Liverpool and the North Discriminated against in funding formulas

The Leader of the Liberal Democrats in Liverpool and former Leader of the Liberal Democrats in Local Government Cllr Richard Kemp will be visiting Whitehall on the eve of the local government financial statement to meet the Deputy Prime Minister’s senior advisers.

Cllr Kemp will take with him a  comparison between Liverpool and two southern unitaries which indicates that in the three years 10/11; 11/12 and 12/13 Liverpool will have received a real terms cut in Government funding of 26.6% whilst Central Bedfordshire’s equivalent is 18% and Milton Keynes is 17.8%.

Furthermore the research shows that in the 6 years up to 2016/17 the cumulative impact will mean a 52% reduction in Liverpool’s Government funding.

It also shows that funding streams which are supposed to help the North will mean further attacks upon their budgets with the New Homes Bonus being taken out of the national pot on an even basis but returned to high growth areas on a higher basis.

It also raises concerns that the growth in population as recorded in the census will not be recognised in the allocation of resources in future.

Cllr Kemp said, “I want to bring home to senior Whitehall advisers that there are unintended consequences of the applications of national funding formulae. The methodology clearly takes no account of the aggregation of poverty in inner cities, including London, which are bearing the brunt of cuts. It is certainly not Liberal Democrat policy to discriminate against the poor as the local government funding formula clearly does.

Instead of the empty rhetoric of the Mayor of Liverpool I am hoping that this detailed study will make policy makers realise the depth of the problems that we face and react as favourably as possible with all funding streams.

Cllr Kemp is available on 07885 626913 and will also be available on this number after the meeting which takes place at 2 p.m. on Wednesday 19th December at the Cabinet Office.

THE REPORT

LIVERPOOL’S FINANCIAL SETTLEMENT

COMPARISON STATISTICS WITH CENTRAL BEDFORDSHIRE

 

PURPOSE

This briefing note:

  1. highlights the differential impact of the public sector cuts using the contrasting outcomes of Liverpool with Central Bedfordshire and provides evidence as to how and why this has occurred;
  2. demonstrates  the scale of the socio-economic challenges in Liverpool compared with Central Bedfordshire in the context of these differential cuts;
  3. summarises the progress Liverpool is making locally on financing local growth and what more Government can do to help, an agenda which is clearly at odds with the impact the cuts are having on places and economies such as Liverpool.

SUMMARY

  • Had Liverpool’s funding been reduced in line with the national average, the City would have received £407.6m in government grants rather than the £369.4m (2012/13) – a difference of £38.2m. In real terms, this cumulates in a reduction from 2011/12 to 2016/17 of 52.1%.
  • Specifically, between 2010/11 and 2012/13, Liverpool has experienced a real terms reduction of central government funding of 26.6% while Central Bedfordshire’s equivalent figure is 18% and Milton Keynes; figure is 17.8%. This translates to a real terms reduction per head of population of £276.97 compared to £54.18 for Central Bedfordshire and £82.37 for Milton Keynes.
  • There are inherent flaws in the funding and distribution formula which fails to recognise the socio economic challenges in Liverpool compared to an Authority such as Central Bedfordshire.

