Public Expenditure in the East of England

A report for the East of England Strategic Authority Leaders Group 1. Background

1. The allocation of public expenditure to different parts of the UK has been the subject of considerable

interest and controversy in recent years. For example, the Barnett Formula, used for the last 30 years to distribute public spending between England, Scotland, Wales and Northern Ireland, has come under increasing scrutiny, leading to keen and often acrimonious political debate on the disparities in funding across the four nations of the UK. Within England, the geographical distribution of funding, such as grants to local authorities, has been an extremely contentious issue. In addition, the growing interest in the role regions can play in supporting economic growth and wider social development has led to increasing attention paid to the quantum of public resources allocated to regions and to comparisons between them.

2. The “credit crunch” and resulting economic slowdown seem certain to result in even greater emphasis

being placed on both the fairness and effectiveness of the distribution of public spending within England. The Government’s finances are certain to come under increasing strain, as a result of the downturn in tax revenues and pressures on expenditure from increasing unemployment. There seems little prospect of any significant growth in spending on key public services over the next few years. Therefore there is likely to be an increased focus on the distribution of resources to different parts of the country.

3. The public spending plans for the period 2011/12 to 2013/14 will be set out in the next Spending

Review. The timing of this announcement is uncertain – it is now unlikely to be before autumn 2009. The next Spending Review will provide a key opportunity for organisations such as the East of England Strategic Authority Leaders Group to work with others to develop a case and put arguments to Government about the pressures on public services and the opportunities that exist to tackle the economic and social challenges in the region.

4. It should also be noted that there are currently two major reviews of the distribution of funding for key

local services. There is a review of the methodology of the allocation of formula grant to local authorities and a review of the funding for schools. Both reviews will report during 2010 and any changes to the formulae used to distribute central government support will take effect from April 2011.

5. This research report examines how the East of England fares in terms of the allocation of public

spending in the UK and more particularly compared with other regions within England. It provides baseline data that can be used to identify particular themes or issues for further exploration. In particular the research examines:

the share of total public spending allocated to the East of England, both in overall amounts and

per head of population;

whether this share has changed in recent years;

evidence on the balance between the amount raised through taxation and public spending in the region;

evidence on the funding of local services, both the share of formula grant for local authorities in

the region and also the principal specific and area based grants;

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funding allocated to schools;

police funding;

levels of council tax, at both taxpayer level and in band D equivalents;

health spending – particularly funding to Primary Care Trusts.

6. The research analyses and assesses data from a wide range of government and other sources. A key

source is the annual Public Expenditure Statistical Analyses (PESA) from HM Treasury. The research also examines data on formula grant for 2008/09 produced by the Department of Communities and Local Government, information on specific grants and other area based grants produced by individual Government Departments, and data on allocations to Primary Care Trusts (PCTs).

2. The Regional Analysis of Public Expenditure

7. The main source of data on public spending at a regional level is the Public Expenditure Statistical

Analyses (PESA) produced annually by HM Treasury. The latest edition, published in April 2008, covers outturn data on regional spending between 2002/03 and 2006/07 and planned expenditure in 2007/08. PESA 2008 is the principal source for the comparisons of public spending between the East of England and other parts of the country examined in the following section. But three issues need to be borne in mind when assessing these figures:

a) Only a small proportion of public spending is allocated and distributed at the regional level. For

example, funding to local authorities takes account of demographic factors, rural and urban characteristics and measures of deprivation, which are applied at local authority level. There are no specific regional-based indicators used in the formulae. Similarly, allocations to Primary Care Trusts are based on demographic factors and a range of socio-economic variables. Social benefits are allocated in relation to the circumstances of individuals irrespective of where they live.

b) There are definitional issues arising from whether spending is recorded “for” the benefit of

residents of a region or occurring “in” the region. For example, schools may not solely benefit the residents of the region in which the school is located. Agricultural support may benefit the consumers of food across the country, and not solely the farmers who receive subsidies. Though it is generally accepted that the “for” method of measuring public spending is preferable, it may be extremely difficult to get precise figures and in practice the differences between the methods are likely to be relatively small.

c) Some public expenditure – for example on defence or diplomatic activities – may be impossible

to attribute as benefiting individual regions or areas. In addition, a number of substantial accounting adjustments are required to make government departmental budgets compatible with National Accounts.

Table 1: Total Expenditure on services by country and region, 2002/03 to 2007/08

£ million As a percentage of identifiable expenditure

2002/03 2003/04 2004/05 2005/06 2006/07 2007/08 2002/03 2003/04 2004/05 2005/06 2006/07 2007/08outturn outturn outturn outturn outturn plans outturn outturn outturn outturn outturn plans

North East 16,049 17,473 18,450 19,770 20,170 21,676 5 5 5 5 4 4North West 41,128 44,582 47,664 50,477 53,153 56,889 12 12 12 12 12 12Yorkshire and Humberside

28,308 30,707 33,038 35,236 36,566 39,203 8 8 8 8 8 8

East Midlands 21,429 23,378 25,363 26,883 28,229 30,474 6 6 6 6 6 6West Midlands

28,719 31,248 33,859 36,126 38,050 40,724 8 8 8 8 8 8

Eastern 25,959 28,583 30,692 32,741 34,632 37,099 7 8 8 8 8 8London 48,357 54,062 57,224 61,624 64,229 68,936 14 14 14 14 14 14South East 38,876 42,409 46,248 48,461 50,783 53,999 11 11 11 11 11 11South West 25,371 28,059 30,264 31,930 33,373 36,004 7 7 7 7 7 7Total England 274,196 300,501 322,802 343,247 359,184 385,005 79 79 79 79 79 79Scotland 33,848 36,478 37,875 41,150 43,718 47,166 10 10 9 9 10 10Wales 19,023 20,356 21,553 23,027 24,237 25,555 5 5 5 5 5 5Northern Ireland 12,618 13,397 14,185 14,954 15,658 17,236 4 4 3 3 3 4UK identifiable expenditure 339,685 370,732 396,415 422,378 442,796 474,962 98 98 97 97 97 97Outside UK 7,465 8,981 10,908 10,995 11,657 13,167 2 2 3 3 3 3Total identifiable expenditure

