The role of local authorities in health issues - Communities and Local Government Committee Contents

6  Finance


129.  In February 2012, the Government produced a draft interim public health funding allocation for local authorities. This was updated in June 2012. In January 2013, the Government announced its final public health funding allocation.

130.  In Healthy Lives, Healthy People, the Government set out its approach to financing the public health work carried out by local authorities:

It is time to prioritise public health. The Government will ring-fence public health funds from within the overall NHS budget to ensure that it is prioritised […]. Alongside the shift of power from Whitehall to local communities we will allocate ring-fenced funds for public health to local authorities to enable them to secure better health and reduce inequalities, working with the NHS and other key partners in their areas.[306]

The Departments of Health and for Communities and Local Government, in their joint submission to our inquiry, provided further details of the proposed funding system:

From 2013-14 upper tier and unitary local authorities will be allocated ring-fenced public health grants to improve the health and wellbeing of local populations […]. The Advisory Committee on Resource Allocation (ACRA), an independent expert committee that has overseen the formula used to allocate NHS resources for many years, is developing a formula for the allocation of resources to local authorities for public health.[307]

In preparation for 2013-14, the Departments also explained the draft interim public health funding allocation and the status of the funding process:

Baseline spending estimates for each local authority published in February 2012 estimated that in 2012-13 around £5.2 billion will be spent on the future responsibilities of the public health system, including £2.2 billion on services that will be the responsibility of local authorities […] ACRA's interim recommendations (for 2013-14) were published on 14 June 2012.[308]

131.  In this chapter we consider: first, the formula used in 2012 for funding local public health functions and its implications for local government budget preparations; second, the new formula produced in January 2013 and the Government's arrangements for redeveloping it; and, third, how those arrangements relate to the Health Premium, the Government's preferred method for incentivising authorities to tackle health inequalities.


132.  The ACRA, in its draft interim allocation, opted for a funding model based on the under-75 standardised mortality ratio (SMR), an approach that uses the population size of each local authority and the number of people dying before 75 years old as the indicator of relative need[309] to allocate the available budget. When the draft interim public health budget was published in February 2012, the Department of Health explained that "understanding baseline spend is just the first step in establishing future budgets, and further analysis will build on this,"[310] and in June 2012 it described how "an active period of engagement and consultation will take place following publication of ACRA's interim recommendations".[311]

133.  The interim allocation prompted considerable criticism in the evidence we received. First, on the methodology, Core Cities, an organisation of England's eight largest cities outside London, suggested that the use of standard mortality rates would "result in redistributing funds away from some of the most deprived areas in the country." The NHS Confederation told us "the proposed funding formula would leave local authorities in the most deprived 30% of areas worse off, losing an average of £8 per resident, and those in the most affluent 20% of areas gaining by the same amount".[312] Second, on the time taken to consult on the interim formula and devise a final funding settlement, Duncan Selbie, Chief Executive-designate of Public Health England (PHE), explained that, if

you asked [the Department of Health] what they had been spending on public health, they did not know because we did not ask. The first thing we had to do was establish the base line […] It is not a satisfactory starting position, because we are not addressing what you should be spending, which is the formula, but what you are spending.[313]

Mr Selbie also cited two additional reasons for the length of the allocation process:

It was the first time we had ever gone through this exercise. We have to make sure that we are covering what is currently being spent—that is what the focus has been on—concurrently with the examination of a formula.[314]

134.  Understandably, local authorities had to plan on the basis of the figures announced in 2012. (The final allocations were not published until January 2013.) Local authorities, their contractors and service providers were therefore compelled to develop commissioning plans and to set budgets for 2013-14 based on unknown but potentially significant changes in funding. Cllr Steve Bedser, from the Local Government Association, told us in oral evidence "it is now the end of November [2012], and we still have no idea of any notional budget that is going to transfer across to us in April, which makes it quite difficult for us".[315] Cllr Roger Gough, Cabinet Member for Business Strategy, Performance and Health Reform at Kent County Council, explained in early December 2012 that there was "uncertainty about public health budgets and there is uncertainty about total budgets […] that should be clarified sometime between now and Christmas, but it is extremely late in the day".[316] Kim Carey, Corporate Director, Adult Care and Support, at Cornwall Council, said: "We are flagging the budget transfer high on our risk programme, and it is becoming more of a risk the closer we get to the transfer of the service".[317] Cllr Ernie White, Cabinet Lead Member for Health on Leicestershire County Council, said that it was a problem not just for the public health budget, but for all the authority's partner organisations attempting to plan commissioning based on the Joint Strategic Needs Assessment: "They were all saying, 'We do not know our budget […] we really cannot get into a positive mood about sharing'".[318]


