South-east councils to lose funding in fight against poverty

Councils in the South-east of England are about to lose funds to more deprived areas in the North under a long-awaited overhaul of town hall finance to be published by the Government today.

Councils in the South-east of England are about to lose funds to more deprived areas in the North under a long-awaited overhaul of town hall finance to be published by the Government today.

The current system of distributing grants according to complex formulae based on Standard Spending Assessment will be scrapped by Nick Raynsford, the Local Government minister.

Instead, councils will receive a mixture of funding intended to reflect poverty levels and offer rewards and incentives to well-run authorities.

The changes, the biggest shake-up of council finances in a generation, are bound to trigger claims that the Government is shifting cash from Tory heartlands in the South to its own bastions in the North and the Midlands.

With council tax one of the few means of making up a loss in Whitehall funding, the Conservatives will allege that their party's town halls will be forced to put up tax bills even further.

Downing Street is acutely aware that many Labour MPs now have seats in the South and has insisted that although some redistribution will occur, no individual borough will suffer substantially.

The Government is understood to be sticking to a system of "floors and ceilings", which will mean that no council's central funding will be cut by more than 3 per cent or raised by more than 7 per cent.

London boroughs have persuaded ministers that they have areas that are as deprived as anywhere in Britain. They will not be hit as hard as the Home Counties.

Another factor that has upset councils of all colours is the underestimates of population from the 2001 census. As grants are based on population, many boroughs claim they stand to lose millions. Westminster claims that the census undercounted about 68,000 people, a shortfall of 25 per cent. Manchester, which should gain cash from the increased emphasis on deprivation, could also suffer from the census.

The reforms will end the much-derided practice of allowing Whitehall civil servants to use complicated formulae to calculate nearly every penny for every need in every area of England and Wales.

The Government will announce a new emphasis on specific grants, such as the Neighbourhood Renewal Fund, which offers cash only to those areas suffering acute deprivation. Crucially, public service agreements, under which councils agree to set themselves 12 specific targets for improving services, will be rolled out across the country.

Westminster council claimed yesterday that the changes could cost it £25m a year. "Any reduction of funding of this magnitude will put the poor and the disadvantaged at risk, and would seriously damage our ability to deliver effective care to the large number of vulnerable children and adults within the city," a spokesman said.

Surrey County Council claimed that the South-east faced a total loss of up to £500m in Government money, pushing up council tax bills by 20 per cent in 2003.