Watchdog pans DCLG for limited understanding of impact of cuts on councils

The Department for Communities and Local Government has “a limited understanding of local authorities’ financial sustainability and the impacts of funding cuts on services”, the National Audit Office has said.

In its report, Financial sustainability of local authorities 2014, the spending watchdog claimed that the DCLG did not monitor in a coordinated way the impact of reductions, and criticised it for relying on other departments and inspectorates to alert it about individual services failures.

“In consequence, the Department risks becoming aware of serious problems with the financial sustainability of local authorities only after they have occurred,” the NAO said.

The watchdog also described the DCLG’s processes for assessing the capacity of authorities to absorb further funding reductions as “not sufficiently robust”.

It said that the Department expected local authorities to manage future funding reductions by transforming the way they delivered services, but had limited understanding of the size and timing of resulting savings.

The NAO concluded that councils had coped well with reductions in government funding, but warned that some groups of authorities were “showing clear signs of financial stress”.

The watchdog said further planned cuts would bring the total reduction in Government funding for local authorities between 2010/11 and 2015/16 to 37%, excluding the Better Care Fund and public health grant.

This equates to 25% of local authorities’ total income when taking into account council tax receipts.

The NAO acknowledged that there had been no financial failures during the period, whether in the form of a local authority failing to agree a balanced budget at the start of the year or being unable to finance expenditure in-year.

However, it said a survey of local auditors showed that authorities were showing signs of financial pressure.

“Over a quarter of single tier and county councils (those authorities responsible for social care and education) had to make unplanned reductions in service spend to deliver their 2013-14 budgets,” it said.

“Auditors are increasingly concerned about local authorities’ capacity to make further savings, with 52% of single tier and county councils not being well-placed to deliver their medium-term financial plans.”

The watchdog also said:

• Those authorities which depended most on government grant were the ones most affected by funding reductions and reforms.
• Local authorities had tried to protect spending on social care services. Other service areas such as housing services (-34%) and culture and leisure services (-29%) had seen larger reductions.
• While local authorities had tried to make savings through efficiencies rather than by reducing services, there was some evidence of reduction in service levels. “Since 2010-11, for example, fewer days of residential care and homecare for adults are being provided.”

The NAO made a number of recommendations in the report. These were that:

1. The Department should publish a real-terms time series of change in individual local authority income since 2010-11.
2. The Department needs to analyse savings so far from local authorities’ transformational schemes and the timescales involved.
3. The Department should have a clearer ongoing understanding of whether authorities’ funding is sufficient to support their core services. In this regard it should strengthen oversight of the financial sustainability of local authorities; and improve its engagement with other departments with an interest in local services, and systematically review data across a range of services.
4. The Department should strengthen its processes for assessing local authority funding requirements at future spending reviews. It should: focus on the impact of funding changes on all service areas which are underpinned by statutory duties; work with other departments to develop, where possible, more robust methods for assessing the extent to which proposed funding will be sufficient to deliver services; and ensure that, where practical, analysis submitted by other departments at future spending reviews includes sub-national analysis, ideally by individual local authority or local authority type.

A separate report, Impacts of funding reductions on local authorities, suggested that there had been significant variation in the way that authorities had responded to the funding reductions.

“Authorities that have had larger cuts in government funding have not been able to protect funding of adults’ and children’s social care to the same extent as those with lower cuts,” the NAO said.

Certain ‘sub-services’ had meanwhile experienced very substantial cuts in spending. Spending on the Supporting People programme, housing support and advice for vulnerable people fell by 45%, the NAO said. Between 2010-11 and 2013-14, budgeted real terms spending on services for young people also fell by 34%.

Amyas Morse, head of the National Audit Office, said: “Local authorities have worked hard to manage reductions in government funding at a time of austerity. At the same time, there is evidence of some service reductions.

“The Department really needs to be better informed about the situation on the ground among local authorities across England, in a much more active way, in order to head off serious problems before they happen. It should look for evidence of financial stress in local authorities to assure itself that they are able to deliver the services for which they are responsible. It should be clear about the knock-on effect of the various funding decisions taken by departments in Whitehall.”

Commenting on the reports, Local Government Minister Kris Hopkins said: “Every bit of the public sector needs to do their bit to tackle the deficit left by the last Administration, including local government which accounts for a quarter of all public spending. This Government continues to deliver a fair settlement to every part of the country – north and south, rural and urban, metropolitan and shire.

“The reality is since 2010 budgets have been balanced, council tax has fallen by 11% in real-terms and public satisfaction with local government has been maintained. But there is still much councils can do to cut waste and make sensible savings, such as using their reserves, making better use of surplus public sector assets, clamping down on fraud, boosting council tax collection rates and sharing back offices.”

A spokesman for the Local Government Association said: “The funding which underpins local services, like protecting the vulnerable, fixing the roads and collecting the bins, has faced the biggest cuts of any part of the public sector.

“This report paints a stark picture of increasing financial risk and uncertainty for local authorities. It shows that central government has not taken a comprehensive approach to assessing the impact of its decisions.

“With further public spending cuts expected in the next Parliament, it is clear that a 'more of the same' approach will not work. Councils have worked hard to protect key services like adult social care from the impact of reductions in funding but, without fundamental reform, services will buckle under the strain of further cuts.”

The LGA spokesman said devolution to local areas was “the only answer”.

He added: “Across a wide range of issues, there is compelling evidence that taking decisions closer to the people affected achieves better results and saves money. 

“Faced with spending cuts and rising demand, popular services can only survive if local areas are given the full freedom to decide how they are provided and paid for.