Passporting and Ring-fencing
71. "Ring-fencing" is the term used for
"specific formula grants" designed to fund particular
services or initiatives that are a national priority: for example,
a mental health grant which helps to secure a certain level of
provision for mental health services in each authority with social
services responsibilities. "Passporting" is a recent
mechanism used by the Department for Education and Skills to ensure
that increases in the Formula Funding Share for schools leads
to pound-for-pound increases in school budgets. It leaves little
room for local discretion; the Minister for School Standards told
us that 95% of local authorities passport the recommended levels
of funding to schools. [78]
72. The Minister for Local and Regional Government
justified the use of ring-fencing:
"When you are introducing changed arrangements
on highly sensitive services such as supporting people, involving
very considerable flows of revenue which are there to help some
of the most vulnerable people in our society, if there were no
ring-fence at all when that was introduced, real fears were expressed
by many of those responsible for those services that this could
have a catastrophic consequence on the recipients of the service,
if an individual local authority chose not to use the resource
for that purpose at all."[79]
The Minister for School Standards told us:
"The passporting affirmation by the whole of
government reflects the commitment which the whole of government
shares to education. In addition, it is significant that local
government increasingly sees education not as separate from its
ambitions for economic and social renewal, but actually as central
to them."[80]
73. The majority of our witnesses could see little
or no difference between ring-fencing and passporting, and identified
the same drawbacks in both funding mechanisms. Yet the Government
has argued that there is a difference between ring-fencing and
passporting. In his evidence to the Committee the Minister for
School Standards stated that "The passporting is a separate
issue and the passporting debate reflects the priority the Government
believes education should have in national investment".[81]
He further argued that the difference between ring-fencing and
passporting was in the realm of choice. For example:
"Wandsworth spends 93% of the EFSS on education
and the top spending education authority, which I think is Bristol
though I stand to be corrected, spends 110% of EFSS. So there
is actually a wide variation in education spending by local government."[82]
We share the view of most of those involved in local
government that the difference is indeed largely semantic.
74. Ring-fencing and passporting are said to undermine
local accountability, local diversity and local discretion, in
an attempt to impose national policies and priorities at local
level. The County Council Network (CCN) for example told us:
"[
] the requirement to passport education
funding means the budget provision for education is, in effect,
dictated by central government and not by local need. This also
has the added disadvantage of diverting focus from all local authority
services to those which may directly be affected by the resulting
level of council tax, outside the protection of the passporting
system. The CCN believes that the requirement to passport funds
to education must be removed from the FSS system and local authorities
should be given the freedom and flexibility to decide on the level
of local education budgets based on local service needs."[83]
The Local Government Information Unit argued:
"Ring-fencing and passporting, combined with
complex and fragmented funding streams for area based initiatives
with various regeneration aims, undermine local, strategic decision
making."[84]
Professor Travers added that perhaps our understanding
of local variation was unduly negative:
"We all hear a great deal about the evils of
the postcode lottery and my concern about that is if the postcode
lottery is always seen as such an evil that there is not much
room for local government. If in a sense every service must be
the same everywhere then there is not much room for local discretion."[85]
And that:
"I think in the long term the what you might
call "he who pays the piper calls the tune" argument
where national government raises a large proportion of all taxes
and then redistributes part of it through grants to local authorities
leaving local authorities raising only a small proportion of their
income from local taxes is likely to lead to national government
feeling that it is its money that is being spent and therefore
involving itself through specific grants, passporting, and a range
of controls and interventions which do amount to eroding local
autonomy and in that indirect way feeding through into a relationship
between the proportion of money raised locally through local taxation
and the amount of central involvement [
]."[86]
Nicholas Boles from the Policy Exchange summed it
up:
"At the moment we are trying to pretend that
we are giving the money to local government but then we are actually
telling them how to spend it and that is nuts."[87]
75. The Leader of Somerset County Council highlighted
the decision that many authorities face when asked to passport
central government money through to schools is one without real
choice:
"Whilst I support putting money into education
and have always done that and would always passport through to
schools wherever possible, the increasing trend towards ring-fencing
is not particularly helpful. Is local government there just to
deliver National Government's priorities?"[88]
76. A further effect of the degree of dictation from
the centre of local service level, and expenditure is an inappropriate
concentration on those areas at the expense of others, a tendency
magnified by the associated regime of targets and inspections.
