The annual local government finance settlement distributes funding using population and demographic data that is, by the time it is applied, up to three years old.
In a system where populations move slowly, this is a sensible design that smooths volatility and lets councils plan. In the eleven authorities where population has risen sharply since 2023, it means being funded for people who have left and not for the ones who arrived.
One Highland authority is funded this year on a population figure 27,000 below its current estimate.
How the gap compounds
Because the settlement is largely distributed by formula share, an authority that grows faster than the national average loses ground twice: it receives its old share of a pot, and the pot is divided on the same stale basis.
Services with statutory duties — education, social care, waste — must be delivered for the people who are actually there. The shortfall is met by reserves, by cuts elsewhere, or by not delivering.
“I am legally required to educate every child in this area. I am funded for the children who were here in 2023. Nobody has ever explained which of those two facts is supposed to give way.”
A council chief executive
The other eleven
The mechanism is symmetrical, and the losing side of it is less discussed. Authorities whose population has fallen are funded for people who are no longer there, which cushions decline and is, on any reasonable view, a good thing while a place restructures.
Both effects come from the same lag. Removing it would help the growing areas and immediately damage the shrinking ones, which is why it has survived four reviews.
The settlement
- Data lag: up to 3 years
- Largest single-authority gap: 27,000 people
- Authorities funded above current population: 9
- Authorities funded below: 11
- Reviews of the formula since 2015: 4
- Changes to the lag arising from them: 0
What has been asked for
The growing authorities have requested an in-year adjustment mechanism for populations moving more than 5% between settlements, funded from contingency rather than by redistribution.
The shrinking authorities have not opposed it. That is the unusual feature of this dispute: there is not really one.
