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<p>The most recent assessment of local authorities’ relative needs and resources took
place in 2013-14 alongside the introduction of the 50 per cent business rates retention
system. The demand for local services was assessed through funding formulas which
took into account the relative cost of delivering services across the country, including
London.</p><p>The costs of providing comparable services differ between areas partly
because of their differing characteristics (such as numbers of elderly people, or
lengths of road) and partly because of differences in the costs of inputs which local
authorities need to buy. An area cost adjustment is included in the current assessment
to allow for the latter of these differences, and reflects two sources of differences
in costs between areas: differences in labour costs; and differences in business rates
paid on local authority premises.</p><p>At present the Government is carrying out
a fair funding review of local authorities’ relative needs and resources, and we are
working closely with the Local Government Association and representatives from across
local government to ensure that we consider all the issues that impact on authorities’
relative need to spend on services and their capacity to fund these from local resources.</p><p>Amongst
the issues we will consider are the impact of geographical factors such as area-related
costs and rurality, and how to account for these within a new methodology.</p><p>
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