustment do you prefer ?
- are there any alternative or additional changes you would wish to see ?
8.5.The views of SIGOMA are as follows :
-
The favourable elements for SIGOMA authorities are :
 Acceptance of three year smoothing of ACA factors
 Consideration of the removal of high earners from sample sizes
 Use of lower limits in some of the options for change
 Modelling of both private and public sector wages in some of the options
-
Issues which SIGOMA would like to see considered further are :
 Further work on specific cost approaches for teachers, police and fire officers
 Measures to ensure ACA resources are spent on funding cost pressures
 Further work on the use of ACAs for every county
 Taking account of the additional support over and above the existing SSA which
is given/proposed by Government for additional costs in London and the SE.
8.6.Salford's views :
- The ACA will be the most controversial proposal for change and has attracted the most
headlines already
- Philosophically, ACA4 is favoured because it seems to be the most comprehensive because
it includes both private and public sector wages and a weighting for all areas of the country
- ACA3 and 5 should be rejected because they are incomplete through omitting public sector
wages
- Likewise, ACA1 and ACA2 should be rejected because they favour certain parts of the
country and grade all others equally.
8.7.Salford's proposed response should be that it supports SIGOMA's views, but in addition that
option ACA4 be supported.
9. FIXED COSTS, SLUGGISH COSTS AND POPULATION CHANGE
9.1.Fixed Costs
9.1.1. A new sub-block is to be included within the EPCS block.
9.1.2. Options put forward by the Government for consideration are as follows :
Impact on
Salford
FC1 A fixed £300,000 to each shire district and education/PSS authority coming
from within the existing EPCS provision
- £0.3m
FC2 As FC1, but with £300,000 to each police and fire authority, with their funding
coming from their own blocks
- £0.3m
9.1.3. The gainers and losers from each option by type of authority and region are :
Gainers :
Losers
FC1 Shire dists £40m
London £16m, Mets £16m
FC2 Shire dists £40m
London £29m, Mets £17m
9.1.4. Questions :
- which of the above options for fixed costs do you prefer ?
- are there any alternative or additional changes you would wish to see ?
9.1.5. The views of SIGOMA are as follows :
-
There are no favourable elements for SIGOMA authorities as the options top slice
resources from the EPCS block to give effectively a new grant to shire authorities
-
Issues which SIGOMA would like to see considered further are :
 Recognition of alternative options
 Inclusion of different fixed cost elements directly in the EPCS formulae
9.1.6. Salford's proposed response should be that it supports SIGOMA's views, but in addition
that option FC2 be preferred of the options put forward.
9.2.(a) Sluggish Costs/Population Decline
9.2.1. The current system will be replaced by one based on population using a two-year time lag with
a targeted grant top-sliced off total formula grant which targets those authorities whose
population decreases by more than a defined threshold.
9.2.2. The only option put forward by the Government for consideration is as follows :
Impact on
Salford
PC1 Targeted grant where population decreases by more than 0.5% in the twoyear period between latest population estimates and the settlement year
9.2.3. The option has a negligible effect overall on authorities.
+ £0.2m
(b) Rapid Population Growth
9.2.4. The same principle will apply as for population decline.
9.2.5. The only option put forward by the Government for consideration is as follows :
Impact on
Salford
PC2 Targeted grant where population projected to increase by more than 1.5% in the
two-year period between latest population estimates and the settlement year - £0.1m
9.2.6. The London region will be the only gainer of significance, by £14m.
9.2.7. Questions :
- should we provide additional support to areas of rapidly increasing and/or declining
population ?
- if so, which of the above options do you prefer ?
- what are the appropriate threshold rates of population change to use ?
- are there any alternative or additional changes you would wish to see ?
9.2.8. The views of SIGOMA are as follows :
-
The favourable element for SIGOMA authorities is that it is encouraging that the
Government has chosen to model a declining population grant
-
Issues which SIGOMA would like to see considered further are :
 The level of support for population decline at £10.6m is negligible compared
with the estimated loss of SSA to SIGOMA members alone of £54m at a
population decline threshold of 0.25%
 The level of grant support to authorities with increasing population seems
perversely high at £35.6m
 If both options are applied simultaneously then this might mean a net grant loss
to SIGOMA authorities.
