Councils will see a 25% real terms cut in their total income between 2010 and 2016, and Whitehall cannot tell whether they are able to cope with further cuts, the National Audit Office has said.
A critical report from the spending watchdog, Financial Sustainability of Local Authorities 2014, said between 2010-11 and 2015-16 total government funding to councils would fall by 37%, excluding funding for public health and the better care fund. Once council tax receipts were included, the figure for councils’ income reduction was 25%.
It said the Department for Communities & Local Government did not monitor “robustly enough” the impact of funding cuts to council services, and warned of “weaknesses” in the spending power calculation used by the department to measure councils’ financial position.
According to the DCLG, “spending power” fell by 2.9% in 2014-15. It fell by 1.3% in 2013-14, by 3.3% in 2012-13 and by 4.5% in 2011-12, the department claims. It does not hold a cumulative figure for the whole parliament.
Sue Higgins, executive leader for local services at the NAO, said the DCLG did not have “an accurate measure of the cumulative financial challenge facing local authorities” and did not “monitor in a co-ordinated way the impact of its funding reductions on services”.
The DCLG had a “limited understanding” of the potential savings available from service transformation on local government, and was “unsighted on the extent to which local authorities are currently at risk of financial failure”, she wrote.
“It therefore cannot tell whether local authorities can absorb further funding reductions.”
The NAO report found that the department had “no way of verifying” its belief that councils had absorbed most of their funding reductions so far by increasing their efficiency.
The NAO published the report alongside a separate survey that it carried out among external auditors that had been independently appointed by the Audit Commission. This found 52% of local authorities were not well placed to deliver their financial strategies in the medium term, up from 41% last year.
The spending watchdog found that the DCLG’s “spending power” measure “lacks credibility in the sector” and “may understate the scale of the pressures local authorities face”. The calculation ignored some changes that “had a substantially negative impact on local authority income” and included money from the better care fund that may be spent on NHS services, it said.
A DCLG spokesman told LGC the department did not agree with the NAO’s 25% figure, because it excluded the public health grant and the better care fund, both of which the department included in its spending power calculations.
He said a cumulative measure of spending power could not be calculated “in a meaningful way” because of policy changes such as the localisation of council tax benefit and the transfer of public health to local government.
In a statement, local government minister Kris Hopkins said: “The reality is since 2010 budgets have been balanced, council tax has fallen by 11% in real terms and public satisfaction with local government has been maintained.”