Indicator

Liverpool

Central Bedfordshire

Milton Keynes

Jobseeker’s Allowance, Oct 2012

6.8%

2.4%

3.6%

ESA and Incapacity Benefits, Feb 2012

11.8%

3.7%

4.9%

Key Out Of Work Benefits, Feb 2012

22.0%

7.8%

11.3%

Free School Meals – Nursery and Primary, Jan 2011

23.3%

7.7%

12.6%

Free School Meals – Secondary, Jan 2011

20.4%

5.6%

8.8%

Life Expectancy at Birth – Male, 2008 – 2010

74.8

79.5

78.1

Life Expectancy at Birth – Female, 2008 – 2010

79.2

83.0

82.2

Percentage of LSOAs in the most Deprived 10%, IMD   2010

51%

0%

5%

Number of LSOAs in the 100 Most Deprived, IMD   2010

22

0

0

  • While Liverpool has over 50% of its neighbourhoods classed as being in the most deprived 10% nationally, Central Bedfordshire and Milton Keynes have none or very few of their neighbourhoods in that position. Other indicators such as unemployment and worklessness, free school meals and levels of ill health are all substantially higher in the Liverpool than the comparator areas.
  • Liverpool will also see a detrimental financial effect from the New Homes Bonus distribution. The distribution method for the New Homes Bonus inherently favours those local authorities where the tax base is comprised of higher banded properties and where there is greater potential for building new homes on land without having to first demolish older properties. In addition, the Government are proposing to fund the New Homes Bonus by topslicing funds from the funds available for distribution under the business rates retention system.
  • A projection of future New Homes Bonus likely to be received by 2018/19 and of funding lost as a result of the eventual £2 billion top slice shows Liverpool could lose over £26 million as a result of the funding being distributed as part of New Homes Bonus rather than forming part of the start up funding allocations under the Business Rates Retention system.
  • There is clearly a disconnect between these differential impacts on major cities such as Liverpool and the Government’s growth agenda, which recognises the importance of core cities to grow the national economy.
  • Liverpool is doing all that it can locally to align various funding streams into a ‘Single Pot’ – that allows for investment decision making against a strategic plan (the Mayor’s Framework for Growth) , local prioritisation and the ability to act fast when a significant investment opportunity arises. Government can support this model by:
    • further devolution of funding directly to the City;
    • allowing the Mayor to access the funding streams announced in the Autumn Statement directly and not through the LEP;
    • devolving EU funds at the City and LEP level;
    • accepting that while a model of recyclable finance such as GPF is welcome, there are limitations to this approach in the City where the reality of the situation is that the private sector needs some inducement to invest;
    • engaging with the Mayor on local revenue raising schemes such as a locally administered tourism tax.

Detailed Notes

Financial Settlement

  • The table overleaf compares the reduction in Government grant funding for General Fund services from 2010/11 to 2012/13. It is based upon the Government’s own ‘Revenue Spending Power’ figures which encompass Formula Grant, most other government grants and council tax.
  • Excluding the council tax element gives a total for Government grant funding for each local authority which ties back to the Government’s own figures. In order to provide an accurate ‘like for like’ comparison, the figures have also been adjusted to exclude Housing and Council Tax Benefit Subsidy which was not included in the Government’s Revenue Spending Power calculation for 2012/13 and NHS Funding to Support Social Care & Benefit Health which was largely new funding from 2011/12 and not included in the 2010/11 figures.
  • It shows that Liverpool has suffered a loss in funding over the two years of £104.7m or 22.5% of its “adjusted” Revenue Spending Power (i.e. excluding the items referred to above). This equates to a reduction in funding of £234.85 per head using the 2012 Sub National Population Projections which formed the basis of the 2012/13 settlement. Taking inflation into account, the loss in real terms is 26.6% over the two years or £276.97 per head.
  • By contrast, Central Bedfordshire has suffered a loss of £10.2m or 12.9% of its “adjusted” Revenue Spending Power. This equates to a reduction in funding of £38.86 per head or, taking inflation into account, a loss in real terms is 18% over the two years or £54.18 per head.

 

  • Milton Keynes has suffered a loss of £14.7m or 12.9% of its “adjusted” Revenue Spending Power. This equates to a reduction in funding of £59.90 per head or, taking inflation into account, a loss in real terms is 17.8% over the two years or £82.37 per head.

New Homes Bonus

  • New Homes Bonus was introduced in 2011/12 and was initially conceived as a way of compensating local authorities for the loss in Formula Grant funding that they would have suffered under the current ‘four block funding’ system as a result of the increase in their council tax base. In effect, the more new homes that are built or brought back into use, the higher the council tax base, the more income can be generated from council tax receipts and the less requirement there is for Formula Grant. It was the Government’s view that this acted to deter local authorities from building new homes or from bringing empty homes back into use.
  • Under the new Business Rates Retention system due to commence from 2013/14, local authorities will no longer lose funding as a result of any increases in the council tax base and therefore the whole reason for the existence of New Homes Bonus is swept away.
  • Nevertheless, the Government is to persist with New Homes Bonus and furthermore, rather than providing extra funding, the intention is to top slice the funding available for distribution under the Business Rates Retention system by eventually up to £2 billion. This funding would previously have formed part of the base line funding for each local authority and would have been distributed on a relative needs basis at the start up of the new scheme. It will now no longer be distributed on a needs basis but on the basis of future increases in the council tax base.
  • This method of distributing funding inherently favours those local authorities where the tax base is comprised of higher banded properties and where there is greater potential for building new homes on land without having to first demolish older properties.
  • A projection of future New Homes Bonus likely to be received by 2018/19 and of funding lost as a result of the eventual £2 billion top slice shows Liverpool could lose over £26 million as a result of the funding being distributed as part of New Homes Bonus rather than forming part of the start up funding allocations under the Business Rates Retention system.