347,150 379,713 407,323 433,373 454,453 488,128 100 100 100 100 100 100

As a percentage of Total Managed Expenditure

Identifiable expenditure 347,150 379,713 407,323 433,373 454,453 488,128 82 83 83 83 83 83Non-identifiable expenditure

56,461 59,120 62,911 66,105 69,593 79,117 13 13 13 13 13 13

Accounting adjustments 17,427 16,579 21,958 24,726 26,057 21,936 4 4 4 5 5 4Total Managed Expenditure 421,038 455,412 492,193 524,204 550,103 589,182 100 100 100 100 100 100

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Source: PESA 2008 Table 9.1

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3. Overall Public Expenditure in the East of England Region 8. Table 1 sets out expenditure by country and region between the years 2002/03 and 2007/08 in £

million and as a proportion of UK identifiable expenditure. The main points to note are:

Identifiable expenditure by country/region accounts for around 83% of total managed expenditure – the term used for aggregate public spending. 17% of the total cannot be identified to specific regions or are the result of accounting adjustments.

The East of England region benefited in 2007/08 from just over £37 billion of identifiable

expenditure, some 7.6% of total identifiable expenditure in the UK, compared with a 9.3% share of the UK’s population.

The shares of identifiable expenditure are very stable over the six financial years both at a

country level and between English regions. No regions experienced a change to its share of more than one percentage point.

9. Table 2 provides an analysis of regional spending in England on a per head basis. The population data

used to calculate the per-head figures are derived from the Office of National Statistics estimates of mid-year population, including a projection for 2007. Though many local authorities have raised concerns about the reliability of their population estimates from ONS, they remain the best data available, and are unlikely to distort significantly the analysis at a regional level.

10. A revealing picture of how the East of England region fares in the allocation of public expenditure is

given in Table 2:

Between 2002/03 and 2007/08 the East of England received around 87% of the average spending per head for England. For example, in 2007/08 planned expenditure per head in the East of England was £6,555, in comparison to an average of £7,535 for England as a whole.

For 4 of the 6 years covered in the table, the East of England had the lowest level of public

spending per head of any region in England.

In 2007/08 the East of England’s allocation was £980 a head or 13% less than the average for England as a whole, and £2,500 per head or 28% lower than the comparable figure for the highest spending region - London.

Table 2: Total identifiable expenditure on services by region, per head 2002/03 to 2007/08, ranked by 2007/08

£ per head Index (England identifiable expenditure = 100)

2002/03 2003/04 2004/05 2005/06 2006/07 2007/08

2002/03 2003/04 2004/05 2005/06 2006/07 2007/08 outturn outturn outturn outturn outturn plans outturn outturn outturn outturn outturn plans

South East 4,831 5,244 5,692 5,921 6,165 6,512 87 87 88 87 87 86Eastern 4,778 5,221 5,569 5,885 6,177 6,555 87 87 86 87 87 87East Midlands 5,076 5,495 5,910 6,212 6,468 6,936 92 91 92 91 91 92South West 5,101 5,606 6,003 6,277 6,513 6,962 92 93 93 92 92 92West Midlands 5,424 5,883 6,356 6,752 7,090 7,555 98 98 99 99 100 100Yorkshire and Humberside 5,660 6,108 6,524 6,899 7,111 7,590 102 101 101 101 100 101North West 6,068 6,556 6,989 7,380 7,756 8,247 110 109 108 108 110 109North East 6,316 6,875 7,258 7,754 7,892 8,505 114 114 113 114 112 113London 6,569 7,341 7,744 8,265 8,550 9,099 119 122 120 122 121 121England 5,522 6,026 6,442 6,802 7,076 7,535 100 100 100 100 100 100

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Source: PESA 2008 Table 9.2

11. Chart 1 shows that though there has been an increase in public spending per head in real terms

between 2002/03 and 2007/08, the relative position of individual regions have not changed significantly. The East of England benefited from an increase in real terms over the period of 19.8%, fractionally above the overall increase for England as a whole of 19.1%.

Chart 1: Public spending per head in real terms: 2002/03 to 2007/08

£5,000

£5,500

£6,000

£6,500

£7,000

£7,500

£8,000

£8,500

£9,000

£9,500

2002-03 2003-04 2004-05 2005-06 2006-07 2007-08

Spen

ding

per

Hea

d

LondonNorth EastNorth WestYorkshire & HumberWest MidlandsEnglandSouth WestEast MidlandsEasternSouth East

+

Source: PESA 2008. Table 9.4

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4. Public Spending By Service

12. Table 3 sets out an analysis of public spending per head in 2007/08 on the main service areas. The

figures are expressed as an index, where the average spending per head in England on each service is equal to 100. Overall, as previous analysis indicated, the East of England region received some 87% of the England average public spending per head of population. But, as Table 3 illustrates, there are significant differences between regions in spending on individual services.

13. Expenditure in the East of England on General Public Services was close to the average, as was

spending on Defence. On the other hand spending on public order and safety in the East of England region was only 74% of the England average. This disparity is examined in further detail in the section on police funding.