135.  On 10 January 2013 the Department of Health published local authorities' individual public health budgets, explaining that it had decided to finalise allocations not just for 2013-14 but for 2014-15. The Department said that "providing a two-year budget will […] give local authorities a clearer long-term understanding of their future funding as they prepare to take on their new responsibilities". It announced that the overall budget would rise to £2.66 billion in 2013-14—in contrast with the draft interim allocation for that financial year of £2.2 billion—and to almost £2.8 billion in 2014-15.[319] With the allocation, no local authority would receive less than a 2.8% increase in their funding when compared with the baseline year of 2010-11, and the maximum increase would be 10%.

136.   When the final funding allocation was announced, Cllr David Rogers, Chairman of the Local Government Association's Community Wellbeing Board, welcomed it but said that

the biggest concern among councils was around the delay on the final funding decision. Today's announcement will give councils confidence that they have the money they need, but leaves a tight timescale of just three months to put plans in place to deliver on their statutory responsibilities for public health.[320]

137.  We welcome the increase—when compared with the draft interim allocation—in public health funding to local authorities. We recognise that to create a public health budget where none has previously existed, to finalise a formula and to consult with all those affected is not a task to be taken lightly or rushed, but the 11 months required to complete the final allocations process, with totals being announced on 10 January 2013, only 79 days before health responsibilities transferred from the NHS, left local authorities with a great deal of work to do in a short period. Local government understandably planned for the worst based on the interim February 2012 and June 2012 allocations, and, while the subsequent increases are welcome, the delay caused some problems for local authorities and their budgeting arrangements.

138.  Given that local authority public health budgets have now been set for 2013-14 and 2014-15, the Government has time to plan with local government a managed approach to allocating the budgets for 2015-16. We therefore recommend that the Government puts in place a timetable for publishing and consulting on the 2015-16 allocations with a view to finalising them by October 2014, so that commissioners and providers have at least six months in which to plan strategically the services that will contribute most effectively to local people's health and wellbeing in 2015-16.

The revised formula

139.  The revised formula was based on updated estimates of historical spending and on changes to the weighting applied in the interim allocation. ACRA based its final allocation on updated PCT estimates of their public health spending in 2010-11,[321] and the Department of Health explained that, although it would continue to use the standardised mortality ratio for those aged under 75 years as the basis for allocating funds, it would apply the ratio to smaller, more localised populations of between 5,000 and 15,000 people "to take account of inequality within local authorities as well as between local authorities", weight the formula to "target funding towards areas with the poorest health outcomes", and apply an age-gender adjustment "to those services with the highest proportion of public health spend which are also directed at specific age-gender groups".[322] Tim Baxter, Deputy Director and Head of the Public Health Policy and Strategy Unit at the Department of Health, explained that with the SMR "you get the data down effectively to ward-level […] You can then get very granular about identifying the most deprived parts of the population and directing more resource to them".[323] The Royal College of Nursing (RCN) agreed with Cllr Steve Bedser, of the Local Government Association, about matching resources to need. Dr Carter saw a responsibility on local authorities to target the funding it was allocated: "One of the very good things is that we have rich data. What you [the local authority] need is a sophisticated local needs assessment, and then you target the resources where you think the greatest need is".[324]

140.  ACRA, in a letter to the Secretary of State in October 2012 detailing its preferred funding formula, acknowledged that in the medium term "a health outcome should not be the main driver of the formula," and explained that:

This is because a local authority which improves its health outcomes would be at risk of losing future public health funding and we believe this is a perverse incentive. ACRA will continue to work on a formula based more on the underlying drivers of need.[325]

ACRA also expressed "a desire to develop a more evidence based formula".[326] When we asked Mr Baxter whether health outcomes should be the main driver of funding, given that a local authority which improved them would risk losing future funding, he accepted there was such a perverse incentive and said the formula would be reviewed.[327] In supplementary written evidence the Government said, however, that: "no specific timetable has been set for the next iteration of the public health allocations formula".[328]

