MPs criticise Government for lack of effective leadership of local governance

The Government has not done enough to ensure that, at a time when local authority budgets are under extreme pressure, governance systems are improved, an influential committee of MPs has said.

In a report, Local Government Governance and Accountability, the Public Accounts Committee said local authorities’ governance arrangements were “generally robust”.

But it added that this was “not universal” and in some authorities, governance was under strain: “audit committees that do not provide sufficient assurance, ineffective internal audit, weak arrangements for the management of risk in local authorities’ commercial investments, and inadequate oversight and scrutiny”.

The committee said: “This is not acceptable in the more risky, complex and fast-moving environment in which local authorities now operate.”

The MPs claimed that the Ministry for Housing, Communities and Local Government’s oversight of local authority governance had been “reactive and ill-informed”, but it had now recognised the lack of leadership needed to drive improvement.

“Encouragingly, the Department has now committed to enhancing its oversight role and producing a proactive work programme to deliver this change,” the PAC said. “We urge the Department to ensure that this activity leads to concrete actions and outcomes on a timely basis. When a local authority fails this has a significant impact on local people and the Department has a responsibility to work with local government to ensure that problems are caught early and that it can pinpoint at-risk councils.”

The PAC concluded that:

• The Department is not yet providing effective leadership of the local governance system. The committee said it was “particularly concerned” about the gap between the substantial intervention powers of the Secretary of State and the daily operation of a largely unregulated sector. “Rather than simply waiting until things have gone wrong locally and resorting to statutory intervention, the Department should be a system leader to ensure that the whole system is effective and that the key organisations involved in the framework are working in an effective and co-ordinated manner.”
• The Department does not know why some local authorities are raising concerns that external audit is not meeting their needs.
• The Department lacks reliable information on key governance risks, or relies on weak sources of information, meaning it has no way of pinpointing the at-risk councils. “We are not confident that the current arrangements are enough to identify struggling councils that try to keep their problems to themselves, or to spot emerging wider weaknesses across the sector. The Department acknowledges that statutory officers play a vital role in local governance but does not collect or otherwise have access to information about the status and capacity of statutory officers across the sector.”
• The Department’s monitoring is not focused on long-term risks to council finances and therefore to services.
• There is a complete lack of transparency over both the Department’s informal interventions in local authorities with financial or governance problems and the results of its formal interventions.

The PAC’s recommendations were:

• The Department should write to the PAC within the next six months, setting out: its overall plan for improving its oversights; its progress in working more effectively with other government departments to understand overall pressures on service sustainability; its objectives for the promised local governance panel and the means by which the panel’s effectiveness will be assessed; and progress in setting up the new panel, including its work programme, the concrete actions the panel will take; the timetable and intended outcomes the panel will be working towards.
• The Department’s proposed review of the work of independent auditors should be conducted independently and should ensure that concerns from some local authorities over current fee levels and the contribution of external audit are examined fully and rigorously. The review should make an assessment of whether external audit is providing an effective service and meeting the needs of local authorities.
• If the review identifies an ‘expectation gap’ as a factor underlying local authorities’ concerns with external audit, then the Department should identify how these unmet expectations can be met.
• The Department should assess the governance evidence base available to it currently and write to the PAC by November 2019 setting out how it will address gaps it has identified.
• The Department should assess and monitor the scale of long-term risk that authorities might have exposed themselves to through their commercial investments and ventures.
• The Department should set out how it will improve transparency over its engagement on governance issues with individual local authorities, including: a review of the information the Local Government Association is required to publish under its sector-led improvement work funded by the Department; the steps the Department will take to publish information and learning following formal interventions.

Meg Hillier MP, chair of the Public Accounts Committee, said: “On the rare occasions a local authority fails, the impact on local citizens is severe. Residents facing decimated services get no comfort from being told that their council’s dire finances were ‘an open secret’.

“We have seen examples of local authorities which have had inadequate governance arrangements and been unable to provide assurance that hard pressed budgets are being properly spent.

“The Government needs to recognise the extra pressure that squeezed budgets and increased commercial risks are having on local government and make sure it is monitoring the risks effectively so that it can be alert to the impact of changes on local government.”