Methods used by the Department for Communities and Local Government (DCLG) to distribute £20.5bn in formula grant funding to councils have been dismissed as complex, opaque and unfair by an influential all-party committee.

In its 16 November report into local public services funding, the Public Accounts Committee (PAC) found that one-in-five councils receive cash allocations more than 10% above or below their requirements, due to a Government tradition of prioritising stability of funding above all other criteria.

Margaret Hodge, chair of the PAC, said: ‘It cannot be right at a time of budget cuts that this results in Wokingham receiving double the funding it actually needs, while many other local authorities, such as Dorset County Council, get much less than they require.'

The committee branded as ‘lacking transparency' the weightings applied by DCLG in assessing formula grant and deemed its sources of external advice to be without status or influence. This finding was supported by the fact a mere 4% of respondents to a DCLG consultation on the issue championed the current version of the model used to calculate funding allocations.

Local government minister Bob Neill agreed that the current funding system is ‘confusing, arbitrary, complex, fails to support growth and is widely seen as unfair.'

Discussing proposed reforms outlined in the local government resource review, Mr Neill added: ‘By letting councils keep the products of enterprise, we will end their demoralising dependence on government handouts, finally start rewarding economic growth and support local firms and new jobs.'