Widespread financial failure untested, says NAO

The National Audit Office has issued a stark warning on the state of local government finance after the latest round of cuts contained in the December settlement.

The NAO’s report Financial Sustainability of Local Authorities looked at central government’s approach to local government funding, and the sustainability of councils faced with funding changes.

The NAO noted that the cumulative effect of changes to local government funding needs to be understood. “The accountability framework for addressing widespread financial failure in local government is untested,” said the report. “It is not known how the system would respond in the case of multiple financial failures in more challenging times for local authorities.”

There was implied criticism of the Department for Communities and Local Government, with the NAO calling for it to “better evaluate the impact of decisions on local authority finances and services – before and after implementation.” DCLG should, said the Audit Office, work with other departments to understand what information is needed to support decisions affecting council finances and services and ensure that service obligations, including statutory responsibilities, are assessed when decisions are made on council financing.

The report also called for DCLG to make sure that assurances provided by the accountability framework are “robust enough for the more challenging financial and service delivery conditions” councils face. Better informed decision-making should, said the report, let DCLG identify evidence of potential difficulties early enough to intervene.

A spokesman for the Audit Office said that the report would go to a Parliamentary Public Accounts Committee at the end of February for a hearing with DCLG. A formal report to government will follow.

Sir Merrick Cockell, chairman of the Local Government Association, said that changes such as the local retention of business rates and cuts to council tax support needed to be “more effectively mapped” to gauge their combined impact.

“Cuts to local government funding, amounting to 33 per cent across this spending period, have been coming from all angles and the report shows that central Government has not taken a comprehensive and coordinated approach to assessing the impact of its decisions on local services,” said Cockell.

“Cuts aren’t just numbers on a page. They represent less money to deliver services on which people rely. It is concerning that the departments examined by the NAO had not fully scoped the demand for and cost of delivering services to different areas and that not enough effort was made across Whitehall to assess what savings were possible before cuts would start eating into frontline services.”

A spokesman for the Department for Communities and Local Government told Room 151: “Every bit of the public sector needs to do its bit to tackle the deficit left by the last Administration, including local government which accounts for a quarter of all public spending. Councils need to do their bit to deliver sensible savings, and in turn, protect frontline services and keep council tax down.

“Our broader local finance reforms will reward councils which promote local jobs and enterprise, driving economic growth and making councils less dependent on Whitehall handouts.”

The Audit Office report points out that while authorities have so far been able to absorb cuts, evidence is emerging that some service levels are reducing. Financial uncertainty is increasing, it added, and councils still have to make around half the savings required up to March 2015.

While Section 114 reports (used by the S151 officer to force the council to take action to bring a budget back to balance) have rarely been used, the report pointed to Birmingham and West Somerset councils as examples of authorities under serious financial pressure.

Previous central government intervention in council affairs has, said the report, been related to service failure or corporate governance or both. “How the system responds in the case of multiple failures during possibly more challenging times for local authorities is therefore at present untested,” it concluded.