Funding formulae and their impact on London’s public services

This report, authored by Professor Tony Travers at the London School of Economics and Political Science, discusses the evolving role of complex formulae to allocate large sums of public expenditure in England.

It finds that while London’s share of national funding in most areas of public spending has remained remarkably constant over recent years, changes to the data and formulae mean that, beginning with local authority expenditure under the government’s Fair Funding Review, London is likely to be worse off in future – relative to other councils in England and in real terms. Projections suggest that many London boroughs will see significant real terms reductions to their budgets. The analysis concludes that:

1. Measures of deprivation should more consistently reflect the impact of housing costs on disposable income, and the wider impact of homelessness on life chances.
2. The impact of migration and ethnicity needs re-evaluation to reflect the unique expenditure needs of local communities.
3. No council should be left worse off in real terms because of a redistribution of Core Spending Power, as the result of the Fair Funding Review. This logic should apply to any other changes to formulae for local services – such as health, schools and policing.
4. There is a need for consistent funding formulae that recognise the complex needs of individuals and households for social care, health services, housing, schools and protective services delivered by different parts of the state.
5. Service provision should not be hampered by unpredictable changes in formula-based resource distribution.

The overall conclusion is that Whitehall should ensure that local areas are not subject to unpredictable and unreasonable changes in the resources allocated by formulae.