NAO claims poor stats ‘hiding’ effects of local government shift in capital spending
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National Audit Office, Andy Aldridge, Flickr (cropped)
The implications of the shift among councils towards using capital spending to generate revenue is in danger of being missed by the Department of Communities and Local Government, according to a senior figure at the National Audit Office.
Speaking at the CIPFA Treasury and Capital Management Panel annual conference in London, Aileen Murphie, a director at the National Audit Office (NAO), said that national data collected by DCLG is not sufficiently robust to track and analyse the new trend.
Room151 last week reported that local authorities are likely to complete £1bn of commercial property deals by the end of the year – with real estate just one of a number of areas in which councils are attempting to use capital to provide long term revenue sources.
Murphie said: “We have made strong representations to DCLG that they have to improve the way you can see into the data because about 75% of spend is in one category.
“The headline (capital spending) figures are hiding the marked changes in investment strategies and the resulting nature of capital spending that is going on.
“It is clear that councils are not prepared to borrow to support spending that won’t cover own debt costs or generate income. It is quite a big difference.”
She said that the data issues, along with the devolved nature of spending, “don’t allow the DCLG to identify issues building up in the system”.
Murphie called on the department to focus more on capital spending in preparation for the next spending review.
She said: “The work that is done in the run up to spending reviews is usually focused on revenue. With the greater interaction between capital and revenue we think it is really important to give it much greater prominence.”
Councils undertaking property investments must also be aware of the long- term management costs involved.
“There is a big concern about investing in the long-term management of core assets and pushing the cost of the maintenance backlog into the future,” she said.
“At some point we will have to maintain those assets so we also have to think about that.”
During her speech, Murphie also voiced worries about the government’s approach to offering more flexibility for councils on how they spend their capital receipts, a measure announced earlier this year.
“The department didn’t try to model how many people will use it, or how much money was there,” she said.
“It is a significant new flexibility put into the system without really any understanding of what the implications will be, so we didn’t like that too much.”
Issues are also arising from the uneven effect of government cuts to central grant funding.
One group of authorities is “doing much worse than everyone else and at some point, those are the ones that may likely fall off the cliff — or more likely one or two of them will”, she added.
She said: “I think one of the things the department finds difficult, in its role as the steward of the local government financial system, is to comprehend the implications of the way they handle reductions.
“They have increased variability and complexity across the piece rather than reducing it. That makes it very difficult from a Whitehall management perspective to work out what to do next.”