 

Liverpool

Central Bedfordshire

Milton Keynes

£m

£m

£m

2010/11
Revenue Spending Power (RSP)   2010/11

635.909

206.163

207.414

Less Council Tax Requirement

163.987

126.144

91.266

Government Grant Funding   Included in RSP

471.922

80.019

116.149

Less Housing & CT Benefit   Subsidy (Not included in 2012/13 RSP)

7.308

1.537

2.265

Total General Government Grants   2010/11

464.614

78.482

113.884

2011/12
Revenue Spending Power (RSP)   2011/12

579.949

202.558

200.406

Less Council Tax Requirement

163.987

126.144

91.266

Government Grant Funding   Included in RSP

415.962

76.414

109.140

Less Housing & CT Benefit   Subsidy (Not included in 2012/13 RSP)

7.508

1.510

2.144

Less NHS Funding to Support   Social Care & Benefit Health
     (New funding from 2011/12 to reflect new   responsibilities)

8.112

2.252

2.385

Total General Government Grants   2011/12

400.342

72.652

104.611

Reduction in 2011/12

-64.272

-5.830

-9.273

Reduction %

-13.8%

-7.4%

-8.1%

Adjustment to 2011/12 for   Comparison With 2012/13

-1.197

-0.690

-0.707

Adjusted Total General   Government Grants 2011/12

399.145

71.962

103.904

2012/13
Revenue Spending Power (RSP)   2012/13

530.461

195.959

192.028

Less Council Tax Requirement

163.987

126.144

91.266

366.474

69.815

100.762

Less NHS Funding to Support   Social Care & Benefit Health
     (New funding from 2011/12 to reflect new   responsibilities)

7.742

2.183

2.330

Total General Government Grants   2012/13

358.732

67.632

98.432

Reduction in 2012/13

-40.413

-4.329

-5.472

Reduction %

-10.1%

-6.0%

-5.3%

Total Reduction in Government   Funding Since 2010/11

-104.685

-10.160

-14.745

Total Reduction %

-22.5%

-12.9%

-12.9%

Total Reduction Including   Council Tax %

-16.7%

-5.0%

-7.2%

2012 Sub National Population   Projections

445,758

261,431

246,153

Reduction Per Head

-234.85

-38.86

-59.90

Total Real Terms Reduction   Since 2010/11

-123.460

-14.164

-20.275

Total Real Terms Reduction %

-26.6%

-18.0%

-17.8%

Real Terms Reduction Per Head

-276.97

-54.18

-82.37

Unemployment

  • Liverpool JSA Rate October 2012 = 6.8%
    Central Bedfordshire JSA Rate October 2012 = 2.4%
    Milton Keynes JSA Rate = 3.6%
    Liverpool’s JSA Rate is double the rate of Central Bedfordshire and almost double that for Milton Keynes.
  • Total worklessness is 3 times higher in Liverpool than Central Bedfordshire and over double than in Milton Keynes, as are the numbers claiming Incapacity Benefit or ESA indicating a much greater challenge in moving people back into work.  In some neighbourhoods in Liverpool, the rate of worklessness is in excess of 50%.

Liverpool

Central Bedfordshire

Milton Keynes

JSA October 2012

6.8%

2.4%

3.6%

ESA and Incapacity Benefits Feb 2012

11.8%

3.7%

4.9%

Worklessness Feb 2012

22.0%

7.8%

11.3%

Deprivation

  • Liverpool is ranked the most deprived local authority in England on the 2010 Indices of Deprivation.
  • While Liverpool has over half of the city classed as the most deprived 10% nationally and has over a fifth of the LSOAs ranked 1-100 out of 34,000 nationally, Central Bedfordshire has no LSOAs in that position and Milton Keynes has only 5% of its neighbourhoods in the most deprived 10% nationally.

Liverpool

Central Bedfordshire

Milton Keynes

Percentage of LSOAs in the most Deprived 10%

51%

0%

5%

Number of LSOAs in the 100 Most Deprived

22

0

0

Source: Indices of Deprivation 2012

Free School Meals

  • The percentage of pupils in Liverpool taking free school meals is over three times the rate in Central Bedfordshire and over double that for Milton Keynes.
  • 23.3% of pupils in Liverpool’s maintained nursery and state-funded primary schools take free school meals compared with 7.7% in Central Bedfordshire and 12.6 in Milton Keynes.
  • 20.4% of pupils in Liverpool’s state funded secondary schools take free school meals compared with 5.6% in Central Bedfordshire and 8.8 in Milton Keynes.