It can also lead to a sense in local Government that areas funded
centrally are the concern of central government.
Cllr Gibson from the North East Regional Assembly
stated:
"As resources get scarcer and scarcer, if the
ring-fencing continues then the result of that will be that the
services of which people approve - culture, art, theatres, street-cleansing,
those sorts of issues over which we have control - will start
to disappear and so local government will become less and less
popular."[89]
Dan Corry told us:
"In education I have some worries that if you
directly fund it from Whitehall local government will say, 'We
are not going to bother getting involved in education,' and I
think that would be a big mistake because I think a lot of the
difficult issues of underperforming children and schools and so
on need the local authority fully involved."[90]
77. In unitary authorities, education represents
such a substantial slice of expenditure that passporting can have
a devastating impact on local autonomy, leaving only a small proportion
of the budget for locally determined priorities. Paul Woods from
the Association of North East Councils noted:
"In most local authorities who are unitary authorities
education will account for perhaps 40 to 50% of a budget, a very
substantive part. The next significant element is social services."[91]
78. It must however be recognised that central government
will always wish to have influence or control over some of the
funds it passed to local authorities, and that ring-fencing may
in some circumstances be appropriate. The Leader of Somerset County
Council highlighted the dilemma facing the Department for Education
and Skills when striving to set standards:
"[
] education is not necessarily the priority
of quite a large section of our population. I personally find
that quite sad, that some elderly people, a large proportion of
elderly people, are not prepared to put money into education;
they perceive that education is adequately funded."[92]
In their written evidence Somerset County Council
accepted that they felt that there were some circumstances whereby
ring-fencing might be acceptable. For example,
"The use of specific grants, passporting and
hypothecation are particularly problematic issues and the County
Council view is that these should only be used when:
- the local authority is administering mandatory
grants
- there is a desire to encourage experimentation
or a new function is being introduced
- formula grant distribution would be patently unfair"[93]
79. The Minister for School Standards developed the
Government's argument for the need to ring-fence portions of central
Government grant when he commented that, "I think those three
reasons, tackling inequality, promoting innovation, spreading
good practice, are three good reasons why one can have ring-fenced
grants".[94] The
Minister for Local and Regional Government commented:
"I think of services such as Sure Start, where
huge impacts have been achieved at a local level in terms of services
for very vulnerable people in deprived communities and that benefit
is something which also has to be borne in mind when we think
about the consequences of ring-fenced funding in the years since
1997."[95]
An official from the ODPM told us that there was
a recognised need for ring-fencing:
"[
] for example to embed something new
that you want done, that everyone wants done, but the Government
is also clear that its overall policy is to restrict ring-fencing,
only use it where necessary and keep it constantly under review
so that as soon as we do not need it we remove it."[96]
80. The current level of ring-fencing and passporting
is however accepted as being neither efficient nor effective.
The Audit Commission told us:
"Ring-fencing of grants and other targeting
of fundsincluding the requirement to passport funds to
educationdo not promote efficient and effective resource
allocation at a local level."[97]
and in their report 'Council Tax increases 2003/04
Why were they so high?' the Audit Commission recommended that
Government should, "[
] reduce direct controls over
councils through targets and continue to reduce ring-fencing of
grants [
]".[98]
The Government too has acknowledged that ring-fencing can have
a detrimental effect on the implementation of policy. The Minister
for Local and Regional Government stated in his evidence to the
Committee:
"It does have the adverse effect the Audit Commission
have expressed and we have been seeking, as you rightly highlighted,
to reduce it and we have been reasonably successful in getting
the trend downwards and we intend to go on."[99]
For the year 2004/5 the total ring-fenced grant is
23.4%,[100] of central
government grant. By next year the Government aims to reduce the
proportion of grant that is ring-fenced to 10% of central government
grant.[101] The announcement
of three-year budgets for every school from 2006 referred to at
paragraph 59 above also made plain that these grants would be
"guaranteed by national government and delivered through
local authorities".[102]In
response to questioning, the Secretary of State for Education
and Skills told the House, "In future, such allocations will
be ring-fenced. This is a significant issue for local government,
as my hon. Friend's question suggests. Those authorities will
be able to top up education funding by choice, if they wish".[103]
It is hard to fathom how the introduction of a completely ring-fenced
schools grant, pre-allocated by central Government to individual
schools, can sit with a target of reducing the proportion of central
Government grant to local authorities which is ring-fenced.
