More than a fifth of top-tier councils will exhaust their reserves within five years if they continue to spend them at present rates.
That warning has come from the National Audit Office, Parliament’s spending watchdog, in a report on the financial sustainability of local authorities, which said the government was “sleep walking” into a centralised system where meeting social care demands eroded local discretion over spending on anything else.
Sir Amyas Morse
NAO officials said they were aware of the councils at risk in this way, but would not name them.
Their report said the demands of adult social care were largely responsible for councils’ financial plight, with districts proving to be in an unexpectedly better place financially.
Among top-tier councils though it predicted 10.6% had the equivalent of less than three years’ worth of reserves left if used up at the same rate as in 2016-17, and a further 9.9% within four-to-five years.
The NAO warned others could follow Northamptonshire CC, which last month became the first council in 20 years to issue a section 114 notice imposing immediate spending controls, partly due to social care costs.
It said: “We note that [Northamptonshire] exhibits a range of characteristics that are becoming increasingly common across single-tier and county councils … these include overspending on social care in recent years, and drawing on its reserves, often on an ‘unplanned’ basis.”
Aileen Murphie, NAO value for money director for local services, said that when a similar report was written in 2014 it had been assumed that smallness was a risk factor and that districts would face the worst financial turmoil.
This, though, had not proved to be the case and social services, including those for children, had been the most decisive factor. These pressures are “pushing local government towards a narrow remit centred on social care”, the report said.
NAO head Sir Amyas Morse said this meant the government “risks sleep walking into a centralised local authority financial system where the scope for local discretion is being slowly eroded”, as discretionary spending contracted ever further so statutory duties could be met.
This is happening in an unplanned way, with individual Whitehall departments seeing only the effect of spending cuts on local government services for which they are responsible and with none having an overall view of the impact.
Ms Murphy said: “Central government does not see local government across the piece.”
The NAO said that from 2010-11 to 2016-17, the number of older people needing care increased by 14.3% and looked after children by 10.9%. Adult and child social care together now took 54.4% of local authorities’ total service spend, up from 45.3% in 2010-11.
Although spending on social care fell by 3% over that period as councils found efficiencies, this was dwarfed by the 52.8% cut for planning and development and 45.6% for housing services.
Overall though the NAO said councils’ success in finding new income and efficiencies had averted the worst predictions made when austerity began.
Public accounts committee chair Meg Hillier (Lab) said: “Councils need to know what their long-term future is, but instead of sorting this out, Whitehall has used a series of short-term fixes to paper over the cracks.”
A government spokesman said last month’s finance settlement “strikes a balance between relieving growing pressure on local government and ensuring hard-pressed taxpayers do not face excessive bills” and added there is “a real terms increase in resources over the next two years”. A fair funding review is also under way.
Local Government Association chair Lord Porter (Con) said the report provided “further compelling evidence as to why the government must urgently secure the financial sustainability of local government and the 1,300 different statutory duties and responsibilities councils provide.”
Martin Reeves, local government finance spokesman for the Society of Local Authority Chief Executives & Senior Managers, said the NAO’s report should act as “a wake-up call for government” as “it is not realistic to expect that further cuts could be absorbed without harsher impacts on the people we serve.”
He added “councils need certainty, stability and flexibility to plan effectively for the future” but said: “Instead, we are having to work in a hand-to-mouth fashion, with no clarity on our financial positions in two years’ time. It has never been more urgent for central and local government to work together to set out a plan to secure a more sustainable future for our public services.”
Association of Directors of Adult Social Services president Margaret Willcox said local government had “prioritised its citizens with the greatest needs”, by maintaining social care spending.
She said: “Adult social care simply cannot continue with short term fixes. Government needs to grasp the nettle and talk with all of us as responsible citizens about how we value our needs for care and support and how we pay for it, not just for next winter but also in 25 years’ time.”
Shadow minister for local government and devolution Jim McMahon said: “The National Audit Office have again lifted the lid on the real state of our local government public services since 2010.
“Sajid Javid has overseen the civic destruction of local public services and facilities with little care or understanding of the consequences. His legacy will be a system not just at breaking point, but broken completely unless urgent action is taken.”