2 Reducing financial uncertainty
Helping local authorities plan for future savings
26. Given the challenges faced by local authorities
in coping with ongoing funding reductions, it is important the
Government does what it can to provide authorities with certainty
over their future funding. Financial uncertainty can create risks
to value for money by undermining the ability of organisations
to act according to longer-term savings plans.[55]
However, in this Parliament the Department has made some late
funding announcements, reducing the time local authorities have
had to set their annual budgets and council tax rates. For example,
it announced the funding settlement for 2014-15 three weeks later
in the year than it announced the 2010-11 settlement. In addition,
on occasion it has only announced funding for one year at a time,
rather than two or more.[56]
27. The Department has also changed the local government
funding system so that authorities now receive a proportion of
their funding from incentive-based mechanisms, such as the Business
Rates retention scheme. Under this system local authorities keep
around half of any local growth in Business Rates. Such mechanisms
increase the uncertainty over authorities' future funding by making
part of it dependent on local growth.[57]
As the Department confirmed, the total amount of money collected
by local authorities in Business Rates will vary from year to
year.[58]
28. One potential consequence of this degree of financial
uncertainty has been the significant increase in local authorities'
financial reserves over this Parliament. For example, in 2010-11
single tier and county councils (those authorities responsible
for social care) held reserves equal to a quarter (25%) of their
annual net revenue expenditure; in 2013-14 this had increased
to a third (33%). Local authorities the NAO spoke to said they
had increased reserves because of uncertainty over future income.
[59]
29. The Department agreed that the more funding certainty
it could give to local authorities, the better. On one level,
it thought there was only so much it could do to assist, as the
radical funding reductions and reforms it was implementing were
bound to bring with them some uncertainty.[60]
But at the same time the Department referred to a number of actions
it had taken to limit the uncertainty arising from its new incentive-based
funding mechanisms. It also said that where possible it had made
two-year announcements of funding to provide greater certainty.[61]
- Regarding the timing of its main funding announcements,
the Department said it tried to make these as early as possible,
but that it was constrained by the timing of the Chancellor's
Autumn Statement. In that case, we said, the Treasury should ensure
that local authorities had greater certainty and more notice of
their funding. HM Treasury said it did not disagree.[62]
55 C&AG's Report, para 1.12. Back
56
Q 77; C&AG's Report, paras 1.11, 2.10. Back
57
C&AG's Report, para 1.11. Back
58
Q 34. Back
59
National Audit Office, The impact of funding reductions on
local authorities, November 2014, para 15. Back
60
Qq 76, 78. Back
61
Qq 5, 36, 77. Back
62
Qq 77-78. Back
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