14. Spending per head in the East of England on Economic Affairs was only 80% of the England average,

with spending on “enterprise and economic development” only 42% of the English average. This is a very substantial gap and merits further exploration. One partial explanation is the relatively low share of the Regional Funding Allocations received by the East of England region. The Government is currently consulting with regional partners on long term investment priorities for these Regional Funding Allocations, which include transport, housing and regeneration, and economic development. The proposed allocations include resources for the Regional Development Agencies’ Single Budget as well as the European Regional Development Fund. For 2008/09 the East of England’s share of the allocations for economic development was equivalent to £25.32 per head of population, less than 50% of the average per head for other regions of £50.82, excluding London. However, the East of England received an above-average share of expenditure on “science and technology”.

15. Table 3 also shows that the East of England received a relatively low share of expenditure on

transport, 77% of the England average, housing and community amenities - 65% - and recreation, culture and religion – 78%.

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Table 3: Identifiable expenditure on services by function and region, per head indexed, 2007/08

England identifiable expenditure = 100

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Tot

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North East 94 93 108 124 103 116 221 115 160 119 76 88 122 113 127 108 107 114 119 112

North West 103 102 108 82 107 106 174 80 133 74 91 175 107 111 99 102 102 102 111 109

Yorkshire & Humber 85 84 107 68 95 94 135 78 119 115 76 88 111 102 109 101 100 98 103 100

East Midlands 92 92 98 100 79 86 114 76 88 122 68 83 66 96 96 97 96 94 95 92

West Midlands 108 108 102 98 95 92 99 59 115 95 87 79 80 100 98 104 103 108 104 100

Eastern 97 97 98 107 74 80 42 156 73 117 77 89 65 88 78 91 91 98 91 87

London 135 135 95 112 171 158 111 141 115 41 205 86 209 113 128 120 120 109 105 121

South East 86 85 95 100 78 76 36 112 62 74 85 97 59 90 87 90 90 90 89 87

South West 90 90 94 119 73 91 54 65 72 210 80 96 63 95 89 91 91 93 98 92

England 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100

Source: Figures derived from PESA (2008) Table 9.12

5. Public Spending and the Regional Economy

16. Another way of analysing differences in public spending between regions is to compare public

spending with the level of economic activity given the significant and persistent differences in economic performance between the regions within England and countries within the UK. Table 4 provides details of public expenditure as a proportion of gross value added of each region. Gross value added (GVA) is a measure of the contribution of each region to the overall output of the economy and the table therefore shows the relative importance of public spending in each regional economy. In order to derive these estimates it has been necessary to re-allocate non identifiable spending to regions on a per capita basis. It also should be noted that the expenditure figures refer to the 2006/07 financial year but the GVA is calculated on a calendar year basis.

Table 4 Public Spending and Gross Value Added

2006/07 2006 Total public

spending Gross value added PE as % of GVA

£m £m %

North East 24,696 38,788 63.7% North West 65,290 111,252 58.7% Yorkshire & Humberside 45,673 82,116 55.6% West Midlands 47,555 88,997 53.4% East Midlands 35,958 74,113 48.5% South West 42,448 89,501 47.4% East 44,561 98,967 45.0% South East 65,371 167,356 39.1% London 77,533 217,549 35.6%

England 449,082 968,639 46.4% Wales 29,490 42,697 69.1% Scotland 52,780 91,024 58.0% Northern Ireland 18,743 26,429 70.9%

United Kingdom 550,103 1,154,959 47.6%

Data on GVA from ONS Regional Trends 40 – Table 12.1 17. The table demonstrates that public spending accounted for some 47.6% of the UK economy and

46.4% of the England economy. In the East of England region public spending constitutes a lower figure at around 45.0% of total economic activity. This is the third lowest regional figure – in only London and the South East does public expenditure account for a lower share of economic activity. This is a further illustration of the relatively low level of public expenditure within the East of England region.

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6. The Contribution of the East of England to the Exchequer

18. Previous sections of the report examine how the East of England region fares compared with other

regions in England in terms of the overall level of public expenditure. It is also possible to examine what amounts of taxation are raised in each region in order to get a picture of regional contributions to the national Exchequer. However, there are a number of difficulties with this calculation:

a) In order to make meaningful comparisons it is necessary to re-allocate unidentified spending and

accounting adjustments to regions. There are different ways of doing this, either pro rata to identifiable spending or as an equal amount per head of population. In the event, the differences between these two methods are not too significant.

b) Unlike public expenditure, the Government does not publish any detailed estimates of the level

of taxation raised in each region. Therefore researchers have had to produce their own estimates.

c) As with the estimation of public spending by region, there are some difficult conceptual issues with allocating taxation to regions. In particular, there is an issue as to whether income tax and National Insurance should be allocated on the basis of “workplace” or on the basis of “residence”. The answer to this depends crucially on what the research is designed to investigate. Similarly, there are difficulties in calculating the regional origin of Corporation tax.

19. Two recent studies have examined the regional distribution of public expenditure and tax receipts in

order to derive estimates of net regional contributions to the national Exchequer. Oxford Economics has carried out estimates of the regional balance for a number of years. Their most recent estimates1, for 2006/07, were published on 29 September 2008. Researchers at the London School of Economics have also carried out a study for the City of London, published in October 20082, which included estimates of regional contributions to UK public finances.

