While local authority revenue spending power has decreased significantly over recent years, authorities have, taken as a whole, maintained capital spending levels. However, revenue pressures have led to changes in the nature of capital spending with authorities focussing more on schemes intended to generate future revenues. Many are investing less in physical assets, such as libraries, museums and parks, and spending more on commercial investments, often involving investing in property. The Department for Communities and Local Government (the Department) has overall responsibility in government for the local government finance system. The Department expects authorities to become more ‘entrepreneurial’ as it encourages local government to become largely self-financing. But we are concerned that the Department appears complacent about the risks to local authority finances, council tax payers and local service users arising from the increasing scale and changing character of commercial activities across the sector. The Department does not have good enough information to understand the scale and nature of authorities’ commercial activities or which authorities are placing themselves at greatest risk and it does not use the information it does have to give it a cumulative picture of risks and pressures across the sector. Unless the Department strengthens its understanding of the capital issues faced by local authorities, it will not be well placed to anticipate risks to financial and service sustainability.
16 November 2016