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£4.1 billion funding disparity across devolved nations

English communities are being short-changed by as much as £4.1 billion a year because of an outdated 1970s model for allocating spending across the Union, new analysis by the Local Government Association reveals.

The LGA, which represents councils in England and Wales, is calling for the 34-year-old Barnett Formula to be replaced with a needs-based model, with the repatriated money spent addressing the funding crisis engulfing adult social care.

The Barnett Formula was devised as a temporary means of resolving disputes over funding allocation in the run up to the defeated Scottish and Welsh devolution referenda in 1979. It is based on population breakdown, rather than need. Because spending in Scotland and Wales was proportionally higher per person in 1979 the formula has cemented in place an anomaly in which the distribution of public funding per person by Whitehall departments remains significantly higher in Scotland, Wales and Northern Ireland than it is in England.

The Barnett Formula does not take into account local taxation revenue and with devolution handing tax raising powers to Scotland, and proposals now on the table for a referendum potentially giving Wales income tax raising powers, the LGA believes the question is not when Barnett will be replaced, but what will replace it. The LGA is working on alternative funding proposals which it will publish in summer next year and is calling on all major political parties to make the introduction of a needs-based alternative to the Barnett Formula a cornerstone of their pre-election manifestos.

It is also calling for the money which would be repatriated to England as a result of such a recalculation to be used to address the crisis in adult social care. In particular, the LGA is calling for the money to spent addressing the growing demand for council social care services, and used as seed funding to establish a Government-backed national care loans scheme to help people pay for care in their old age. The deferred payment scheme would work in a similar way to student loans, with people able to borrow to pay for care, but against their estate, to help them manage the shift towards individual responsibility to meet personal care costs.

The ageing population is increasing demand for council-run adult social care services by 3 per cent each year, meaning councils have to find an extra £400 million per annum to deliver adult social care. However, councils' central funding is being cut by 43 per cent (the equivalent of £20 billion) placing social services under enormous strain and leading to reductions in services and a tightening of eligibility criteria.

Sir Merrick Cockell, Chairman of the LGA said:

"The Barnett Formula has passed its use-by date. It is an historic relic from a time when the Government stopped people taking more than £50 on a holiday abroad. What was only ever intended as a stop-gap solution has now become a major problem which is short-changing English communities and underfunding their public services by £4.1 billion a year. We now need a fair and equitable distribution of public money across the Union.

"The crisis engulfing adult social care demands a shift to a needs based formula for distributing funding. Our ageing population means that there is an enormous increase in demand for council-run adult social services which must be met to ensure people retain dignity as they get older. The Government also has to take action to ensure people can plan with confidence for the financial needs of old age. A national care loans scheme would provide peace of mind to people and put financial sustainability into a system which is creaking at the edges.

"The move toward greater devolution and tax raising powers for Scotland and Wales means that this costly historical anomaly has to be addressed as a matter of urgency. It will only become more difficult to fix as the tax regime becomes more complex. The major political parties should all make the introduction of a needs-based formula a cornerstone of their pre-election manifestos and the Chancellor should look to lay the groundwork for it in his Autumn Statement."

Notes to editors

Devolved funding – a brief per capita analysis (PDF, 1 page, 208KB)


Dale Atkinson
Senior Media Relations Officer
Local Government Association
Telephone: 020 7664 3283

Local Government House, Smith Square, SW1P 3HZ


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