141.  We acknowledge that the current formula is an improvement on the interim model and allows local authorities to target pockets of deprivation in their areas. We note the perverse incentive in the medium term, however, of basing funding on improved health outcomes, given that areas which perform well risk having their funding reduced. Public health is not short of data, and it should be possible under the new arrangements to begin to base funding on observable trends in health locally and—using Joint Strategic Needs Assessments, for example—for local government to use its allocations in a more precise manner. This places a responsibility on councils and their Health and Wellbeing Boards to produce comprehensive and rigorous Joint Strategic Needs Assessments.

142.  We recommend that the Government not only ensures the Advisory Committee on Resource Allocation makes good on its commitment to review the allocation formula, but clarifies the timetable for revising it—and whether this means a revised formula in time for the 2015-16 allocations. Just as local authorities need to know well in advance when budgets will be published, they require also some certainty about the formula that will be used to calculate them.


143.  The Health Premium is a cash incentive payable to those local authorities that make progress against public health indicators, including fewer children under 5 with tooth decay, more women breastfeeding their babies and fewer over 65s suffering from falls.[329] The premium would, in the Government's view, "reward improvements in health outcomes, and incentivise action to reduce health inequalities".[330] It was scheduled for introduction in 2015,[331] and the need to clarify the formula to be used in allocations from 2015-16 was therefore given greater urgency by the Government's acknowledgement, in its supplementary written evidence, that any perverse incentive in the current formula would be

particularly marked were the current formula still in use alongside the Health Premium Incentive Scheme. We expect the first payments to be made under this scheme in 2015/16 and so this will also be a key year in the development of the formula.[332]

144.  The Health Premium itself, as a stand-alone funding mechanism, was criticised during our inquiry. The RCN considered that the premium would be of little assistance to disadvantaged areas "that fail to make any progress as a result of the comparative greater disadvantage of their populace," a problem that would be remedied only by weighting the public health allocation "to reflect the deprivation that an area experiences".[333] Sheffield City Council said that the premium would "inappropriately and unfairly reward those areas where health is improving anyway, where arguably less public health resource is needed",[334] and Professor Scally considered that the timescales involved in public health were too long to make the health premium "attractive".[335]

145.  The Government's approach to public health funding leading up to and after 2015-16 seems confused and should be clarified. It says it has no timetable for modifying the current funding formula, but accepts that, given the impact of the Health Premium, the formula will need to be developed in 2015-16. Local authorities will need to know, first, when they can start planning their budgets for 2015-16, second, when the Government intends to redevelop the funding formula, and, third, that any system of reward will complement their main source of funding.

146.  The Government has acknowledged that the perverse incentive in the current funding formula would be particularly marked if it were still in place when the Health Premium was introduced. This suggests that the current funding formula and possibly the Premium need to be revised. A funding system which at the same time disadvantages and rewards improvements in public health cannot be fit for purpose. The Government has said that 2015-16 will be a key year in the development of the formula. We recommend that a parallel system of reward should not be implemented in the same year. It should be delayed until the funding formula has been redesigned.


147.  A number of witnesses drew our attention to demand-led services and, in particular, to the issue of mandated sexual health services. Dr John Middleton, Director of Public Health at Sandwell PCT and Vice-President of the Faculty of Public Health, said that, while basis of the formula could well be deprivation or mortality,

The problem is that, when you look at what is in the ring-fenced budget, it is not about premature mortality; it is about genitourinary medicine services, school nursing and drugs and alcohol services. We have used one formula potentially to describe a totally different set of problems and answers […] In Westminster two-thirds of the budget goes on the GU medicine service, and they could spend all of the ring-fence in a very short space of time with those increases in activity.[336]

148.  Cllr Anthony Devenish of Westminster City Council described an alternative method of charging for such services which the Council, along with other London local authorities, had submitted to the Department of Health.[337] This method used, instead of the under-75 standard mortality ratio, the index of multiple deprivation, which was "associated with high levels of public health needs such as drug and alcohol use, population churn and mandated sexual health services".[338] Using demand-based allocations as a proxy for need, it was calculated that Westminster would receive an extra £4 million.[339] In the final allocation for 2013-14, it actually received only an extra £827,000.[340]