Health – Life expectancy at birth 2008-2010

 

Liverpool

Central Bedfordshire

Milton Keynes

Male

74.8

79.5

78.1

Female

79.2

83.0

82.2

  • Socio economic factors and deprivation combine to mean that Liverpool faces substantially greater health challenges. For example on average Liverpool’s residents live between 3-5 years less than residents in Central Bedfordshire or Milton Keynes. The position in some of Liverpool’s most deprived neighbourhoods would be substantially worse.

Population

  • In Liverpool, the results of the 2011 Census show that the city’s population increased by 6.1% (27,000 people) between 2001-11. If this trend were to continue, in the future we would expect the city’s population to increase by 7.8% (35,800 people) between 2011 and 2021.
  • However, ONS’s interim projections being used for the new financial settlement project the population of Liverpool to fall by 1.4% (6,414 people) by 2021.
  • This anomaly between the census and projections data, which we understand is repeated in a number of other Local Authority areas (in particular those Local Authorities where the population has grown significantly since 2001, many of the major cities and other Local Authorities with young populations and large student populations), would lead us to seriously question the accuracy of the 2011-based interim population projections.
  • The reason for the anomaly is because ONS are using trends based on data that pre-dates the Census rather than the Census itself to project forward the population. In the case of Liverpool these trends do not appear to reflect Liverpool’s rapid growth of recent years.

Unlocking Growth Agenda – Local Finance for Growth in Liverpool

  • The City Council is in the process of bringing together a wide range of funding streams and assets and matching these with private sector funding to create “a single pot” that will enable the City to respond flexibly and quickly to capture economic opportunities. This is an evolving model but it is our intention to pool public funding streams into a single investment pot, encompassing income from business rate uplift in the EZs, public assets and other funding as it becomes available. The funding to support regeneration comes from many different sources each with their own criteria and objectives. Liverpool is thus forced to respond tactically to opportunities to secure economic development funds as and when possible (for instance GPF, RGF etc).  The City and Mayor are attempting to mitigate some of the difficulties caused by this plethora of funding by pulling together and aligning funds into a ‘Single Pot’ – that allows for investment decision making against a strategic plan (the Mayor’s Framework for Growth) , local prioritisation and the ability to act fast when a significant investment opportunity arises
  • The announcement of various funding initiatives such as the Single Pot, additional RGF in the Autumn statement was welcome but Liverpool needs to be able to access these directly not just through the LEP. A directly accountable Mayor, with a different approach to investment should be able to access these funds directly, in line with the localism agenda and supporting our ability to direct funding as appropriate to local priorities through the Mayoral Development Corporation
  • A move towards the use of recyclable finance instead of grant is generally welcome, however, the economic conditions could not be worse for such a transition.  Growing Places funds is a case in point. Liverpool and Liverpool City region has undertaken to operate GPF as a revolving fund – and will do our best to deliver this – but the reality is that this type of approach will be much more applicable in areas of the South and South East where the private sector wants to invest, as opposed to the situation here where the private sector often needs an inducement to even consider an investment.
  • Liverpool and Liverpool City Region will be designated as a Transition Region for EU funding in the period 2014 – 2020, meaning that we should receive a ring-fenced funding allocation, increased grant intervention rates, and greater flexibility regarding what activity EU funding is allowed to support.  EU funding is an integral element of the Mayor’s Framework for Growth where it is aligned with national, local and private sector funding to support delivery of  key priorities around employment, job creation, skills, tackling exclusion, a high value economy, energy efficiency & renewable energy, urban transport, the low carbon economy, cultural heritage and the urban environment.  It is thus important that management and delivery of EU funding for 2014 -2020 is delegated to the city and LEP in order to ensure that it is targeted on local priorities and integrated with local activity, in order to ensure maximum value and benefit to Liverpool.
  • Fiscal power is seen as an essential element for mayoral success In the US, fiscal power – through property taxes, business taxes, sales taxes, tourism taxes, user fees, financing mechanisms like TIFs and ballot box referenda – is a necessary foundation of, and impetus for, the entrepreneurial and innovative way in which mayors work. While the Localism Act grants cities “general powers of competence,” this does not include the power to raise or introduce new local tax schemes.  Some form of locally administered tourism tax would be a good first opportunity for Liverpool to explore but this is currently not allowed – government’s preferred TBID option could take until 2015 to implement nationally and is problematic in the Liverpool context.
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One Response to Liverpool and the North Discriminated against in funding formulas

  1. Pingback: Sefton Focus | Austerity and local government – Is it fair, will it work and what will be the consequences?

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