London’s services strained by Gvnmt failure to cover capital’s higher staff costs

Londoners are losing out on £180 million of funding for education and council services each year because the government is failing to pay for the higher costs of providing services in the capital.

The NHS, local councils, central government and private sector employers must pay higher salaries in high cost areas to recruit and retain staff.  The government generally recognises the unavoidable cost to local authorities of higher wages in London, the South East and other city areas through a grant supplement known as the Area Cost Adjustment (ACA).

However, last year more than 25 important government grants to schools and councils, which were intended to cover staffing costs, did not include this supplement.  This means that schools and councils in the capital received a smaller amount of funding than those outside London as they had to make up this shortfall. 

Grants for education, regeneration, homelessness, Sure Start, AIDS, teenage pregnancy and Youth Opportunity failed to recognise the higher cost of services in the capital. This left London's councils struggling to cover essential staffing costs.

In 2006/07 London's schools and councils missed out on £120 million worth of education funding because education grants ignored the extra cost of salaries. In the same year the capital's councils missed on other resources totally nearly £60 million, including £22 million Neighbourhood Renewal funding and £20 million of Sure Start funding.

London Councils wants all government departments to treat councils in high cost areas fairly instead of only applying ACA to some areas of funding.  By including ACA in all grants used for employing staff the Government can ensure that the level and quality of local services are not affected by local market pressures.

Commenting on the ACA London Councils chairman Councillor Merrick Cockell said: "The government's failure to compensate high cost areas for unavoidable extra wage costs is putting huge pressure on schools and councils, robbing Londoners of the services they deserve. This unfair and inconsistent method of funding education and council run services has to stop."
 

Notes to editors:

1.) The government provides local authorities with an annual grant through the Local Government Finance Settlement. This allocation has a significant impact on the level of council budgets, the services local authorities provide and the level of council taxes.

2.) Most council funding is distributed by the Formula Grant; this includes Revenue Support Grant and an amount from the business rate collected by all local authorities which is distributed from a central pool.  Each council's share of Formula Grant is based on a range of formula that try to predict client need and cost of providing services in different areas.

3.) For many years the government has recognised that localised labour market effects means that some local councils need to pay higher salaries in order to recruit and retain staff. Therefore, the allocation of Formula Grant (see note 2 above) includes a supplement, known as the Area Cost Adjustment to reflect regional pay differences and to cover the extra staffing costs which some councils face.
 
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