The most recent assessment of local authorities\u2019 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>
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>
At present the Government is carrying out a fair funding review of local authorities\u2019 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\u2019 relative need to spend on services and their capacity to fund these from local resources.<\/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>
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