9.2.9. Salford's views :
(a) On the population decline option :
-
-
for Salford, a population loss of 1,000 (0.5%) gives roughly a £0.9m loss of RSG – this
proposal appears to inadequately compensate authorities with population decline
the triggers for population decline and growth are inconsistent – the paper states that the
population will increase by 0.7% between 2000 and 2002, therefore there would need to be
a loss of 1.2% before this factor came into effect, whereas the population growth factor,
which uses a threshold of 1.5% means that a growth of only 0.8% above the norm would
be required
consequently, there is an argument for the population decline threshold being 0.1%, or
preferably 0%
the population growth case is rejected (see below) so the resources for growth could be
added to decline for distribution solely to authorities with population decline
(b) On the population growth option :
- this proposal should also be rejected on the grounds that rapid growth should produce an
increase in resource from council tax to meet extra costs, whereas the population decline
proposal should remain because the more economically active move leaving a greater
proportion of the more economically dependant behind
- also, this proposal is a potential duplication of the resource equalisation proposal.
9.2.10. Salford's proposed response should be that it supports SIGOMA's views, but in addition :
- the population decline threshold is set too high and to be equitable should be 0.1%, or
preferably 0%, if the population growth option is retained
- however, the population growth option should be rejected on the grounds that those
authorities should have a more buoyant resource base, and the resources available for
growth added to the decline option for distribution solely to authorities with
population decline
10. RESOURCE EQUALISATION
10.1.
It is proposed to replace the current system whereby :
SSA less CTSS = Total Grant Support (inc NNDR)
with a new system which splits assumed level of Council Tax between tiers of authority.
10.2.
Options put forward by the Government for consideration are as follows :
Impact on
Salford
RE1 Uprate all spending blocks by a fixed national % to eliminate the gap between
total notional spending and actual spending
+ £4.0m
RE2 Uprate separately each spending block to bring into line with actual spending
for that block
+ £2.3m
RE3 Uprate the PSS and EPCS blocks only
+ £3.2m
10.3.
With RE1 and RE2, CTSS would rise from £769 to £959, whilst under RE3 it would be £873.
10.4.
The gainers and losers from each option by type of authority and region are :
Gainers :
Losers :
RE1 Mets £165m, London £72m (inner/GLA), Counties £178m, districts £47m, shire
unitaries £21m (WM,Y,NE,NW)
police £34m (SW,SE,E)
RE2 London £195m (inner/GLA), Mets £109m Counties £302m, dists £26m (SW,SE,E)
shire police £15m (NE,NW)
RE3 London £92m (inner/outer), Mets £75m,
Counties £104m, dists £30m, shire
unitaries £27m (Y,NE,NW)
police £60m (SW,SE,E,EM)
10.5.
Note that this proposal does not give added resource, it simply puts a greater dependence on
CTSS.
10.6.
Questions :
- do you favour any of the above options for changing resource equalisation, or a
retention of the status quo ?
- are there any alternative or additional changes you would wish to see ?
10.7.
The views of SIGOMA are as follows :
10.8.
-
The favourable element for SIGOMA authorities is that this proposal would recognise the
spending gap between SSAs and actual local authority spending, by increasing SSAs and
the CTSS control totals simultaneously.
-
This proposal would satisfy SIGOMA's argument for bridging the gap between SSA and
spend and it is only a question of which option might be best. If the Government were to
drop this proposal then a targeted grant to assist those authorities with a low tax base would
be a suitable alternative.
Salford's views :
- This proposal is one which should be strongly supported as it would go a long way to
remedy some of the inequities in the Council Tax and RSG systems at present
-
Philosophically, RE2 is preferred being the most correct approach. RE1 would give the
wrong starting position for each block, although the total quantum would be right, whilst
RE3 is too selective, being targeted at the blocks with the biggest spending differences.
10.9. Salford's proposed response should be that it supports SIGOMA's views, but in addition
expresses a preference for option RE2.
11. PREDICTABILITY AND STABILITY
11.1.
Floors and Ceilings
11.1.1. It is proposed to continue the current system in a broadly similar manner, but to change the
method of deriving adjusted grant amounts for 2002/03 (where any function or funding changes
have occurred) to compare with the underlying grant figures for 2003/04.
11.1.2. Options put forward by the Government for consideration (but not quantified) are as follows :
BYG1 split national CTSS for the base year according to actual base year formula
spending, not on adjusted base year formula spending
BYG2 freeze the split of national CTSS between authorities for the period 2003/04 to
2005/06 at 2002/03 prices
BYG3 adjust actual base year grant by the difference between actual and adjusted base
year formula spending amounts
11.1.3. BYG1 and BYG2 would ensure function/funding changes do not affect grants for authorities
with no change, but would not improve transparency or intelligibility. BYG3 would be simpler
and more transparent and would ensure that function/funding changes only affect grant for the
authorities concerned, but would not take into account an authority's ability to generate Council
Tax income.
