Conclusions and recommendations
Risks to value for money arising from a failure
of leadership
1. The Department should be the single point
that is overseeing the implications of government funding reductions
and their implications for the delivery of local statutory services.
The Department's Accounting Officer is the lead accounting officer
in central government with respect to local government, and is
responsible for distributing government funding to support local
authorities to deliver their core services. However, in taking
a largely "hands off" approach, both with respect to
the information it obtains from other departments and in supporting
local authorities to manage ongoing funding reductions, the Department
is creating risks to value for money.
2. The Department does not understand the
impact over time of reductions in funding to local authorities,
and the potential risks of individual authorities becoming financially
unsustainable if reductions continue.
The changes in the system of local government funding have meant
that the funding reductions have impacted in different ways on
different authorities. The Department does not calculate or publish
figures on the impact of the reductions over time. The information
sources that the Department does use to understand local authorities'
financial sustainability were not designed to provide assurance
on the financial viability of local authorities. The Department
accepts it should make better use of the information it has got.
As a consequence, the Department does not have clear processes
for identifying local authorities which are at risk of experiencing
financial difficulties as a result of the reductions.
Recommendations: The Department should improve
its oversight of the financial sustainability of local authorities.
It should:
· produce, and update annually, a
measure of change in revenue spending power agreed with local
authorities which are transparent in showing change over time.
· adopt a targeted approach to monitor
more closely the financial sustainability of individual local
authorities deemed to be at high risk.
3. There is a risk that value for money might
be undermined by reductions in spending in one area leading to
additional costs elsewhere. Where local
authorities make changes in one service, this could lead to increased
demand for other services over the longer term or reduced income
for the local area. Changes in delivering of youth services could
impact on welfare expenditure; changes in planning and development
could inhibit growth and slow down housing developments. Also,
local authority funding reductions lead to "cost-shunting"
between local government and other service providers; for example,
reductions in local authorities' social care provision has, in
some cases, led to bed blocking in NHS hospitals. The Department
agrees that it should have enough information to make good decisions
about the level of funding provided to local authorities. It believes
that local authorities have safeguarded value for money by absorbing
the funding reductions primarily through efficiencies, rather
than cutting services. However, the Department does not use data
on the level of services that authorities are actually providing,
putting it in a weak position to know what the real effects of
its funding reductions are on service users and other local service
providers. Without the data the Department could well consider
implementing further grant reductions without understanding the
impact on the level or quality of local services.
Recommendation: The Department should review
regularly existing activity data across a range of key services
such as adult social care and children's services to monitor the
impact of funding reductions on services including those delivered
by other bodies locally like the NHS.
4. There is a risk that central government
will not appreciate when reductions in funding threaten the viability
of some statutory services. For spending
reviews, the Department leads a cross-government exercise to provide
assurance to HM Treasury that local authorities can maintain their
statutory services. The Department believes the assessments of
the impacts of funding decisions it obtained from other government
departments were better at Spending Round 2013 than at Spending
Review 2010. However, it acknowledged that for the 2013 Spending
Round its information on a range of statutory services had still
been incomplete. The evidence it received from other departments
was patchy and limited, and not one department broke its analysis
of impacts down on a sub-national level or looked at different
types of authority, at either Spending Review 2010 or Spending
Round 2013. This matters because those local authorities with
the highest spending needs have been receiving the largest reductions.
Further funding reductions could not just undermine the entire
viability of most discretionary services, but might threaten some
statutory services in these areas. Consequently, neither Spending
Review 2010 nor Spending Round 2013 amounted to a comprehensive
cross-government assessment of whether all authorities would be
able to maintain their full range of statutory services. The Department
accepts that it needs to strengthen its relationships with other
departments to improve its understanding of local services, and
committed to improve its processes for a potential spending review
2015.
Recommendations:
· HM Treasury should ensure that all
relevant departments comply fully with the Department's requests
for information at future spending reviews.
· The Department should ensure that
other departments' assessments of impact consider the full range
of local authority statutory services. The impact assessment should
also focus on types of authority in which, because of higher funding
reductions coupled with more intense service demand, services
are at greater risk of becoming unsustainable.
· The Department should open up a
wider consultation with local government on which statutory services
local authorities should be expected to deliver, if there are
to be further periods of funding reductions.
5. The Department's assessment of what transformation
projects can deliver is limited. The Department
recognises that local authorities are reaching the limits of achieving
efficiency savings, and believes that transforming the way they
deliver services is the only way they can make further savings.
It is supporting local authorities to do this through initiatives
such as the Better Care Fund and the Public Service Transformation
Network. The Department cannot at present satisfy us that it understands
whether it is feasible and practical for local authorities to
deliver the service transformation necessary to maintain financial
sustainability. Nor does it understand what the effects on service
users would be.
Recommendation: Focussing on its own transformation
programmes for local government first, the Department needs to
understand whether transformation initiatives are capable of delivering
the size and pace of grant reductions. If necessary the Department
should expand its support for transformation programmes across
the country.
Lack of financial certainty
6. HM Treasury should endeavour to give more
clarity to local authorities about future funding, so that local
authorities can plan their delivery of services going forward.
The Department and HM Treasury announce settlements and grants
late and on some occasions have given local government one-year
settlements. The Department told us it has given two-year settlements
where possible, and cannot announce settlements earlier in the
year because of the timing of the Chancellor's Autumn Statement.
Combined with the introduction of incentive-based funding mechanisms
such as Business Rates retention, this has increased uncertainty
for local authorities over future funding which has led to many
adding to their reserves as a hedge against future events. This
undermines the value for money of government funding, as it takes
even more money away from services at a time of spending reductions.
Recommendation: HM Treasury should work
with the Department to introduce multi-year finance settlements
for local authorities.
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