The Department for Communities & Local Government is “complacent” about the potential risks of councils’ increasingly commercial approach to managing their finances, MPs have warned.
In a report published today the Public Accounts Committee questions whether council officers and members have the required skills for the growing number of commercial ventures they are involved in, particularly around property development. The committee says it does “not share the [DCLG’s] confidence that the increased commercial activity in the sector adds no particular risk to the department’s own work”.
The report, The Financial Sustainability of Local Authorities, also criticises the DCLG and the Treasury for having no understanding of why council deposits with banks and other institutions are now at record levels. Between 2010-11 and 2015-16 the amount increased by more than 40% from £18.5bn to £26.1bn.
The committee’s inquiry draws on a recent National Audit Office report that found councils’ decisions on capital expenditure were increasingly driven by the potential to generate income or reduce revenue expenditure. The PAC warns this approach risks facilities such as libraries or youth centres missing out on much needed maintenance or investment.
It says the DCLG does not have a good enough understanding of how revenue pressures are impacting on capital spending or of risks posed by councils’ capital investments and the growth in local authorities lending money to one another. In some cases, such as categories of capital spend, the information collected is inadequate, while in others the department is not making full use of the information it collects, the report finds.
The DCLG told the committee it used discussions with councils and work with the Local Government Association to reassure itself regarding the sector’s finances. However, MPs said they were not “reassured that the department had a sufficient level of independent understanding of the issues and risks it is responsible for”.
Committee chair Meg Hillier (Lab) described it as “alarming” that the DCLG “does not have a firm grasp of the changes happening locally and their implications for taxpayers”.
“Our committee has previously highlighted gaps in the commercial skill of the civil service as a factor in the failure of some projects and we have similar concerns about local government,” she said.
“Local authorities need the skill-set to invest wisely and the department must bear its share of responsibility for ensuring these skills are in place.
“Local authorities must have confidence central government has got their backs.”
However, chair of the Local Government Association resources board Claire Kober (Lab) said council officers and members across the country were developing the skills and expertise to take a more commercial approach to investment decisions.
“Local authorities have to adhere to strict rules and assessments before making a decision to ensure it is affordable and provides value for money. The LGA is supporting councils to develop understanding of these risks and opportunities,” she said.
“More self-sufficiency for local government cannot be accompanied by central government reviews and monitoring. Councils are open, transparent and democratically accountable and their spending is already subject to public scrutiny.”