Give Local Areas More Control Over Their Spending, Says Leading Economic Think Tank
Providing local areas with more control over how they spend money handed out by government could help better ensure that cash is allocated where it is most needed, according to a new report.
Funding systems are currently “not fit for purpose” when it comes to helping the public “access consistent public services across the country” according to a new report from the Institute for Fiscal Studies (IFS), which suggests that reform is needed “if the government is serious” about its levelling up promises.
Reducing regional inequalities across the country was one of the government’s key pledges at the last general election, and was the subject of a white paper published in Autum 2021.
According to the IFS’ findings today, funding systems for public services across England are doing a “poor job” of matching money available to relative need, meaning that there are “substantial differences” between the share of funding areas receive, and the share they would receive if money was allocated according to need.
Among their suggestions for policy, the IFS researchers recognise that it could be difficult for ministers to redistribute cash for different services between places "particularly given the tight fiscal outlook: when overall funding cannot be increased".
"In this context, providing local areas with more discretion to move funding between service areas may actually be beneficial in achieving a better match between funding levels and spending needs across services," they add.
In terms of cash for local government, the report said that only 39 of 150 areas receive a share of funding that is within five per cent of their estimated spending needs.
It points towards Wokingham, which received a share of local government funding 45 per cent higher than its estimated needs in 2022-23, and the London borough of Hounslow, which received 31 per cent less, to highlight the discrepancies.
“It is the local government, police and public health funding allocation systems that are most in need of reform, especially if the government is serious about tackling geographical inequalities and ‘levelling up’,” the report said,
Kate Ogden, a senior research economist at the IFS and author of the report said: “Funding systems for public services are trying to balance a range of different aims. But if one of the aims is for people to be able to access consistent public services across the country, then the current systems are not fit for purpose.
“Differences in levels of funding for local government, police and public health services across England do not reflect today’s patterns of need as they are based on data that are now years out-of-date.”
Addressing these issues, Ogden said “will take several years” and “create losers as well as winners”, but the government should “commit to” reforms “if it is serious about making funding systems fit for the future and aligning funding for public services with its goals for ‘levelling up’.”
A spokesperson for the Department for Levelling Up, Housing and Communities said: “Levelling Up is a long-term programme of reform that sits at the heart of our ambition as a government. After listening to feedback from local government, we will work with the sector in the next Parliament to take stock of the challenges and opportunities they face before consulting on any potential funding reform.
“Through the 2023/24 Local Government Finance Settlement, the most relatively deprived areas of England will receive 17 per cent more per household in available resource than the least deprived areas.”
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