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PAC: Government lacks full understanding of councils' financial woe

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The government is not sufficiently able to determine the financial sustainability of local authorities, creating an “unsustainable” scenario for the sector, a report from the public accounts committee has warned.

The committee reports that the Ministry of Housing, Communities & Local Government is failing to identify councils’ long-term financial problems due to a culture of “complacency”, while the majority of these problems were caused by pressures that were not identified in the government’s 2015 spending review.

Committee chair Meg Hillier (Lab) said: “It beggars belief that the department responsible for the local government financial framework, and which takes the lead in assessing councils’ funding requirements, has neither an agreed measure of sustainability nor a clear definition of ‘unsustainable’.

“These are fundamental weaknesses in its approach to assessing the financial risks facing councils and the sector as a whole – risks that, as the evidence bears out, are clear and pressing.”

The committee reported a lack of transparency over the methodology used at the ministry to compile and assess financial data has led to confusion on the issue.

In finding that there is currently “no shared definition” of sustainability in local government, the committee cited permanent secretary Melanie Dawes when it reported that there is currently no “specific point” where financial data would raise concern.

Ms Dawes told the public accounts committee on 15 May: “[MHCLG] don’t have set points where we say [risk in the system] has become unsustainable.”

In a written submission to the PAC committee, Ms Dawes said the ministry provided an overview on financial sustainability through an “overview of the expected spending power of local government, the overall cost pressures arising from its various statutory and policy delivery responsibilities, and the opportunities for savings”.

Richard Watts (Lab), chair of the Local Government Association’s resources board, said in response: “The committee has rightly recognised the significant funding pressures and huge financial uncertainty facing all councils over the next few years and into the next decade. Despite the best efforts of local government, we’ve reached a point where councils will no longer be able to support our residents as they expect - let alone help the country to prosper.”

Citing figures reported in the LGA’s latest finance paper ahead of the 2019 spending review, Cllr Watts said: “Local government in England faces an overall funding gap of almost £8bn by 2025. Plugging this gap would just keep services standing still and does not include any funding needed to improve services or reverse any cuts made to date.”

 

The PAC report said: “The harsh reality is that more and more local authorities are now showing signs of financial stress such as overspending on services.”

“Councils now face a period of greater uncertainty as their funding framework beyond 2019–20 is unclear,” the committee said in its summary.

An MHCLG spokesperson said: “Local authorities are responsible for their own funding decisions, but over the next two years, we are providing councils with £90.7bn to help them meet the needs of their residents, including social care.

“We recognise the pressures councils are facing, so we are working with local government to develop a funding system for the future.

“On top of this, we are giving them the power to retain more of the income they get from business rates so they can use it to drive further growth in their area.”

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