Resource Allocation Using the Four-Block Model

The Four-Block Model

Introduced in April 2006, this approach to need and resource equalisation was meant to provide a robust and equitable system for distributing the formula grant between the 456 ‘receiving authorities’ in England. Fast-forward to 2011 and it was used to allocate £29 billion from central to local government in the UK. This funding (together with other government allocations and grants) supports provision for social services for children and adults, police, fire and rescue services.

Constructed in four components, the model:

1. Calculates the needs of each authority’s population for the services provided (relative need block).

2. Calculates and deducts the resource that is available through council tax revenue (relative resource block).

3. Then distributes to all authorities the unallocated proportion of the funding clawed back through step 2 (central allocation block).

4. Then allocates a minimum funding increase, or if an authority was already receiving more than the minimum increase, would scale back their funding (floor damping block).

This model then produces a RNF score (relative needs formula).

Thresholds

Several factors in this funding model lead to the use of thresholds, which Professor Asthana identified as one of the leading problems in creating inequitable funding outcomes.

The Four-block system splits measures of service needs and revenue capacity into above threshold components and below threshold components, which without damping, would result in very different distribution of revenue compared with the balanced need/tax base allocation. It distorts the relationships between local service needs and tax base.

Through this model, what authorities received in 2008-2009 was strongly influenced by what they received in 2007-2008, and that was strongly influenced by what they received in 2006-2007 and that by what they received in 2005-2006, which used the old funding model. So the authority’s funding will only approximate its allocation if it is broadly in line with what was allocated under the old funding model. It disregards the different types of local authority providing different sets of services.

‘The Wokingham effect’

To assess the model, Professor Asthana used a form of sensitivity analysis, on the basis that if it is robust then small changes to input factors should have similarly small output consequences.

They took Wokingham as an example, which in 2008-9 received £7.75 million funding. By removing them as a local authority from the funding model, there should have been very little change in the way funding was distributed. However, what they found was that the ‘Wokingham effect’ as it was later coined, meant Thames Valley Police would lose over £14 million of their funding and Birmingham Metropolitan District would gain over £38 million. In similar extremes, Richmond upon Thames would have seen its predamping allocation fall by 44.14%, and the City of London would have seen an increase of 14.2%.

When adjusting Wokingham’s RNF value, dramatic effects were also seen in this way for other authorities.

Public service inequity

The complex resource allocation method using the four-block model was demonstrated by Professor Asthana and Dr Alex Gibson to be driven towards inequitable targets. The lack of transparency of the approach was shown to have led to this complex but flawed model being introduced too quickly and without the proper review and checks.

This research specifically called for an urgent review of this model that eventually resulted in the end of the use of the four-block model.

Related publications: 

• Gibson A & Asthana S 2011 'Resource allocation for English local government: a critique of the four block model' Journal of the Royal Statistical Society, Series A 174, (3) 1-18
• Gibson A & Asthana S 2011 'Resource allocation for English local government: a critique of the four-block model' JOURNAL OF THE ROYAL STATISTICAL SOCIETY SERIES A-STATISTICS IN SOCIETY 174, 529-546 Author Site , DOI