20. The conclusions of these two studies are summarised in tables 5 and 6. Both studies present the net

contributions by region as a range due to differences in the way that tax receipts are allocated (Oxford Economics) or that non-identifiable spending is re-allocated between regions (LSE). It should also be noted that different estimates are used on the size of net government borrowing - Oxford Economics assumes a figure of £30 billion while the LSE’s estimates are based on borrowing of £36.2 bn

21. Despite these differences in methodology the two studies reach similar conclusions. Only 3 regions

made a net contribution to the Exchequer in 2006/07 – London, the South East, and the East of England. Oxford Economics estimated the East of England’s net contribution at between £4.4 bn. and £6.5 bn. with a mid-point of £5.4 bn. LSE’s estimates are slightly higher with a range of £4.4 bn. to £8.5 bn., and a mid-point of £6.1 bn.

22. The net fiscal contributions made by the East of England region, and those of London and the South

East, have important implications for public policy. The economic success of these regions means they are able to support their own residents as well as generating resources for public services across the country. While there is nothing inherently wrong with more affluent or successful regions contributing to public spending elsewhere, the net contributions highlight the importance of ensuring that their economic success is maintained. Without adequate funding of infrastructure and the provision of appropriate public services, there must be concerns that the East of England region will not be able to continue making a net fiscal contribution at the current level.

1 Economic Outlook: Regional winners and losers in UK public finances. Oxford Economics. Sept. 2008 2 London’s Place in the UK Economy. Report for City of London by LSE. October 2008.

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Table 5: Oxford Economics estimate of regional fiscal contributions 2006/07

Tax receipts Expenditure Difference Residence Workplace Residence Workplace Mid-point £ bn £ bn £ bn £ bn £ bn £ bn North East 17.1 17.1 23.9 -6.8 -6.8 -6.8 North West 49.8 50.6 62.1 -12.3 -11.5 -11.9 Yorkshire & Humber 35.3 35.7 43.7 -8.4 -8.0 -8.2 East Midlands 33.1 31.9 33.9 -0.8 -2.0 -1.4 West Midlands 40.1 39.7 44.9 -4.8 -5.2 -5.0 Eastern 49.4 47.3 42.9 6.5 4.4 5.4 London 90.5 98.0 78.3 12.3 19.7 16.0 South East 82.8 80.0 65.1 17.7 14.9 16.3 South West 41.1 40.9 44.6 -3.5 -3.7 -3.6 Scotland 50.4 49.5 52.1 -1.7 -2.6 -2.1 Wales 19.3 18.9 28.4 -9.1 -9.4 -9.3 Northern Ireland 11.4 11.5 18.7 -7.3 -7.2 -7.2 UK 520.1 520.1 538.5 -18.4 -18.4 -18.4 UK + expenditure outside UK

550.1 -30.0 -30.0 -30.0

Note: The -£30.0 bn figure is the Budget 2008 figure for net borrowing Source: Oxford Economics 2008

Table 6: LSE estimate of regional fiscal contributions 2006/07 Tax

Receipts Expenditure Difference

Mid-point £bn £bn £bn £bn

North East 17.1 24.2 - 24.5 -7.1 to -7.4 -7.3 North West 51.2 63.9 - 64.6 -12.7 to -13.4 -13.1 Yorkshire & Humber 36.5 44.5 - 44.7 -8.0 to -8.2 -8.0 East Midlands 33.2 34.3 - 35.1 -1.1 to -1.9 -1.5 West Midlands 39.7 46.3 - 46.5 -6.6 to -6.8 -6.7 Eastern 47.9 - 50.6 42.1 - 43.5 +4.4 to +8.5 +6.1 London 89.6 - 94.5 76.1 - 78.1 +11.5 to +18.4 +14.1 South East 79.9 - 82.1 61.8 - 63.8 +16.1 to +20.3 +18.2 South West 41.0 40.6 - 41.5 +0.4 to -0.5 -0.1 Scotland 41.8 51.8 - 53.2 -10.0 to -11.4 -10.7 Wales 19.2 28.9 - 29.5 -9.7 to -10.3 -10.0 Northern Ireland 11.5 18.4 - 19.0 -6.9 to -7.5 -7.2

UK 513.9 550.1 -36.2 -36.2

Source: LSE 2008

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7. Local Authority Funding

a) Formula Grant 23. In addition to analysing the overall level of public expenditure in the East of England, the research

also examined the funding of local authorities in the region. There are 54 local authorities in the East of England region - 6 shire counties, 4 unitary authorities and 44 districts – responsible for around 30% of total public spending across the region.

24. Local authorities are heavily dependent upon central government grants for funding. On average 75%

of local authority income comes from government grants – either in the form of general, formula grant or from a range of specific grants and area based grants. Formula grant now accounts for some 38% of total central government funding – the other 62% is made up of area based grants (4%) and specific grants (58%). The predominance of specific grants results from the changes made in 2006/07, when schools became largely funded by a separate funding stream – a specific grant known as the Dedicated Schools Grant.

25. Local authority grant settlements now cover three financial years – allocations for 2008/09, 2009/10

and 2010/11 were announced in December 2007. This section examines data on formula grant for local authorities in the East of England region for the 2008/09 financial year, though the conclusions would be the same if we had examined 2009/10 or 2010/11 allocations.

26. The allocation of un-hypothecated formula grant to individual local authorities is determined by a

complex set of formulae. At the heart of the local government finance system is the concept of equalisation – i.e. that councils with higher levels of assessed needs should receive more grant, and councils which are able to raise more from the council tax (due to having a greater proportion of properties in higher bands) should receive a correspondingly lower level of grant. There is, not surprisingly, considerable debate about how in practice “needs” should be assessed and how resources should be measured and equalised. The operation of the principle of equalisation, and its implementation, used to be explicit in the annual finance settlements. However, since the introduction of the “four-block model” in 2006 it has become very difficult to “unpick” the effects of changes in the various components - for example methodology or data - of the allocation system. The focus in this report is on the outcome of the black box – the level of formula grant received by councils in the East of England region.

