The level of funding allocated for a range of key public services is often below the amount required to meet the needs of many poorer communities, a study has found.
The Institute for Fiscal Studies (IFS) think tank said the Government’s use of old data to distribute funding has led to significant gaps between the share some areas receive and the amount they would be given if allocations were calculated using more up-to-date estimations of local demand.
Analysis of the £245 billion available across the NHS, schools, local government, police and public health in 2022-23 showed the highest levels of funding per capita were allocated to inner London boroughs and relatively deprived areas in the North of England, including parts of Greater Manchester, Liverpool and Teesside.
The more affluent rural areas received the least funding per head.
But the study paints a more inconsistent picture when funding levels were directly compared to allocations which reflect estimated current spending needs. These were based on Government assessments updated by the IFS using new data on all areas.
NHS funding was described as “relatively well-targeted” as two-thirds of areas received allocations within 5% of their share of estimated needs due to the Government using more up-to-date information to assess demand.
However, the IFS said the system of funding for local government, taking into account the level of needs and capacity to raise revenue through mechanisms such as council tax, has “broken down”.
It found only 39 council areas out of 150 received a share of funding that was within 5% of their share of estimated spending needs.
“This means there is inconsistent funding across the country for services such as social care, housing, transport, leisure centres and libraries,” the IFS said.
Based on a scenario in which all councils set the same level of council tax, the analysis found local authorities in the more affluent South East would still have received a share of funding 9% higher than the share it required to meet spending needs.
Meanwhile, the North East with higher levels of deprivation would have received a share 5% lower than required.
The study highlights that repeated delays to reforms of the local government funding system have perpetuated “particularly stark” differences in funding allocations.
For example, affluent Wokingham in Berkshire received 45% more local government funding in 2022–23 than it would have if total funding was allocated in line with current needs, while more deprived Hounslow received 31% less.
This variation is only partly explained by the councils setting different council tax levels, the IFS said.
The think tank found the majority of areas receive a lower funding share than they required for some services but a higher share than required for others.
However, a small number of areas were given a significantly lower share based on the scale of their spending needs across multiple services.
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— Kate Ogden, IFS senior research economist
Dudley in the West Midlands received £127 per capita less for the NHS, £122 less for local government and £47 less for police services than if all available funding was allocated in line with relative spending needs.
Taking into account all funding for the NHS, local government and public health, areas in the West Midlands overall were allocated £126 per capita less funding on average than required.
While areas in the North West received slightly more funding than their share of estimated needs for all services, this hid some some significant funding gaps for some services.
Manchester was found to have received 23% less local government funding per capita and Cumbria 26% less public health funding per capita than their individual shares of estimated needs.
Moreover, the most deprived fifth of areas in England received a share of total funding that was 3% lower than their share of estimated needs, while the least deprived fifth receive 3% more.
The IFS said the pattern is driven “almost entirely” by starker gaps in local government funding.
IFS senior research economist, Kate Ogden, 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.
“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.”
Jo Bibby, director of health at the Health Foundation, said local government funding “is critical for the building blocks of good health, such as secure housing, good education and green spaces”.
She added: “There must be marked improvement in funding allocation, transparency, and support for local areas to address specific needs.
“Without this, we will not see reductions in the inequalities across the country that all our policymakers, regardless of party, have committed to tackling.”
A Department for Levelling Up spokesperson 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% more per household in available resource than the least deprived areas.”
