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<p>The Government is undertaking a review of the relative needs and resources of local
authorities in England, with a view to setting fresh baseline funding levels in 2020-21.
We are working closely with local government representatives and others to consider
the drivers of local authorities’ costs, the resources available locally to fund services,
and how we should account for these in a way that draws a more transparent and understandable
link between local circumstances and resource allocations.</p><p>In December 2018
the Government published a consultation paper, which set out a proposed approach to
assessing the relative needs of local authorities. Our analysis has shown that for
many universal services, the number of people in each local authority area is the
most important predictor of the costs that councils face in delivering those services.
The consultation therefore proposes the introduction of a simple population-based
Foundation Formula to account for many of the universal services that local authorities
deliver, alongside several specific funding formulas for some of the largest and most
complex service areas.</p><p>To understand whether including additional ‘cost drivers’,
including deprivation, significantly improves the precision of the Foundation Formula,
a comparison was made between the amount of variation in past expenditure that was
explained by different combinations of cost drivers, to the total amount of variation
in expenditure. The basis on which this comparison was made is set out in pages 19
to 21 of the consultation paper (link below). Whilst, in aggregate terms, deprivation
was not shown to be a major cost driver for the services included in the Foundation
Formula, to ensure that deprivation is appropriately accounted for in the relative
needs assessment, deprivation, or a suitable proxy for deprivation, is taken into
account in four of the service-specific formulas that were proposed.</p><p><a href="https://www.gov.uk/government/consultations/review-of-local-authorities-relative-needs-and-resources"
target="_blank">https://www.gov.uk/government/consultations/review-of-local-authorities-relative-needs-and-resources</a>.</p>
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