27. Since 2005/06 a key determinant of the amount of formula grant allocated to individual councils has

been the level of grant damping. Ministers set a grant “floor” to guarantee every council a minimum increase in formula grant year-on-year and to provide some stability and predictability to the allocations. In recent years different floors have been set for different classes of authorities, as set out in Table 7. These grant floors are paid for by scaling back – in some years very substantially – grant increases for those councils where the un-damped grant increase is above the floor.

Table 7: Level of Grant “Floor” 2006/07 2007/08 2008/09 2009/10 2010/11 Education/social service authorities 2.0% 2.7% 2.0% 1.75% 1.5% Shire Districts 3.0% 2.7% 1.0% 0.5% 0.5% Police authorities 3.1% 3.6% 2.5% 2.5% 2.5% Fire Authorities 1.5% 2.7% 1.0% 0.5% 0.5%

28. Table 8 sets out the number of councils in the Eastern region on the grant floor between 2007/08 and

2010/11. In 2008/09 5 out of the 10 principal authorities in the region are on the grant floor and 15 out of the 44 districts, though in subsequent years the number of principal authorities on the floor declines.

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Table 8: Number of East of England Authorities on Grant Floor 2007/08 2008/09 2009/10 2010/11 Counties (6) 3 4 1 1 Unitaries (4) 1 1 0 0 Districts (44) 12 15 15 14

29. In aggregate, local authorities in the East of England were allocated £2,257 million in formula grant in

2008/09, an increase on the previous year of 3.5%, very close to the increase for England as a whole. This represents 8.2% of the England total, despite having 11.1% of the country’s population. As a result councils in the East of England region received £396.92 per head of population, compared with an average of £537.70 per head for England. The East of England allocation therefore was 74% of the England figure, a difference of £139.78 per head of population. If the East of England had received the England average formula grant per head they would have received an additional £794.9 million in grant, an increase of 35.2%.

30. In aggregate, the East of England region receives the second lowest formula grant per head of any

region in England and this will remain so until 2010/11 at the very least. Chart 2 shows the formula grant per head of population by region between 2004/05 and 2010/11. It should be noted that the South West region receives a very similar allocation to the East of England and is partially hidden in the chart. Chart 2 also shows that the shares of grant by region are very stable – a consequence of the use of smoothed data and substantial grant damping.

Chart 2: Formula Grant per head by region: 204/05 to 2010/11

£200

£400

£600

£800

£1,000

£1,200

£1,400

2004/05 2005/06 2006/07 2007/08 2008/09 2009/10 2010/11

Form

ula

Gra

nt £

per

hea

d

LondonNorth EastNorth West West MidlandsYorkshire and HumberEnglandEast MidlandsSouth WestEasternSouth East

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b) Area Based Grants 31. In addition to formula grant there are two other key funding sources for local authorities – area based

grants and specific grants. Area based grant is a new name for general grants allocated to local authorities according to specific policy criteria rather than the general formulae used to determine formula grant. Area based grants are not hypothecated – local authorities are free to use the grants as they see fit to support the delivery of local, regional and national priorities in their areas. The majority of other specific grants remain hypothecated, though, confusingly, a few specific grants, not included as area based grants, are not ring-fenced.

32. In 2008/09 £3,059 million was distributed to local authorities through area based grants. The funding

from all 46 area based grants for the East of England region is set out in Table 9. Overall, the East of England region received £246.6 million, 8.1% of the total. As Table 9 shows, there are significant variations in the share of individual grants received by councils in the East of England, but for most grants the East of England received less than its population share would indicate. In aggregate the East of England received area based grants of £43.36 per head of population, compared with £59.73 per head for England overall. The difference of £16.37 per head is equal to a shortfall in grant of £93.1 million, which would have represented an increase in grant for the region of 37.8%.

Table 9: Area Based Grants: 2008/09

Area based grant East of England

£m East of England

£ per head Share of total

% Cohesion £0.890 £0.12 15.0% Local Enterprise Growth Initiative £4.502 £0.79 5.7% Stronger, Safer Communities (CLG) £3.082 £0.54 5.9% Supporting People Administration £3.839 £0.68 5.9% Working Neighbourhoods Fund £3.256 £0.57 0.7% Preventing Violent Extremism £0.520 £0.09 4.3% Climate Change (PPS) £1.104 £0.19 13.6% School Development Grant £8.823 £1.55 5.2% Extended Schools Start-Up Grant £9.903 £1.74 10.2% Primary National Strategy – Coordination £3.149 £0.55 10.5% Secondary National Strategy – Coordination £2.866 £0.50 9.6% Secondary National Strategy – Behaviour £1.313 £0.23 9.6% School Improvement Partners £2.800 £0.49 11.9% Education Health Partnerships £1.389 £0.24 8.6% School Travel Advisers £0.795 £0.14 11.6% Choice Advisers £0.415 £0.07 7.4% School Intervention Grant £1.761 £0.31 11.7% 14-19 Flexible Funding Pot £1.653 £0.29 11.4% Sustainable Travel £0.453 £0.08 11.3% Extended Rights to Free Transport £1.645 £0.29 15.6% Connexions £46.981 £8.26 10.2% Children’s Fund £10.831 £1.90 8.2% Child Trust Fund £0.076 £0.01 9.3% Positive Activities for Young People £2.024 £0.36 3.8% Teenage Pregnancy £1.778 £0.31 6.5% Children’s Social Care Workforce £1.590 £0.28 8.8% Youth Taskforce £0.329 £0.06 7.6% Child Matters White Paper £3.200 £0.56 9.3% Child Death Review Processes £0.630 £0.11 8.8% Young Peoples Substance Misuse £0.743 £0.13 10.6% Preventing Violent Extremism Toolkit £0.130 £0.02 7.7% Aggregate Levy Sustainability Fund £0.113 £0.02 3.8%