81. Despite the 8 July announcement by the Secretary
of State for Education and Skills, we recommend that the Government
ensure that its target of reducing a ring-fenced grant to 10%
of overall grant in 2005/6 is met. The Government should provide
an annual statement of its performance and intentions with regard
to ring-fencing and passporting in future years.
82. We recommend that the Government reconsider
the use of ring-fencing and passporting, and acknowledge the potential
role of the local electorate in terms of setting the local agenda.
Mechanisms such as the central-local partnership can be used to
ensure minimum standards. However, local authorities should be
given the freedom to implement local priorities, and be judged
for these decisions by the local electorate.
83. The Government should allow local authorities
to make spending decisions, and take the consequences for these
decisions at the ballot box. If Central Government wishes directly
to control education funding it should consider funding education
directly. If it believes that education is an important and integral
part of local government services and funding it should set minimum
standards and then allow local discretion. The present situation
lacks clarity and transparency as to where responsibility lies.
Best Value and CPA
84. The Best Value and Comprehensive Performance
Assessment processes were designed to improve performance at local
government level. Best Value encourages local authorities to provide
services in the most efficient and economically effective way,
with an additional focus on what is best for the community. The
Comprehensive Performance Assessment (CPA) judges to what extent
local authorities are achieving Best Value in a wide range of
services and audits the performance of local authorities on this
basis. The Audit Commission carries out inspections, and marks
authorities depending on their performance. Those authorities
who achieve the highest grades are given more freedom from future
inspection. Some local authorities interpret external inspection
as an unnecessary burden on their resources and a characteristic
of the controlling nature of central government.
85. The Committee has received evidence from various
groups who felt that the role of inspection, CPA and Best Value
had had a negative impact on their authority. Cllr Gibson stated
that, "I think there are too many inspections, especially
in education and social services".[104]
86. Professor Travers alluded to the potential unintended
consequences of targets and inspections such as the CPA,
"I do not know of any research that would suggest
that the possibility that being an excellent authority would lead
to freedoms is what makes them try to be excellent. I think they
want to be excellent because they want to be excellent and all
authorities want to get as far as they can up the league, as it
were."[105]
87. The Leader of Somerset County Council identified
that when authorities were poorly branded they were burdened with
even more inspections that diverted officer focus and resources
away from core services.
"It is the case that when authorities are rated
as weak or poor there are more inspections for which authorities
have to pay, and it is a bit of a bone of contention that you
have to find money to pay for the inspectors, which I would not
say we could do without, it is right that we should be inspected,
but the level of inspection is very, very onerous."[106]
88. Those authorities that are branded more highly
have less problems with this, although as Paul Woods from the
Association of North East Councils noted:
"I am from a good authority [
] The amount
of inspection from the Audit Commission has started to reduce
noticeably. That is starting to help. I think it could be reduced
still further and it will help further, because, you are right,
capacity is a key issue."[107]
89. Paul Woods argued that the role of inspections
was initially useful for local authorities,
"My own experience is that the CPA does consume
quite a significant amount of officer time. However, we felt that
the process was certainly worthwhile because it helped our self-assessment
of the quality level in services and it stimulated us to look
at certain areas where we want to improve ourselves."[108]
90. However, as Chris Bilsland from Somerset County
Council identified, "We have never seen an Ofsted report,
we have never seen an SSI report that did not encourage us to
spend more money. They are always routing for more with the backlash
of consequences".[109]
91. Professor Bramley in his evidence to the Committee
noted,
"I think the Audit Commission has done valuable
work over the years in looking at value for money in particular
services and highlighting problems and keeping a general watching
brief on things, but to run the whole system around a CPA process
seems to me to be very centralist and at the end of the day it
is still quite a subjective judgemental process."[110]
92. The Committee recommends that the Government
dramatically reduce their inspection regimes on local authorities.
In particular the Government should consider the concerns of smaller
local authorities and ensure their inspection regimes are proportionate
to their size and responsibility. The Government should continue
to free "good" and "excellent" authorities
from some inspection and plan-making regimes and should ensure
the inspection framework is appropriate to the improvement needed
in "poor" and "weak" councils.
