MPs warn over ability of some councils to meet statutory obligations

MPs have today fired a dire warning over the prospective ability of some councils to meet their statutory obligations if current local government funding trends continue.

The influential Public Accounts Committee also said that serious questions would arise about the viability of some authorities.

In a report, Financial sustainability of local authorities, the PAC said: “Local authorities’ funding continues to be cut yet the number of statutory duties they have has stayed the same, and in some areas, such as adult social care, the demand for services is increasing.”

The MPs highlighted how the Local Government Association had already deemed one district council – West Somerset – as being unviable.

PAC chair Margaret Hodge MP said: “We want to know what actions [the Department for Communities and Local Government] would take in the event of multiple financial failures of local authorities.”

The committee criticised the DCLG for not having a clear strategy for responding to and dealing with such failures.

The report said: “The Department urgently needs to engage with other government departments and the local government sector on what the financial pressures mean for the future shape of local authority services.

“It must also overhaul its accountability arrangements and in particular clarify its plans to respond if councils become unviable.”

The PAC report also said:

  • To date, councils had, as a whole, managed to cope with significant funding reductions and fundamental changes to the local government finance system. However, with reductions likely to continue for several years, the pressures on the sector were set to increase.
  • So far, the highest reductions in terms of spending power have tended to be for councils that depended most on government grant, “where needs for local services tend to be greatest”.
  • The DCLG did not properly understand the overall impact on local services that would result from these funding reductions (over a quarter in real terms – or £7.6 bn – between 2011 and 2015).
  • New reforms to the funding system would reward councils who enjoy growth in business rates income, but would also remove resources from those which experienced a relative decline.
  • In some cases the Department could not provide assurances that money voted by Parliament for a particular purpose had in fact been used to fulfil that purpose.
  • The DCLG did not do enough work with other government departments to model how funding changes might adversely affect other areas of the public sector.
  • While the Department collected a significant amount of data from local government, it had not focused enough on what information was needed to understand councils’ spending and performance.
  • The DCLG failed to make clear how it would monitor councils’ ability to cope with funding changes, “or the extent to which they are able to do this by increasing efficiency rather than reducing services”.
  • The Department had not demonstrated that the information published was sufficient to provide assurance on the value for money with which councils spent their resources. “It was not acceptable for us to learn that nobody is responsible for providing Parliament with information on either severance payments or the use of personal service companies by local authorities”.

Margaret Hodge said: “Central government is cutting funding to local authorities by more than a quarter over four years but does not properly understand what the overall impact will be on local services.”

She added that individual councils were seeing very different levels of funding reductions. “For some, the cash they spend on services has been reduced by about 1% in 2012-13. Others have had the maximum reduction of nearly 9%.”

The PAC chair said: “The more grant dependent local authorities are suffering the highest reductions in spending power. But these are the very councils which serve poorer and more vulnerable communities whose need for services is the greatest.

“This raises the spectre of the worst-affected councils being unable to meet their statutory obligations. In some cases local authorities may cease to be viable, with the first such authority already identified.”

Hodge meanwhile called on the DCLG to understand better the impact of its cuts on vulnerable groups.  

Sir Merrick Cockell, chairman of the Local Government Association, said the report was “a stark warning” to the Government that councils could not bear the brunt of new cuts in the next spending round.

“The sustainability of local government is on a knife edge in many areas and, as the committee rightly points out, some councils are already in danger of failing to meet their statutory obligations,” he said.

Sir Merrick added: “The inevitable impact of new cuts is a tightening of eligibility criteria for care and reductions in spending on services such as road maintenance, leisure facilities and economic regeneration. In some areas local authorities will have to cease providing some services entirely and scale back spending on areas such as social care which have so far been largely protected from cuts.”

The LGA chairman said the PAC was right to question the range of statutory duties placed on councils at a time when funding was being cut.

“A number of councils are caught between rising demand for services and falling income and there is a very real danger that at some point in future they will simply not have enough money to meet their statutory responsibilities,” he added.

Responding to the report, Local Government Minister Brandon Lewis said: "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.”

He insisted that councils’ funding settlement was “fair to all parts of the country - rural or urban, district or county, city or shire”.

The minister added: “This Government’s carefully considered reforms are helping councils achieve greater financial independence and deliver sensible savings while protecting frontline services, as demonstrated by local Government's own figures which show residents' satisfaction has gone up since 2010.

"However, there is more councils can do such as recover the £2 billion a year of uncollected council tax, reduce the £2 billion lost to fraud and error and utilise the £16 billion sitting in reserves."