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Deprived Area Fund City Strategy Pathfinder £0.000 £0.00 0.0% Adult Social Care Workforce £13.277 £2.33 10.1% Carers £22.200 £3.90 9.9% Child & Adolescent Mental Health £8.115 £1.43 8.8% Learning & Disability Development Fund £3.871 £0.68 8.8% Local Involvement Networks £2.340 £0.41 8.7% Mental Capacity Act & Independent Capacity £2.338 £0.41 9.8% Mental Health £12.347 £2.17 8.8% Preserved Rights £22.526 £3.96 8.7% Stronger. Safer Communities (HO) £5.846 £1.03 9.6% Young People Substance Misuse Partnership £1.081 £0.19 7.0% Detrunking £8.533 £1.50 18.8% Road Safety Grant £11.573 £2.04 14.7% Rural Bus Subsidy £9.935 £1.75 17.4% Total £246.560 £43.36 8.1%

c) Specific Grants 33. In addition to the area based grants, there are also a wide range of specific grants – grants which in the

main are ring-fenced and have to be used for particular purposes or on specific services. The largest of these grants are hypothecated either to schools or to the Police service. These are examined in greater detail in following sections. There are a number of other specific grants, and details of the main ones are set out in Table 10.

Table 10: Specific Grants: 2008/09

Specific grant East of England £m

East of England £ per head

Share of total %

Housing & Council Tax Benefit Subsidy Administration

£42.765 £7.52 9.3%

Concessionary Fares £16.635 £2.93 7.8% Social Care Reform £8.247 £1.45 10.1% PFI £33.642 £5.92 5.8% Supporting People £121.390 £21.35 7.2% Growth Areas £4.085 £0.72 29.2% Police Specific Grants £68.316 £12.01 8.4% Education Specific Grants £3,641.208 £640.30 10.5% Total £3,936.287 £692.19 10.2%

34. Apart from the grant for growth areas, which is a relatively small grant, the East of England receives a

lower share than implied by its population share of all the other grants. In total, local authorities in the East of England region will receive £3,936 million from specific grants in 2008/09, equivalent to £692.19 per head of population. This compares with an average of £752.55 for England, a difference of £60.35 per head. If councils in the East of England were funded at the same level as the England average, they would receive an additional £343.2 million in specific grants.

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8. Schools Funding

35. Since 2006/07 virtually all the funding for schools has been provided through specific grants – the

largest of which is the Dedicated Schools Grant (DSG). DSG has replaced the funding for schools that used to be allocated as part of the general grant system. In addition data has been collated on 15 other grants from the Department of Children, Schools and Families (DCSF) which are allocated specifically for schools and services for young people. These are set out in Table 11.

Table 11: Education Specific Grants 2008/09

Education specific grant East of England £m

East of England £ per pupil

Share of total %

Dedicated Schools Grant £3,116.147 £3,896.12 10.7% School Standards (inc. personalisation) £171.937 £214.97 11.1% Ethnic Minority Achievement Grant £7.386 £9.23 4.0% School Lunch Grant £8.664 £10.83 11.0% Targeted Support for Primary Strategy £19.846 £24.81 10.2% Targeted Support for Secondary Strategy £8.170 £10.21 7.5% Targeted Improvement Grant £0.934 £1.17 13.6% Extended Schools – Sustainability £7.994 £9.93 10.8% City Challenge - - - Early Years: Extending free entitlement for 3-4s

£6.151 £7.69 7.7%

Music Grant £8.016 £10.02 9.7% Playing For Success £0.850 £1.06 9.3% School Development Grant £177.357 £221.75 9.5% Sure Start, Early Years & Childcare £102.583 £128.26 8.3% Contact Point £2.198 £2.75 8.1% Youth Opportunity Fund £3.026 £3.78 8.5% Total £3,641.208 £4,552.61 10.5%

36. The East of England received some £3,116 million from the DSG in 2008/09, 10.7% of the total.

There are around 800,000 school pupils in the East of England region in 2008/09, 11.2% of the England total. The allocation of DSG is largely determined by pupil numbers, so has a “flatter” distribution than many other grants for local authority services. Nevertheless, the East of England received £183.76 per pupil less than the England average of £4,079.88 per pupil. This is equivalent to a shortfall in funding from DSG alone of £147 million.

37. As Table 11 indicates, the East of England received 10.5% of the 16 DCSF grants for education and

young people. The region received a higher share of only the Targeted Improvement Grant than implied by its total share of pupils. For all the other grants for schools and younger people, the region received a lower share than its share of pupil numbers. This shortfall, in total, is equivalent to £305.52 per pupil, or £244.4 million in grant.

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8. Police Funding

38. There are 6 police authorities in the East of England, covering the six counties of Bedfordshire,

Cambridgeshire, Essex, Hertfordshire, Norfolk and Suffolk. Police authorities receive their funding through three main sources – Principal Police Formula Grant, a share of RSG/non domestic rates allocated through the main local government finance system, and from a number of police specific grants. Information on the allocations in 2008/09 is shown in Table 12 below.

