Select committee launches inquiry on auditing council finances amid growing number of local authorities issuing section 114 notices

The Levelling Up, Housing and Communities Parliamentary Committee has launched an inquiry into local authority financial reporting and auditing in a bid to improve the process by which council finances are checked.

Announcing the inquiry today, the chair of the cross-party committee, Clive Betts MP, said that with council finances "under greater pressure than ever before, the need for effective financial accountability for local government is put into even sharper focus".

The inquiry will scrutinise the role of audit in local accountability and democracy and the extent to which accounts provide a clear picture of the financial sustainability and resilience of a local authority.

It is also set to explore how local authority financial reporting could be made more accessible, the role of local audits in acting as a 'red flag' for action by councils to address financial issues, and how auditors in local government could work together to share best practice, the committee noted.

Three councils have effectively declared bankruptcy in the last two years by issuing section 114 notices, with Woking Borough Council announcing it is "in the territory" of issuing a notice just last month.

All three councils that issued section 114 notices – Thurrock Council, Slough Council, and Croydon Council – were forced to increase council taxes above 5% in February of this year to continue delivering services.

"Local public bodies are responsible for billions of pounds of expenditure each year, delivering public services that taxpayers rely on every day," Clive Betts said.

"Effective financial reporting at the local council level is important not only for delivering value for money for these services but is also key to democratic accountability.

"As a Committee, we are keen for our inquiry to examine how local authority financial reporting could be improved to better engage with taxpayers and other stakeholders. We will also want to explore how local audit fits into the 'checks and balances' of how councils operate and the effectiveness of audit in acting as a 'red flag' to councils to address financial issues."

The committee is currently welcoming written evidence on the topic. The closing date for submissions is 17 April.

Adam Carey