149.  Those concerns were recognised in part. ACRA, in a letter to the Secretary of State, explained that concerns the SMR might not be suitably linked to the need for sexual health services were "valid",[341] and Tim Baxter from the Department of Health acknowledged: "Sexual health services is an area that ACRA is going to have to continue to look at".[342]

150.  The costs of demand-led services, such as sexual health provision, are increasing and in some cases could account for a considerable proportion of the public health ring-fenced grant from April 2013. It has been argued that the current formula fails to account adequately for the cost of these services, and we have received evidence detailing alternative funding criteria that might correspond more accurately to the care that local authorities have been mandated to provide. The Advisory Committee on Resource Allocation, while acknowledging these concerns, maintained that no immediate alternative appeared to work across the country. We recommend that the Government and the advisory committee, as part of their commitment to keep this area under review, consider alternative formulas for calculating the overall ring-fenced grant, such as the index of multiple deprivation, and how such allocations might take better account of local circumstances.


151.  Westminster City Council also told us about a need to allocate resources not only for its 200,000 residents, but for the 750,000 people who came into the city every day. Newcastle City Council faced similar pressures. Cllr Nick Forbes, Leader of the Council, said that "we suffer from a not dissimilar phenomenon [to Westminster's], which is that the number of people who turn up and use Newcastle's services is far higher than the number of Newcastle-based residents".[343] ACRA did not recommend any adjustment in funding to account for non-resident populations' use of sexual health services, preferring to encourage the development of a re-charging approach between authorities.[344] In its evidence the Department of Health said that non-residents' use of services was significant only in the City of London and explained that local authorities could pool their budgets, as well as re-charge each other, to pay for these services.[345] In the face of the evidence from Westminster and Newcastle we are not persuaded that the Government's approach is adequate. We call on ACRA and the Government to work with local authorities on the issue of non-residents' use of demand-led services. Given that many people work or go out in one borough and live in another, people's use of services in this way should not be underestimated. Attempting to resolve that either by pooling resources or by re-charging has the potential to become complicated and contentious.

Funding in the long term


152.  Funding demand-led services highlighted the question whether in the long term public health funding should be ring fenced at all or, for example, relocated within a community budgets. These are general funds for a whole area and its people, rather than separate budgets for separate services such as health, transport and education. The RCN was concerned that

more than half of the Public Health money going to local authorities, has been identified as necessary spend for sexual health and substance misuse services, which are demand-led services. This presents real problems and significantly reduces the funding available to invest in prevention work on issues like obesity and smoking. [346]

153.  David Buck, Senior Fellow, Public Health and Inequalities, at the King's Fund, queried the use of a formula in the first place, saying that

if you have a given a pot of money and you give a local authority mandatory things to deliver, you should make an attempt to look at how much it costs to deliver services from a bottom-up perspective […] a formula may be good approach to distributing what is left. [347]

This approach, of assessing the cost of a service before introducing a budget for it, was referred to by ACRA in its letter to the Secretary of State, when it said it would consider "a bottom-up costing, based on a model of what services might be offered to populations with different needs".[348]

154.  We urge local authorities and the Government to explore innovative approaches to funding public health services. One route might be to determine the actual cost locally of demand-led services and to separate funding for them from the rest of the public health budget. The remaining public health provision could then be determined using a formula, such as the standard mortality ratio, and either continue to be ring fenced or stand apart from the rest of the authority's budget. Alternatively, the remainder might, as witnesses suggested, correspond to the remainder of the local authority's overall budget and become in all but name a community budget.


155.  During our evidence sessions, clinicians favoured and council representatives opposed ring-fencing the public health budget.[349] All agreed, however, that ring fencing would be important in the short term to protect investment in the fledgling public health system. Opponents wanted to remove the ring fence completely in the medium term so that local authorities might pool their public health resources, including those for demand-led services, along the lines of community, place-based budgets.