Table 12: Police Grants: 2008/09

Grant East of England £m

East of England £ per head

Share of total %

Principal police formula grant £354.450 £62.33 8.6% Share of RSG/NNDR £238.130 £41.87 7.1% Basic Command Units £2.861 £0.50 7.5% Crime Fighting Fund £20.061 £3.53 7.6% Initial Police Learning and Development Programme

£2.042 £0.36 13.2%

Rule 2 Grant £18.700 £3.29 10.3% Neighbourhood Policing Fund & CSOs £24.652 £4.33 8.0% Specific grants total £68.316 £12.01 8.4% Total £660.896 £116.22 8.0%

39. The main funding for police authorities comes through the local government formula grant system.

Police authorities in the East of England received £354.4 million from principal police formula grant in 2008/09 and £238.1 million from “mainstream” formula grant – i.e. their share of revenue support grant and redistributed non domestic rates. This was 7.9% of the England total, compared with the 11.1% share of population. The difference is equivalent to £41.60 per head of population, or £236.6 million. In addition, police authorities receive a share of a number of specific grants. As Table 12 shows, police authorities in the East of England region received an above-average share of only one specific grant – the Initial Police Learning and Development Grant. However, it should be noted that this is a small grant of only £15.4 million in total for England. Overall, the 6 East of England police authorities received £68.3 in specific grants, 8.4% of the total.

40. Aggregating the formula based grants and specific grants for police authorities shows that the police

authorities in the East of England received a total of £660.9 million, 8.0% of the total for England. This is equivalent to £116.42 per head of population, £45.41 per head below the figure for England. If police authorities in the East of England were funded at the same level as the average for England they would have received £258.2 million more in grant, an increase of 39.1% above their actual allocation.

41. Given the difference in funding between the East of England and the rest of the country, it is not

surprising that police funding has been a controversial issue in recent years in the region, particularly in Cambridgeshire. The low level of funding has resulted in substantially lower levels of expenditure, resulting, for example, in one police officer for 500 population in the region compared with one officer for 376 for England overall3. Put in another way, there are 200 police officers in the East of England region per 100,000 population compared with an average for England of 266.

3 ONS: Regional Trends 40. Table 9.5. Figures for March 2007

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9. Council Tax

42. One partial explanation for the low levels of public spending in the East of England – certainly in

relation to local government spending – could be that residents of the region benefit from lower than average levels of council tax. Chart 3 shows the average levels of council tax for each region for 2008/09. Figures are shown for council tax for Band D equivalent and as an average per dwelling. The differences between the two are due to the variations in the proportion of properties in each band across the country.

Chart 3: Regional Council Tax Levels 2008/09

£800

£900

£1,000

£1,100

£1,200

£1,300

£1,400

£1,500

North

East

South

Wes

t

East

Midla

nds

East

of En

gland

North

Wes

t

South

East

Engla

nd

West

Midla

nds

Yorks

hire &

Hum

ber

Lond

on

Band DPer Dwelling

Source: CLG 43. Chart 3 clearly shows that the East of England is not a low council tax region. The average Band D

council tax for 2008/09 at £1,408 was slightly above the average for England of £1,373 and higher than 5 other regions. The chart also shows that the council tax per dwelling in the East of England is above that for other regions, except the South East. This reflects the fact that the East of England region has a smaller proportion of properties in Bands A to C than the average.

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10. NHS Funding

44. Most health care is provided through Primary Care Trusts (PCTs) which are responsible for 80% of

the total NHS budget. PCTs are free-standing NHS organisations with their own boards, staff and budgets. PCTs are monitored by their regional Strategic Health Authority and are ultimately accountable to the Secretary of State for Health. They work with other health and social care organisations and local authorities to meet the community's needs. PCTs provide some care directly and commission services from others, such as NHS acute trusts and private providers. Since October 2006 the East of England region has been covered by one Strategic Health Authority and 14 PCTs.

45. PCT revenue allocations are made after each Spending Review. Following the 2007 Comprehensive

Spending Review, the Department of Health announced in December 2007 a total allocation of £75.9 billion for 2008-09, and on 8 December 2008 the Secretary of State for Health, Alan Johnson MP, announced PCT allocations of £80.0 billion for 2009/10 and £84.4 billion for 2010/11.

46. The Department of Health allocates funding to PCTs on the basis of the assessed needs of their

populations. A weighted capitation formula determines each PCT’s target share of available resources, and is intended to enable them to commission similar levels of health services for populations in similar need, and to reduce avoidable health inequalities.

47. There are four elements in the allocations process:

a) weighted capitation targets - set according to a national formula which calculates PCTs shares of resources, based on their local population adjusted for age distribution, additional needs, and unavoidable geographical variations in the cost of providing services;

b) baselines – which represent the actual current allocation which PCTs receive. The baseline is

the actual allocation from the last year of the previous allocation round, plus any adjustments made in subsequent financial years;

c) distance from target (DFT) - this is the difference between (a) and (b) above. If (a) is greater

than (b), a PCT is said to be under target. If (a) is smaller than (b), a PCT is said to be over target.

d) pace of change policy - this determines the level of increase which all PCTs get to deliver on

national and local priorities and the level of extra resources to under-target PCTs to move them closer to their weighted capitation targets. It therefore performs a similar role to “floors” and “grant scaling” in the local government finance system. The pace of change policy is decided by Ministers for each allocations round.

48. Analysis has been undertaken of the allocations to PCTs for 2008/09, 2009/10 and 2010/11 and the

results are summarised in Table 13. In total the 14 PCTs covering the East of England region will receive £7.7 billion in 2008/09 rising to £8.6 billion in 2010/11, representing 10.1% of the England total.

