August 16th 2023
Public service funding mismatched with local needs – report
Funding systems for many public services across England are out of step with actual need, the independent Institute for Fiscal Studies (IFS) has warned.
IFS research shows deprived areas get a lower share of local government and police funding than they are estimated to need, while suburban and rural areas get a lower share of public health funding.
Funded by the Health Foundation think tanks, the IFS estimated the level of funding for key public services in each council area in England in 2022/23 and compared this to estimates of their relative spending needs.
In 2022/23, day-to-day spending on NHS, local government, schools, police and public health in England amounted to more than £245bn, equivalent to £4,310 per person. The IFS said there were substantial differences between the share of funding areas receive, and the share they would receive if funding was allocated in line with their different levels of need.
This is particularly stark for local government, following repeated delays to plans to reform the funding system. Wokingham received 45 percent more local government funding in 2022/23 than it would have if total funding were allocated in proportion to need, while Hounslow received 31 percent less. The IFS said this was only partly explained by different council tax levels.
NHS funding is relatively well-targeted towards estimated spending needs, with two-thirds of areas receiving a share of funding within five percent of their share of estimated needs. This reflects the fact that NHS funding is allocated based on relatively up-to-date assessments of needs.
But local government funding system has broken down, the IFS warned. Even if all areas set the same council tax rates, the South East would still receive a share of funding nine percent higher than its share of estimated spending needs, and the North East five percent lower. This means there is inconsistent funding across the country for services such as social care, housing, transport, leisure centres and libraries.
The most deprived fifth of areas receive a share of total funding three percent lower than their share of estimated needs, while the least deprived fifth of areas receive three percent more. This pattern is driven almost entirely by local government funding, where the gaps are much starker (nine percent less for the most deprived and 15 percent more for the least deprived).
A few areas receive much less funding than their share of spending needs across multiple services. Dudley in the West Midlands receives £127 per capita less for the NHS, £122 less for local government and £47 less for police services than if the nationally-available funding were allocated in line with estimated relative spending needs.
The IFS said the government’s estimates of the relative needs of different areas had not been updated for a decade, and relied on data from even longer ago.
Kate Ogden, senior research economist at the IFS and an 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 this issue will take several years at least and will create losers as well as winners, which will be particularly obvious when overall funding is constrained. But the government should commit to – and set out a time frame for – the necessary 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’.’
Image: Micheile Henderson
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