65 HC Deb, 8 July 2004, cols 42-43 WS Back
66
Ev 17 HC 402-II [Local Government Information Unit] Back
67
Q 51 [Professor Travers, London School of Economics] Back
68
Ev 42 HC 402-II [Special Interest Group Of Municipal Authorities] Back
69
Ev 58-9 HC 402-II [Audit Commission] Back
70
Q 207 [Cllr Bakewell, Leader, Somerset County Council] Back
71
Q 208 [Cllr Bakewell, Leader, Somerset County Council] Back
72
Q 215 [Cllr Bakewell, Leader, Somerset County Council] Back
73
Q 542 [Mr Woods, City Treasurer, Newcastle-upon-Tyne City Council
and Finance Officer, Association of North East Councils] Back
74
Q 659 [John Healey MP, Economic Secretary to HM Treasury] Back
75
Ev 25 HC 402-II [Local Government Association] Back
76
Ev 46 HC 402-II [Somerset County Council] Back
77
Ev 25 HC 402-II [Local Government Association] Back
78
Q 732 [Mr Miliband MP, Minister of State for School Standards] Back
79
Q 782 [Mr Raynsford MP, Minister of State for Local and Regional
Government] Back
80
Q 718 [Mr Miliband MP, Minister of State for School Standards] Back
81
Q 716 [Mr Miliband MP, Minister of State for School Standards] Back
82
Q 721 [Mr Miliband MP, Minister of State for School Standards] Back
83
Ev 54 HC 402-II [County Council Network] Back
84
Ev 17 HC 402-II [Local Government Information Unit] Back
85
Q 57 [Professor Travers, London School of Economics] Back
86
Q 55 [Professor Travers, London School of Economics] Back
87
Q 18 [Mr Boles, Director, Policy Exchange] Back
88
Q 196 [Cllr Bakewell, Leader, Somerset County Council] Back
89
Q 537 [Cllr Gibson, Leader, Stockton-on-Tees Borough Council,
and Chairman, North East Regional Assembly, and Chairman, Association
of North East Councils] Back
90
Q 19 [Mr Corry, Director, New Local Government Network] Back
91
Q 539 [Mr Woods, City Treasurer, Newcastle-upon-Tyne City Council
and Finance Officer, Association of North East Councils] Back
92
Q 206 [Cllr Bakewell, Leader, Somerset County Council] Back
93
Ev 43 HC 402-II [Somerset County Council] Back
94
Q 707 [Mr Miliband MP, Minister of State for School Standards] Back
95
Q 783 [Mr Raynsford MP, Minister of State for Local and Regional
Government] Back
96
Q 118 [Ms Bell, Director of Local Government Finance, Office of
the Deputy Prime Minister] Back
97
Ev 55 HC 402-II [Audit Commission] Back
98
Audit Commission 2004 'Council tax increases 2003/04 Why were
they so high?' p3 Back
99
Q 782 [Mr Raynsford MP, Minister of State for Local and Regional
Government] Back
100
ODPM Local Government Finance Settlement table 1 http://www.local.odpm.gov.uk/finance/0405/keytabs/keytab1.pdf Back
101
Q 782 [Mr Raynsford MP, Minister of State for Local and Regional
Government] Back
102
HC Deb, 8 July 2004, col 1012: italics added Back
103
HC Deb, 8 July 2004, col 1025 Back
104
Q 54 [Cllr Gibson, Leader, Stockton-on-Tees Borough Council, and
Chairman, North East Regional Assembly, and Chairman, Association
of North East Councils] Back
105
Q 58 [Professor Travers, London School of Economics] Back
106
Q 190 Cllr Bakewell, leader, Somerset County Council] Back
107
Q 541 [Mr Woods, City Treasurer, Newcastle-upon-Tyne City Council
and Finance Officer, Association of North East Councils] Back
108
Q 540 [Mr Woods, City Treasurer, Newcastle-upon-Tyne City Council
and Finance Officer, Association of North East Councils] Back
109
Q 189 [Mr Bilsland, Corporate Director (Treasury), Somerset County
Council] Back
110
Q 47 [Professor Bramley, Heriot Watt University] Back