Cuts to public services and a local authority funding system that is ‘disjointed’ threatens to undermine the levelling up agenda, financial experts warn.

A new report from the Institute for Fiscal Studies (IFS) has found that the current funding system for councils is ‘not fit for purpose’ and undermines levelling up efforts.

The Government’s estimates of how much money local authorities require have not been updated since 2013 and are based on outdated data such as the 2001 census. According to the IFS, council funding still falls short of these flawed estimates due to the cuts of the 2010s.

The think tank’s report also revealed how the lack of adequate levels of funding impacts the poorest areas the most. For instance, the most deprived tenth of councils’ share of spending on adults’ and children’s social care is estimated to be 15% and 10% below their share of needs, while richer areas’ share of spending is above their share of estimated needs.

Poorer areas are also unable to raise enough funding through council tax to maintain services, according to the IFS.

David Phillips, an associate director at the IFS and an author of the report, said: ‘Tackling persistent geographic inequalities in health, wealth and life chances across the country will require more than changes to public spending. But how spending is allocated between places does clearly matter, especially for those typically more disadvantaged people most reliant on public services.

‘Current funding systems for the main services outside the NHS are not set up to tackle inequalities. School funding has been becoming less targeted at the most deprived pupils and is still overly concentrated in London. Council, police and public health funding bear less and less relation to estimates of spending needs each year, with no way to account for how changes in local circumstances can affect spending needs.

‘Addressing these issues would be a vital part of a truly ambitious “Levelling Up” agenda – but reform has been seemingly kicked into the long grass.’

Commenting on the IFS report, Cllr Andrew Western, chair of the Local Government Association’s (LGA) Resources Board, said: ‘Levelling up is at the heart of what councils want for their communities. As this report rightly highlights, levelling up will only be turned into a reality if councils have the powers and funding they need to address regional inequality, tackle concentrations of deprivation and make towns and communities across England attractive places to live, work and visit.

‘The dramatic increase in inflation, alongside increases to the National Living Wage and higher energy costs, has added at least £2.4bn in extra costs onto the budgets councils set in March this year. With local government then facing a funding gap of £3.4bn in 2023/24 and £4.5bn in 2024/25 it is clear that the Government needs to come up with a long-term plan to manage this crisis.’