Government ‘complacent’ over risks posed by council moves into commercial activity
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DCLG headquarters. Photo (cropped): Steve Cadman, Flickr.com, CC.
The government appears complacent and ill-informed about the risks caused by local authorities’ move into property development to generate revenue returns, according to a committee of MPs.
The Public Accounts Committee (PAC) this week said the Department for Communities and Local Government (DCLG) has inadequate information to understand the nature and extent of councils’ commercial activities.
It said that the department’s policy of encouraging councils to become more self-sufficient and entrepreneurial has not yet taken into consideration the impacts on capital expenditure and resourcing.
It said: “…we are concerned that the department appears complacent about the risks to local authority finances, council tax payers and local service users arising from the increasing scale and changing character of commercial activities across the sector.”
The report added: “The department’s figures for capital spending in the sector do not provide sufficient detail to identify significant changes in its purpose and objectives.
“In the department’s statistics, three-quarters of capital spending is grouped into a single category called ‘new construction, conversion and renovation’.
“This is broad enough to hide the marked changes in investment strategy ongoing in the sector, including a switch to invest to save and commercial schemes away from long-term asset management.”
The committee also said the department should use the data it collects more effectively to build its own system-wide picture of trends across local government.
A spokesman for the Local Government Association warned the government about introducing a new reporting regime for councils.
A LGS spokesman 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.”
And Vic Allison, deputy managing director at Wychavon District Council, echoed this sentiment. “I am not sure what it would change if governments knew what was going on and it would worry me if they became more prescriptive.
“We know what the financial position is up to 2019/20 and how we cope with that is a matter for us. All the government needs to do is carve up the cake.”
The committee called on the government to set out how it will strengthen its understanding of the scale of investment, and the types of authorities at the greatest risk.
Between 2010-11 and 2015-16, local authority capital spending increased by 13.6% in real terms, in contrast to revenue spending, which fell by 13.8% over the same period.
The committee found that authorities cite revenue pressures as the main factor shaping their capital programmes, prioritising capital spending that reduces revenue costs or generates income.
It said: “Along with an understandable general reluctance to increase debt servicing costs any further, this has left less room for spending on services like youth centres and libraries.”
In addition, authorities are reluctant to borrow to fund the maintenance of buildings, “as it is not able to generate savings or income to cover the costs of borrowing”.
The committee also criticised the DCLG and Treasury for being unable to explain why local authority investments on deposits grew from £18.5bn to £26.1bn between 2010 and 2016.
It said that the DCLG “was not able to explain to us the factors underlying the growth in these deposits”.
“HM Treasury’s understanding was equally limited and appeared to be based on supposition rather than evidence collected from authorities,” it added.
A DCLG spokesman said: “It is right that local authorities take a key role in promoting economic growth. They understand their local areas and are best-placed to make decisions that deliver value for money and better services for residents.
“Local authorities are required to ensure they have the right skills and commercial expertise to make investment decisions, and there strong checks and balances in place to protect taxpayers’ money.”