156.  Those who favoured the eventual removal of the ring fence saw this step as fundamental to the new system if all local authority departments were to incorporate public health into their plans and services and to take full advantage of the relocation of public health to local government. Dr Nicholas Hicks, Director of Public Health in Milton Keynes, told us that, when a local authority's entire budget was considered "public health" spending, the proportion required to fund demand-led services would diminish accordingly. He was

more interested in the total allocation in the community rather than the tiny percentage of that that is called the public health budget […] sexual health services, substance misuse services and health checks […] are all good things to do, but they are a small subset of public health and not the major mechanisms to tackle inequalities.[350]

157.  Cllr Steve Bedser of the Local Government Association, warned that "if it (the funding) comes in a hermetically sealed bag labelled 'public health', the danger is that it then does not properly integrate with all of the functions of local government […] and bring alive all of the very real opportunities that exist within the transfer".[351] Dr Mike Grady, of the UCL Institute of Health Equity, agreed that in the long term a transition from ring-fenced funding to place-based funding was logical:

the evidence supports it […] the total-place pilots […] were very good examples of greater efficiencies, savings, engagement of communities, and co-production of services with people and communities.[352]

The example of Total Place pilot budgets was cited also by Cllr Nick Forbes from Newcastle, who pointed to turf wars between adult social care, children's social care and health service delivery, and concluded, "what we need is a total-place budget approach that looks at the whole system from a population and people perspective rather than an organisational perspective."[353] The King's Fund also explained that Total Place had shown "promising improvements for local populations,"[354] making the case for a joined-up, population-focused approach, given that separate strategies for obesity, smoking and alcohol had not connected with each other or to policies on health inequalities.[355]

158.  We also heard how existing place-based budgeting system might be transposed on to public health. Newcastle City Council had found that multiple funding streams with different requirements did not help its service delivery, especially when investment made in one place resulted in savings elsewhere, and so the council had decided to pursue "the idea of a health and social care 'city deal'—to give us more flexibility around both investment and re-investment," and said that it was establishing a social care commission to investigate the idea.[356] Sheffield City Council also referred to its "successful City Deal recently agreed with Government" to promote and create opportunities for economic growth as an example of the powers it would require "to address the health and wellbeing problems which exacerbate benefit dependency, poverty, low incomes and productivity lags in our economies".[357]

159.  The final funding settlements made in January 2013 have, however, allowed for a form of budgetary integration. The Government explained that ACRA's interim recommendations included "provision for pooling of the ring-fenced public health budget, including as part of a Community Budget,"[358] and the Government said that the grant conditions for the final settlement "specifically" allowed the money to be pooled with other budgets and across local authorities.[359] Tim Baxter from the Department of Health explained that the Department "very much" wanted to learn from "the community budgets […] pilots looking at health and social care".[360] He added that the "funding mechanisms are obviously very important but the shared objectives as to how the money is spent are the most crucial thing".[361]

160.  The Parliamentary Under-Secretary of State for Communities and Local Government, Baroness Hanham, accepted that "local government does not like ring-fenced grants" but drew attention to the role a Director of Public Health covering multiple local authorities might play in overseeing how resources were pooled,[362] and other witnesses also emphasised the pivotal position of the Director of Public Health, reaching across their local authority and out to the NHS, in order to safeguard public health money and to advise on its most appropriate use.[363] Both Departments placed some responsibility for developing a shared approach to resources on HWBs, explaining that as part of HWBs' duties to encourage integrated working, "they will consider how the collective resources of the NHS and local government can combine to improve outcomes, for example through Community Budgets".[364]

161.  We agree with the Department of Health that, although funding mechanisms are important, shared objectives on how the money is spent are crucial. While the Department for Communities and Local Government recognises that local government does not like ring-fenced grants, we accept that, at least in the short term, some ring-fencing may be needed. But this should not become a permanent feature of the public health funding system in England. The Department of Health says it wants to learn from the Community Budget pilots on health and social care. We urge the Department of Health to work with the Department for Communities and Local Government and to share that learning as soon as possible, in order to clarify what funding mechanism will be proposed for the financial year 2015-16 and beyond—with a view to removing the ring fence and moving to community budgets. In addition, we urge the Government and, in particular, the Department of Health to recognise that if public health is to become an overarching priority for all local authority departments, it will require an overarching budget which reflects that approach. If the evidence from the completed Total Place and ongoing Community Budgets pilots continues to point to their effectiveness, we recommend the Government provides local authorities with community, place-based, budgets for the direction of resources at people and places rather than at organisations.

