MPs warn over 'unfair' council funds formula

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Complex and difficult funding formulas mean some councils are missing out on vital cash while others receive double the amount they need, a group of MPs has said.

The House of Commons public accounts committee said that to prevent big spikes or dips in the money awarded to local authorities under the formula grant the government prioritises stability over need.

The cross-party group of MPs said this would mean one in five authorities receive funding that is more than 10 per cent higher or lower than they should.

The report said that Wokingham in Berkshire received twice the cash it should have whereas other councils were awarded well below what they needed.

It also reported that basing education allocations on spending patterns dating back to the 1980s meant the money being awarded to similar schools can vary by as much as 40 per cent.

The report looked into the way that three formula-based grants, the Primary Care Trust allocation, the dedicated schools grant and the formula grant, are allocated.

The funding pays for health, education, local government, police and fire and rescue services and account for 20 per cent of all government spending (£152bn in 2011-12).

Some of the cash awarded is made on the basis of out of date information, including the 2001 Census, the MPs said.

The report found the current system was "complex and difficult" to understand and often resulted in public bodies getting the wrong amount of money.

Committee chair Margaret Hodge said: "The current system for distributing central government funding to local bodies is complex and difficult to understand, and too often results in local public bodies getting the wrong amount of money, which is not fair to local communities.

"£152bn, one-fifth of all government spending, was allocated in 2011-12 in the form of three formula-based grants. This funding pays for health, education, local government, police and fire and rescue services.

"It is essential that this money is distributed fairly, consistently and transparently - but we found that this is not always the case."

For the government, local government minister Bob Neill said: "The system has weakened local accountability, given councils no reason to promote economic growth, and meant local funding was dictated by bureaucratic formula not local need.

"By letting councils keep the products of enterprise, we will end their demoralising dependence on government handouts, finally start rewarding economic growth and support local firms and new jobs."