The factors driving variation in children's services spending

Derren Hayes
Tuesday, March 27, 2018

Research suggests economic and geographical factors play a major part in how much councils spend on children's services. Council leaders hope the findings can be used to convince ministers of the need for additional funding.

Research suggests up to 50 per cent of spending variation in services is down to macroeconomic factors such as levels of deprivation. Picture: I-Wei Huang/Adobe Stock
Research suggests up to 50 per cent of spending variation in services is down to macroeconomic factors such as levels of deprivation. Picture: I-Wei Huang/Adobe Stock

Despite calls from the Labour Party and council leaders to address the growing funding crisis in children's services, there was no new money for local government in the Chancellor's recent Spring Statement.

Instead, children and families minister Nadhim Zahawi recently told the education select committee that there is "little correlation" between good-quality services and higher spending, with there being more evidence on the importance of leadership.

For years, the message from ministers has been that the solution to children's services funding problems lies with councils making better use of existing resources.

As evidence of this, they point to research which shows that 10 authorities spend more than £1,040 per child, while another 10 spend less than £585 per child but both achieve the same outcomes.

It is a refrain repeated by Zahawi to CYP Now recently: "Much of what we can do to deliver outstanding outcomes for children is about how social work is delivered - part of it is funding, but it is also about using it better, and much more about learning what good looks like and sharing that."

Independent research

However, in a parliamentary debate on 13 March, Zahawi said the Department for Education is "keen to understand" the sector's concerns about funding and rising demand for services, and has commissioned independent research on the issue.

The research - commissioned jointly by the DfE and Ministry of Housing, Communities and Local Government - is being undertaken by consultancy LG Futures with findings due to be fed into the fair funding review, a consultation on which closed last month (see box).

CYP Now understands that the project will aim to develop a robust, up-to-date method for funding children's services during local government funding settlements.

The Local Government Association (LGA) says it welcomes "the government's attempt to establish an evidence base on the costs of children's services", but called for this to be done promptly so that the results shape the list of cost drivers to be used in a future funding formula.

Meanwhile, the association is undertaking its own research with consultants Newton Europe to understand the factors that influence the variation in children's services spending.

Newton is analysing mountains of local and national data to try to understand why some councils' spend on a per-child basis is almost double that of others to achieve the same outcomes as measured by Ofsted ratings.

The project was launched in late 2017, with a final report expected in June 2018. It aims to identify the key factors that drive children's services costs up and down, and quantify the extent of their influence.

In addition to analysing 18 different sets of national data across 150 English local authorities, the project is looking in depth at the spending arrangements in eight councils to understand the influence of local decision making, policies and practices.

Interim findings shared with CYP Now show that 30 to 50 per cent of the variation in spending between councils is explained by macro economic and geographic factors (see graphics), such as population size, levels of deprivation, crime and employment rates.


However, Luke Tregidgo, principal consultant at Newton Europe, says there is wide variation in how much each of the factors influences children's services spending.

"For example, the impact of deprivation affecting children index (IDACI) is a strong correlator of spending, while the amount of weekly household disposable income is a weak correlator," he says. "Knowing which measures are important is crucial."

Data analysis

To measure the impact of local factors on spending, the project is analysing data that the eight participating councils collect and submit to the government and Ofsted.

The councils are a mix of unitary and county authorities, in urban and rural areas, and a range of political composition. To aid comparison, all are rated either "good" or "requires improvement" by Ofsted and have similar levels of deprivation.

Detailed work with two of the authorities suggests 35 to 65 per cent of the spending variation is attributable to local factors. These could include council internal factors such as historical influences, political decisions, the provision of services, and the policies of external organisations such as health, police and education.

Tregidgo says this piece of the project is particularly complex.

"We won't be able to say X per cent of the variation is down to education [decisions] for example, but we do want to say how much is down to internal workings, partner decisions and local markets," he explains.

The final element of the project is assessing the impact that council financial reporting practices have. This includes which cost codes are given to different types of spending and how these can vary between authorities. The initial work has found that this accounts for five to 15 per cent of the variation.

Tregidgo says four key issues are emerging from this part of the work: cost coding; how councils treat grants and income; how much of corporate overhead costs - such as transport, legal services, finance - get allocated to children's services; and the cost of caring for unaccompanied asylum-seeking children.

"This is not about saying to councils you're doing this wrong, but more about comparing like with like," he adds.

The LGA has engaged council chief executives, elected members and directors of children's services on the study and convened a special workshop session to test our early findings with more than 50 delegates from across the country.

Richard Watts, chair of the LGA's children and young people board, says: "We know that children's services are under increasing pressure, as unprecedented demand combined with years of funding cuts leaves many councils struggling to cope within existing resources.

"This research is a valuable opportunity to understand how these pressures interact in different areas, identifying the main factors that drive spend and outlining how and why this spending varies from place to place.

"The research is still ongoing, but we can already see how complex this issue is. Even at this early stage, for example, it's clear that the amount a council spends on children's services isn't just a question of how efficient they are.

"Between a third and a half of the variation we see in the national finance returns can be explained by geographic and economic factors that are difficult for a children's services department to influence, such as levels of deprivation or population growth."

The LGA has calculated that by 2020, there will be a £2bn gap in the funding councils receive and what they spend annually on children's services.

This Newton study, in addition to the research being conducted by the DfE, should ensure policymakers have a better understanding of the factors that councils can influence and the ones outside of their control.

Call for future funding formula to prioritise investment in universal, preventative services

The fair funding review puts forward plans for changing from 2020 the way that local authorities' budgets are calculated and creating a system where most or all of their income is generated through local taxation.

It proposes assessing local authorities' relative needs based on "common cost drivers", including size of population, rurality and deprivation.

To calculate children's services funding, the review proposes a more "sophisticated approach" that incorporates four specific factors that influence spending. These are the number of children under 18; the number of children for whom parents receive disability living allowance; deprivation; and distance to schools.

In its response to the consultation, the Association of Directors of Children's Services (ADCS) says the proposed cost drivers are too limited.

It highlights the impact on council budgets that rising numbers of children in care, those with special educational needs and disabilities and unaccompanied asylum-seeking children are having.

The ADCS response also emphasises the deep impact that rising child poverty is having on demand for services and calls for more funding to prevent the effects of deprivation.

In addition, it says that without additional government funding, a new formula will only "continue to be a redistribution of not enough".

"ADCS members urge the government to develop a long-term sustainable funding model for children's services which is designed to tackle the problems children and families face earlier," it states.

"Any funding model must not only consider cost drivers, it must also recognise that the most effective way of supporting families is to prioritise, and therefore resource, universalist, preventative children's services."

Meanwhile, creating a system where funding for local government services is based on an area's ability to raise income is described as "worrying" by ADCS.

"There is a danger that under such a system, those with a limited ability to raise funds, which are also those areas with the highest level of demand, will see their funding gap grow," it states.

The association's concerns echo those of Children England, which last year called for a dedicated funding formula for children's services.

Its chief executive, Kathy Evans, says: "Any new funding mechanisms must recognise the cost of poverty - to families in their ability to care for their children, and to local authorities in providing the holistic support families need. Areas with high levels of deprivation cannot be left to meet these costs from depleted local resources, but need a fair, sustainable funding formula."

In its consultation response, the LGA backs the review's focus on developing a "relative needs assessment", but also warns that without additional resources, it will fail to deliver improved services. One possible solution, the LGA says, is for councils to retain 100 per cent of income generated through the business rates.

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