  1. There is also a role for Health and Wellbeing Boards to play, given their duty to encourage integrated working, by devising joint strategies that allow local authorities to use existing levers in the final funding settlement to pool public health budgets with those of other departments and across authorities, thereby demonstrating to central Government how shared resources can improve outcomes. In this endeavour, Directors of Public Health will remain central to the budgeting process if and when the ring fence is removed.

306   HM Government, Healthy Lives, Healthy People: Our Strategy for Public Health in England, cm 7985, pp 26, 27 Back

307   Ev 168, paras 39, 40 Back

308   Ev 168, paras 39, 41 Back

309   The ratio was explained in a letter from David Fillingham, Chair of ACRA, to the Health Secretary, 17 October 2012, pp 1,2. Available at Back

310   "Baseline spending estimates for new NHS and public health commissioning published", Department of Health press release, 7 February 2012, Back

311   "Update on public health funding for local government", Department of Health press release, 14 June 2012, Back

312   Ev w 42, para 7.3 Back

313   Q 32 Back

314   As above Back

315   Q 88 Back

316   Q 238 Back

317   Q 240 Back

318   Q 237 Back

319   "Ring fenced public health grants to local authorities 2013-14 and 2014-15 published", Department of Health press release, 10 January 2013, Back

320   "Councils respond to extra funding for public health", Local Government Association press release, 10 January 2013, Back

321   Department of Health, Exposition Book Public Health Allocations 2013-14 and 2014-15: Technical Guide, p 11 Back

322   Department of Health, Exposition Book Public Health Allocations 2013-14 and 2014-15: Technical Guide, p 7 Back

323   Q 353 Back

324   Q 97 Back

325   Letter from David Fillingham, Chair of ACRA, to the Health Secretary, 17 October 2012, p 5 Back

326   Letter from David Fillingham, Chair of ACRA, to the Health Secretary, 17 October 2012, p 5 Back

327   Qq 355-56 Back

328   Ev 171 Back

329   "Helping people live healthier lives", Department of Health press release, 23 January 2012, Back

330   Ev 168, para 41 Back

331   "Health improvement funds delayed until 2015", The Local Government Chronicle Online, 14 June 2012 Back

332   Ev 171 Back

333   Ev 106, para 5.8 Back

334   Ev 131, para 37 Back

335   Q 100 Back

336   Q 38 Back

337   Qq 188, 189 Back

338   HLTH B03, Letter from Central London Forward and London Borough of Hammersmith and Fulham local authorities to the Secretary of State for Health, 29 November 2012, [not published], appendix A, para 1 Back

339   HLTH B03, Letter from Central London Forward and London Borough of Hammersmith and Fulham local authorities to the Secretary of State for Health 29 November 2012, [not published], appendix A, para 2 Back

340   See Department of Health, "Public Health Grants to Local Authorities 2013-14 and 2014-15", Back

341   Letter from David Fillingham, Chair of ACRA, to the Health Secretary, 17 October 2012, p 3 Back

342   Q 359 Back

343   Q 190 Back

344   Letter from David Fillingham, Chair of ACRA, to the Health Secretary, 17 October 2012, p 4 Back

345   Q 358 [Anna Soubry] Back

346   Ev 106-107, para 7.3 Back

347   Q 29 Back

348   Letter from David Fillingham, Chair of ACRA, to the Health Secretary, 17 October 2012, p 5 Back

349   The clinicians in favour were Professor Scally [Q 81], and Dr Carter [Q 84]; those against were Cllr Alan Connett [Q 82], and Cllr Steve Bedser [Q88]. Back

350   Q 31 Back

351   Q 90; Cllr Bedser also said the drawback of a ring-fenced approach was "it defines the limit of public health spend", Q 89. Back

352   Q 243 Back

353   Q 197 Back

354   Ev 77, para 19 Back

355   Ev 78, para 30  Back

356   Ev 123 Back

357   Ev 135, para 59  Back

358   Ev 168, para 40 Back

359   Q 348 Back

360   Q 348 Back

361   Q 352 Back

362   Qq 349, 350 Back

363   See, for example, Q 76 [Dr Penny Toff] and Q 87 [Dr Peter Carter]. Back

364   Ev 167, para 26 Back

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