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PAC: Ministers in denial over finances and must 'get real'

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Ministers are in denial over the state of local government finances and have failed to plan for councils’ long-term future, according to the Public Accounts Committee.

The cross-party committee has today published a damning report which finds that councils’ financial position “is continuing to deteriorate as demand for vital services increases”.

Government funding for local authorities in England has been cut in half over the last eight years while demand for council services has continued to rise, the report said.

The committee found overall spending by local authorities on services fell by 19.2% in real terms between 2010-11 and 2016-17.

Committee chair Meg Hillier (Lab) said: “The government is in denial about the perilous state of local finances. It insists the sector is sustainable yet is unwilling or unable to back up this claim.

“Flimsy assertions have no place in financial planning. The fact government has bailed out councils with short-term fixes should be evidence enough that all is far from well.

“Government needs to get real, listen fully to the concerns of local government and take a hard look at the real impact funding reductions have on local services. And then it needs to plan properly for the long-term.”

Some councils were found to be in an “extremely worrying” position, overspending on budgets for social care, cutting back key services, relying on financial reserves and taking risks to generate other sources of income.

The committee accused the Ministry of Housing, Communities and Local Government of relying on a “short-term approach to a long-term problem”, with “no sign” of a “clear plan to secure the financial sustainability of local authorities in the long-term”.

Speaking during a Commons debate on the local government financial settlement yesterday, housing and communities secretary James Brokenshire defended the government’s approach.

He said: “It’s clear we need to take a longer term view on how we fund councils. A new approach to distributing funding between local authorities and the upcoming spending review will be pivotal to this. For years councils have asked for more control of the money they raise and we’re giving it to them.”

Shadow housing and communities secretary Andrew Gwynne responded by insisting the government had “no new ideas” and “no recognition of the dire situation facing councils”.

He said: “We frankly expect better from this secretary of state and want to see better from this government. Over the last nine years [councils have] been hung out to dry. This was an Alice Through the Looking Glass settlement. Ministers presented a cut as an increase because in the real world there is no new money.”

Evidence provided to the PAC inquiry by the LGA estimated that local authorities will face a funding gap of £3.2bn by 2019-20. The committee called on MHCLG to show how its own assessment of council finances compared with the LGA’s figure.

A series of other recommendations included calls for MHCLG to set out its assessment model for council finances and setting out the steps it intends to take to move the local government sector to a stronger financial position.

The committee noted that MHCLG has rejected a series of its earlier recommendations. ““We are deeply frustrated to have to repeat the same concerns about the sustainability of the sector and the ability of local authorities to provide the vital services that taxpayers need,” it said.

In response to the report, Mr Brokenshire said: “This year’s settlement paves the way for a fairer, more self-sufficient and resilient future for local government. That is why local authorities will have more control over the money they raise and a real terms increase in their core spending power.

“The settlement also recognises the pressures councils face in meeting growing demand for services and rewards their impressive efforts to drive efficiencies and rebuild our economy.”

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