11.1.4. Questions :
- which of the above options for calculating the baseline for floors and ceilings do you
prefer ?
- are there any alternative or additional changes you would wish to see ?
11.1.5. The views of SIGOMA are that the effect is insignificant and that option BYG1 is preferred as
it takes an authority's tax raising powers into account. However, other issues which SIGOMA
would like taken into account are :
- Any uplift to the floor should continue to be fully funded without penalising the gainers
- The level of the floor needs to at least equal the CSR planned increase in resources
- Floor increases should be announced for a 3-year period in the CSR
- Continuing with the present treatment of debt charges in the floors and ceilings calculation
so as not to negate the effect of special credit approvals for authorities near the floor
- How the return of large scale specific grant to general grant will impact on the floors and
ceilings calculation.
11.1.6. Salford's proposed response should be that it accepts the principle of floors and ceilings,
certainly during the transition to the new system.
11.2.
Smoothing
11.2.1. It is proposed to replace the current system of only using a single year's data by using data over
longer periods, where appropriate. This would apply to the ACA, where three years earnings
data could be used, and to capital financing, where interest rates over a full 12 month period
could be used instead of a snapshot. Other areas with potential for smoothing are benefit
indicators like income support, client groups (eg population, pupil numbers, road lengths) and
deprivation.
11.2.2. Questions :
- should the ACA data be smoothed ?
- should interest rates be smoothed ?
- should any other data be smoothed in the new system ?
11.2.3. Salford's proposed response should be that it accepts the principle of smoothing.
12. SIMPLER PRESENTATION
12.1.
To make the system more intelligible, presentation is suggested as :
BASIC ALLOCATION + DEPRIVATION TOP-UP + PAY COST TOP-UP + OTHER TOP-UPS
X
CLIENT GROUP
=
SERVICE BLOCK ALLOCATION
12.2.
Question :
- would it be helpful to present the system in this way, even if the underlying formulae
are more complex ?
12.3.
Salford's proposed response should be that it supports a simpler presentation that can
facilitate a better understanding of the grant system and easier comparisons across
individual and class of authority, as well as over time.
13. MERGING RSG AND NNDR INTO A SINGLE FORMULA GRANT
13.1. The Government considers this change would make the grant system simpler and more
transparent. They contend that it would have virtually no effect on the distribution between
authorities. There are a few (6) high resource shire districts with low levels of formula spending
which might otherwise have had a negative RSG under present arrangements, but would be
protected by the floor arrangements.
13.2.
Question :
- do you consider that merging RSG and NNDR into a single grant stream would be
helpful in improving transparency and intelligibility ?
13.3.
Salford's proposed response should be that it has no objection to the merging of RSG and
NNDR into a single grant stream provided there is transparency of accountability with
NNDR in terms of how the revenue to the national pool has been derived and how it is
distributed through the single grant system.
14. SUMMARY OF IMPACT
Block
Education
Social Services
- Children
- Young Adults
- Elderly
Highway Maintenance
EPCS
Capital Financing
Area Cost Adjustment
Fixed Costs
Population Decline
Population Growth
Resource Equalisation
Total
% of budget
Council Tax equivalent
Best Case Scenario
Worst Case Scenario
Recommended Scenario
Option
£m
Option
£m
Option
£m
EDU1
0.1 EDU2
-1.8 EDU3
-0.7
SSC1
SSO3
SSR1/SSE3
HM1
EPC4
CF2
ACA4
FC1/FC2
PC1
RE1
0.0
0.2
-0.1
-0.1
3.2
0.2
5.1
-0.3
0.2
SSC3
SSO2
SSE1
HM2
EPC2
CF1
ACA3
FC1/FC2
PC1
PC2
4.0 RE2
12.5
-0.5
-0.4
-0.8
-0.2
-3.7
-1.9
-0.1
-0.3
0.2
-0.1
2.3
-7.3
SSC2
SSO3
SSR1
HM1
EPC1
CF2
ACA4
FC1/FC2
PC1
RE2
-0.1
0.2
-0.1
-0.1
1.0
0.2
5.1
-0.3
0.2
2.3
7.7
5.0
-2.9
3.1
£201
£118
£124
A WESTWOOD
Director of Corporate Services