Read: Areas with low social mobility face funding penalty

A new report has highlighted how the current council funding formula means that large parts of the country face a social mobility penalty.

The report from the think tank, Onward, shows that grants to local authorities are explicitly targeted towards areas of higher deprivation, missing parts of the country that might be more affluent overall but have some of the lowest levels of social mobility. The Settlement Funding Assessment (SFA) is one of the largest sources of funding from central government for local authorities, making up over a quarter of their budgets. It uses data from 2013/14 and the formula itself has not changed since 2006/7 so it has been almost two decades since the system of allocating funding to local authorities was overhauled.

It is an important measure as these areas have high levels of need and their services may be more expensive to provide. Basing grants on a single measure means that the broader picture is often missed. The bias tends to favour inner city boroughs at the expense of smaller towns and rural areas. After taking deprivation into account, an area in the top decile for social mobility receives 50% more in Whitehall grants than an area in the bottom decile.

Generally, areas of high deprivation and low social mobility coincide. For example, Blackpool is the most deprived local authority and is also the eighth least socially mobile and Hart, in Hampshire, is the least deprived authority and the 63rd most socially mobile. Two thirds of authorities in the top half of the deprivation rankings are also in the top half of the social mobility rankings and vice versa. However, many local authorities with low levels of deprivation face entrenched low social mobility while areas with high deprivation are extremely socially mobile such as Vale of White Horse which is the 10th most affluent authority but the 62nd least socially mobile and Hackney is the 22nd most deprived but the 5th most socially mobile. These disparities are generally driven by outcomes for the poorest children and young people.

There is growing concern that this system of council funding does not take into account local education and employment outcomes that are often at the root of entrenched pockets of deprivation in otherwise richer areas. Inner-city areas often perform well, despite their overall levels of deprivation, while smaller towns and rural areas often perform more poorly. Yet overall, high social mobility areas receive up to £173 more funding per household compared to households in the least socially mobile areas which rises to £245 after controlling for deprivation targeting.

The report suggests modelling for two alternative arrangements which would target social mobility alongside deprivation. A Social Mobility Mode would remove the deprivation target in funding and target funding towards low social mobility areas. It would reverse the social mobility penalty but would do so at the expense of more deprived areas which may need a greater than average allocation of funding. A Balanced Model would target funding to high deprivation and low social mobility areas in equal measure, addressing poverty while also boosting opportunity. The places that would receive the largest allocations would still be on average the most deprived places. Of the 10 authorities receiving the most funding, three are in the top five for deprivation and seven are in the top 25, reflecting the fact that many deprived areas are also low social mobility. The most deprived, Blackpool, is also the eighth least socially mobile and so its allocation changes by only £1 per household between the current system and the Balanced Model. It could increase new funding allocations for some of the least socially mobile areas by up to 98%.

Ministers are considering how to make council funding work better for the most vulnerable groups and to move away from a situation which sees those with the fewest opportunities having the least funding available for services. With a number of councils facing significant funding gaps, it is becoming an urgent problem to address.