Table 13: PCT Revenue Allocations 2008/09 2009/10 2010/11 East of England allocation (£m) £7,667.3m £8,085.3m £8,553.5m East of England (£ per head) £1,342 £1,401 £1,467 England average (£ per head) £1,473 £1,542 £1,614 Difference (£ per head) £132 £142 £148 Funding “gap” (£m) £753m £819m £861m

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49. PCTs in the East of England will receive revenue allocations equivalent to £1,342 per head in 2008/09, rising to £1,467 per head by 2010/11. This is significantly less than the average per head for England as a whole – a difference of £132 per head in 2008/09, £142 per head in 2009/10 and £148 per head in 2010/11. If the East of England had received the England average per head of population, the region would have received an additional £753 million in 2008/09, £819 million in 2009/10 and £861 million in 2010/11.

50. Only one PCT in the East of England region – Great Yarmouth and Waveney – will receive an

allocation per head of population above the England average, while 4 of the 14 PCTs in the region will be in the bottom decile – i.e. the 10% lowest funded PCTs in the country. 7 PCTs in the region – half the total – will receive allocations in the lowest quartile of PCTs in the country.

51. Despite the low levels of funding to the region, 10 out of the 14 PCTs will contribute to the pace of

change – i.e. the damping mechanism for health authorities. Their actual allocations by 2010/11 will continue to be below their target allocation – the amount the formula indicates they should receive. Overall, PCTs in the East of England will by 2010/11 contribute a net £168.5 million to the funding of PCTs elsewhere in the country.

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11. Summary of Key Findings

52. The research undertaken for this report has examined a range of data on the allocation of public

expenditure to the East of England region. This has included analysis of overall public spending as well as the distribution of formula grant through the local government finance system, specific grants to schools and police authorities and funding to PCTs. The key findings are:

Between 2002/03 and 2007/08 the East of England received around 87% of the average spending

per head for England. In 2007/08 planned expenditure per head in the East of England was £6,555, compared with £7,535 for England as a whole.

For 4 of the 6 years, the East of England had the lowest level of public spending per head of any

region in England.

Though there has been an increase in public spending per head in real terms between 2002/03 and 2007/08, the relative position of the East of England has not changed.

There are significant differences between regions in spending on individual services. For

example:

o spending on public order and safety in the East of England region was only 74% of the England average;

o spending per head of population in the East of England on Economic Affairs was only 80% of the England average, with spending on “enterprise and economic development” only 42% of the English average. This is a very substantial gap and merits further exploration;

o the East of England also received a relatively low share of expenditure on transport, 77% of the England average, and housing and community amenities, 65% of the average.

Only 3 regions made a net contribution to the Exchequer in 2006/07 – London, the South East,

and the East of England. The East of England’s net contribution was around £5.4 billion to £6.1 billion.

In 2008/09 local authorities in the East of England region will receive £396.92 per head of

population of formula grant, compared with an average of £537.70 per head for England. The East of England allocation is 74% of the England figure, a difference of £139.78 per head of population. If councils in the East of England had received the England average formula grant per head they would have received an additional £794.9 million in grant, an increase of 35.2%.

In aggregate, the East of England region receives the second lowest formula grant per head of

any region in England and this will remain so until 2010/11 at the very least.

Local authorities in the region will also receive £246.6 million, 8.1% of the total, from 46 area based grants. This amounts to £43.36 per head of population, compared with £59.73 per head for England overall. The difference of £16.37 per head is equal to a shortfall in grant of £93.1 million, which would have represented an increase in grant for the region of 37.8%.

In total, local authorities in the East of England region will receive £3,936 million from specific

grants in 2008/09, equivalent to £692.19 per head of population. This compares with an average of £752.55 for England, a difference of £60.35 per head. If councils in the East of England were funded at the same level as the England average, they would receive an additional £343.2 million in specific grants.

The East of England received £183.76 per pupil less than the England average of £4,079.88 per

pupil from the Dedicated Schools Grant in 2008/09. This is equivalent to a shortfall in funding from DSG of £147 million.

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For all the other grants for schools and younger people, the region received a lower share than its share of pupil numbers. This shortfall, in total, is equivalent to £305.52 per pupil, or £244.4 million in grant.

Police authorities in the East of England received a total of £660.9 million in funding from

formula based grants and specific grants, 8.0% of the total for England. This is equivalent to £116.42 per head of population, £45.41 per head below the figure for England. If police authorities in the East of England were funded at the same level as the average for England they would have received £258.2 million more in grant, an increase of 39.1% above their actual allocation.

PCTs in the East of England will receive revenue allocations equivalent to £1,342 per head in

2008/09, rising to £1,467 per head by 2010/11. This is significantly less than the average per head for England as a whole – a difference of £132 per head in 2008/09, £142 per head in 2009/10 and £148 per head in 2010/11. If the East of England had received the England average per head of population, the region would have received an additional £753 million in 2008/09, £819 million in 2009/10 and £861 million in 2010/11.

53. These findings emphasise that the East of England region is a successful region which makes a net

contribution to the Exchequer – but at the same time the region receives significantly lower levels of public expenditure than the England average. These low levels of public spending are found across all parts of the public sector in the region, including services provided by central government, local authorities, police and schools, and the health service. Though there is nothing intrinsically wrong with more prosperous regions helping finance public spending elsewhere in the country, it is essential that the needs of the East of England region are recognised and measures taken to ensure its continued economic competitiveness. The next Spending Review – covering 2011/12, 2012/13 and 2013/14 – provides an opportunity for key regional bodies to make the case for more appropriate and adequate funding to ensure the region remains successful.

Stephen Lord February 2009

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