As we grapple with the divisions that led to the Brexit vote it’s high time that we debate how our services are funded

So much about the way England is funded seems unfair and inequitable, from ad hoc funding of services to regressive council tax and circumstantial business rate yields

Alun Evans
Wednesday 18 July 2018 09:11 BST
Residents of London have £10,000 spent on each of them annually by the state, while those in the East Midlands receive just £8,200
Residents of London have £10,000 spent on each of them annually by the state, while those in the East Midlands receive just £8,200 (Reuters)

A big part of the referendum vote to leave the EU was a sense of unfairness felt in some parts of the country about how they are treated. While some aspects of this are hard to define, some are crystal clear. One is the apparent unfairness in public spending in different parts of England.

While we are more used to debating the differences between funding in England and the three other nations that make up the UK, we seldom debate the inequalities within England. Yet they are stark. The British Academy’s report on devolution and funding in England finds that residents of London have over £10,000 spent on each of them annually by the state. Those in the East Midlands receive almost £2,000 less per person – at £8,200. Such wild variations in funding can be seen across the different regions of England, with the south, Midlands and Yorkshire/Humberside receiving the leaner share, and London and the north getting the lion’s share.

Two forces drive these differences. The money that Westminster allocates and the amount of tax that each area can raise locally. Both can exacerbate a sense of unfairness.

So, what carefully calibrated method is used to allocate funds across the country? The answer is: none. No set process determines the level of funding in each region of England. When the NHS in England was allocated £20bn to mark its 70th birthday, the Barnett formula determined that Scotland should receive £2bn as a consequence. Yet there is no such guarantee for the East Midlands or the southwest of England. Instead the process is idiosyncratic, depending on ad hoc agreements made by each of the centrally funded services which include the NHS, many schools and the police.

Worse still, there is no consistent or rational assessment of how funding matches the needs of the population, something the government has acknowledged in its attempts to introduce a national funding formula for schools, which would take account of special educational needs and disability.

And the situation with local taxation is, if anything, worse. It leaves local governments with little power to raise the extra funding that could ease perceived inequalities.

The bulk of local government taxation comes from council tax. Few taxes, if any, are as controversial as this fudged replacement of the poll tax – cobbled together by John Major’s government after the fall of Margaret Thatcher. Yet successive governments have had their heads firmly in the sand when it comes to reforming it. It is almost incredible that the tax is set according to the valuation of property, even new property, on 1 April 1991. As is its regressive nature and the fact that it is often paid by the occupier not the owner, in what is increasingly a rental market. What’s more, since 2011, councils in need of greater funding have had to hold referendums to make significant increases in council tax rates.

As a minimum, in the digital age of Zoopla and online valuations, surely a proper nationwide revaluation of property is a must? And then – but whisper it not too loudly – perhaps some brave politician might even propose a higher band for those houses which are the most valuable.

Even business rates hardly give local government more wriggle room. They apply only to commercial property. So, their yield depends as much on accidents of history and geography – not something that local authorities short of cash can do much about. The government’s policy of allowing a greater share of business rates to be retained by local authorities may well only make inequalities between them worse, rather than solve their funding problems.

So much about the way England is funded seems unfair and inequitable, from ad hoc funding of services to regressive council tax and circumstantial business rate yields. It represents the kind of regional inequality that many have cited as an underlying cause of the Leave vote two years ago. Whatever else emerges from the current Brexit drama we are witnessing daily, at the very least we should start the debate about how England is funded. There can and must be a better way.

Alun Evans is chief executive of the British Academy

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