Cabinet/Leader

PART II

CONSULTATION ON PROPOSED GOVERNMENT FUNDING CHANGES

On 26 September 2005, the Cabinet considered three consultation papers issued by the Government detailing proposed changes, the effect of which were unlikely to be advantageous to the County Council in the long term:

· formula grant distribution

· school funding

· local transport plan

A brief summary of each consultation paper is detailed below.

Formula grant distribution

The Office of the Deputy Prime Minister issued a lengthy (approximately 300 page) consultation paper on 19 July 2005 which set out proposed changes to the formulae used in its system for distributing revenue grant to local authorities from 2006/07. The key changes are:

· the introduction of three-year grant settlements

· an alternative revenue grant system which would make it more difficult to identify what the Government assumes will be the national council tax rise to support its spending plans

· a further `resource equalisation' adjustment which, as in 2003/04, transfers grant from authorities such as Hampshire to areas of `high need and low resources'

· changes to Formula Spending Shares (FSSs) now that the current three-year methodology freeze has ended, including those changes necessary to incorporate data from Census 2001 to replace Census 1991 data. These changes particularly affect the FSS for personal social services.

School Funding

The new arrangements for school funding from 2006/07 were set out by the Minister of State for Schools on 21 July 2005. At the same time the Department for Education and Skills (DfES) launched a further consultation paper setting out a modified method of distributing the Dedicated Schools Grant (DSG) in 2006/07 and 2007/08. This consultation is the result of responses from a number of authorities which currently spend in excess of Schools FSS, as Hampshire County Council does, which expressed concern that this additional funding put into schools would be lost over time. The Government therefore proposes that all authorities receive the same minimum increase per pupil as an addition to their baseline, with each school's budget for 2005/06 being used to establish this baseline. The remaining funding would then be distributed according to other formula based criteria.

These events were followed by another announcement in August detailing the distribution details and conditions of the additional funding being made available to improve the quality of school meals. This will take the form of two Standards Funds grants:

· Targeted School Meals Grant payable to local authorities with 70% of the grant allocated according to pupil numbers, and 30% on free school meals

· School Meals Grant to be paid to all schools and Pupil Referral Units

Local Transport Plan Funding Allocation

This consultation detailed proposals to change the way that financial allocations for integrated transport are calculated for local transport plans (LTPs). LTP allocations are made for:

· major schemes costing more than £5 million (assessed and funded on a case-by-case basis)


· maintenance expenditure (calculated by formula which takes into account the length and condition of roads in each authority's area

· all other transport capital schemes costing less than £5 million including new roads, junctions, footpaths, cycleways, bus stations, bus stop and bus lanes.

The Government now proposes that integrated transport allocations should be calculated by a formula rather than by assessment of the LTP submissions. This will mean that all LTPs must be written to show how the allocations produced by the formula would be used. The consultation detailed the formula and whether it should be phased in over three or five years.

The proposed changes to the formula grant distribution were considered against the background of the Government's decision to postpone the revaluation of council tax and to defer the implementation of improvements to the local taxation system by extending the timescale of the Lyons Inquiry into Local Government Funding. The Cabinet viewed the proposals with great concern as the council tax, in its current form coupled with the current council tax benefit system, has become unsustainable as the sole basis for local taxation. As things stand, further strain will be put on the council tax in 2006/07 which cannot be sustained in the longer term. The problem is compounded by the transfer of schools funding to specific grant, as the remaining local authority spending is now planned by the Government to increase by 4.5% in 2006/07, but supported only by a grant increase of 1.7% which will lead to above inflation council tax rises of 7.5% nationally. It was in this context that the Cabinet viewed with alarm the options included in the consultation paper to transfer further grant away from Hampshire which in the long term could mean a loss of as much as £37 million which would add a further 9% to the council tax. The Cabinet was also particularly concerned about the potential impact of the revised formula spending shares for personal social services. Although it welcomed the Government's decision to abandon the most damaging of the options for older people, it similarly urged the Government to make the same concession for younger adults, the formula for which has been produced from data taken from an inadequate sample and is therefore not statistically robust.

In respect of a modified distribution method for school funding, the Cabinet considered that the timescales for introducing the new mechanism were too short to allow implementation in 2006/07. Whilst it was appreciated that local authorities and schools would be guaranteed the minimum 5% per pupil increase above the agreed current base, growth above this will be of key importance to schools and a full and open debate on the rationale for change was therefore viewed as essential. In respect of the additional school meals funding, it is the Government's expectation that local authorities will lead the development and implementation of a local strategy to deliver a high quality, sustainable meals service. The School Meals Strategy will need to be developed to meet the requirements of the Targeted School Meals Grant and submitted to the Executive Member for Education for approval in due course.

In respect of the Local Transport Plan funding, early indications are that the introduction of a new formula methodology would lead to an 8.2% reduction in funding allocation over the five year period of the Plan, depending on how soon the current transitional arrangements end. Although allocations may be increased by way of a reward grant for as much as 25% depending on the strength of an LTP, such funding will have to be taken as reductions from poor performing authorities. The Cabinet expressed concern that the new formula took little account of the effectiveness of existing transport infrastructure and services and that the proposals for allocating reward funding would not be fully effective. They therefore took the view that implementation should be deferred for at least a year to allow for proper consideration of the formula and variables, and if a formula is used it should be phased in to allow authorities time to adjust their spending programmes to meet the revised allocations.

The Cabinet are determined to fight for a better deal for Hampshire and in approving responses to the consultation papers, agreed that a letter be sent to the Office of the Deputy Prime Minister highlighting the strong concerns expressed by Members. A copy of the responses can be obtained on request from Democratic Services in the Chief Executive's Department.