Local Government Spending Contents

1Financial sustainability

1.On the basis of our previous report on the financial sustainability of local authorities, which followed reports by previous Committees, and Government responses to those reports, we took evidence from the Ministry of Housing, Communities and Local Government (the Department) about local government spending in England.1

2.Local authorities provide a range of services such as maintaining highways and local transport, culture and leisure, and housing. Some services, such as adult social care and waste collection, are statutory duties set by government. Local authorities can also provide discretionary services in line with local priorities, such as economic development or support for tourism. Different types of local authority have different responsibilities. For instance, London borough councils, metropolitan borough councils, county councils and unitary authorities have responsibility for adult and children’s social care, whereas district councils do not.2 The Department is responsible for distributing the majority of government funding for local authorities, who received £25.8 billion in government grants in 2016-17. Local authorities also generated £22.2 billion in council tax in 2016-17.3 Departmental ministers set the limits on the extent to which local authorities can increase their council tax rates without holding a local referendum. The Department is also responsible for taking the lead across government in supporting HM Treasury on decisions about local government funding at major fiscal events. The Department maintains a system of local accountability that assures Parliament about how local authorities use their resources, including preventing and responding to financial and service failure.4

3.In July 2018, we reported that the financial position of the local authority sector had deteriorated. We found that seven years of funding reductions totalling nearly 50% of local authorities’ funding from government, and increasing demand for key services, had led to the breadth of service spending by local authorities narrowing and becoming focused on a core offer centred on social care. We were concerned about the financial future of local government, and the future of the services it provides to local people.5

Ensuring value for money from short-term funding initiatives

4.The 2015 Spending Review set revenue funding for the then Department for Communities and Local Government up to the end of March 2020. In 2015–16, the Department similarly offered local authorities a four-year funding settlement to allow them to plan their finances more effectively, so local authorities’ funding should be fixed until the end of 2019–20. The Spending Review and the four-year settlement were intended to give funding stability, allow long-term planning and so support value for money in spending on local services. However, the government started announcing additional funding or other financial support for local authority services very early on. Our previous report in July 2018 found that since the start of the Spending Review period, the Department had provided additional grant funding to local authorities to fill gaps in funding for adult social care and enabled councils to raise additional money from local taxpayers through council tax.6 For example, the then Secretary of State for Communities and Local Government announced a £240 million Adult Social Care Support Grant in the first year of the four-year settlement.7 The pattern of one-off, short-term initiatives has continued. Since our last report, the government has announced over £1.4 billion of additional funding for local authorities, including over £750 million in central government in revenue and capital funding in 2018-19, and almost £700 million for 2019-20. The funding for 2018-19 was announced at the end of November 2018, but it needs to be spent by the end of March 2019, giving local authorities five months to spend the additional funding before the end of the financial year. This includes £240 million for adult social care, £420 million for roads maintenance, and £55 million in Disabled Facilities Grant.8

5.We asked the Department about the timing of the additional funding, and the value of local authorities committing to a four-year settlement and producing medium-term financial plans if the Department changes the amount of money they have available at short notice. The Department asserted that the additional funding was in response to increased risks and pressures it had identified within the local authority sector and, although not ideal, it was better to have given this money than not. We reiterated that improvement was needed in order for any multi-year settlement to give local authorities’ confidence in the funding levels that are set for them. In our previous report, we were concerned that the current lack of a long-term plan is a risk to value for money. We still await the further certainty about the outcomes of the Fair Funding Review and the design of the 75% local business rates retention that we recommended be given as soon as possible to support financial planning in local authorities. The Department accepted that it needed to do better at the next Spending Review.9

6.The Department asserted that it would always be necessary to respond to events as they come along. We accept that it may not be possible to avoid all funding changes within a long-term settlement, but we asked the Department how it could have confidence that the additional funding provided at such short notice would be spent efficiently. The Department accepted that the situation was not ideal but asserted that it was not always possible to give certainty further in advance. It told us that it had heard from local authorities that in previous years adult social care winter pressures funding was difficult to spend. The Department told us that it was responding to this by making the reporting requirements “very light touch”.10

7.We asked how the Department could have confidence that the additional funding would be spent on the services it was intended for, rather than being used to fill existing gaps in funding or avoid service reductions. The Department asserted that this would always be a balance and that there were examples where it had provided additional funding with targets and with conditions attached. It accepted that in other cases, such as the increasing grant that was provided in the Budget for next year for generalised pressures, the additional funding had “gone in without strings attached.” When we probed further, the Department accepted that ultimately “that money will stop them from diverting money from other services that are also important” rather than necessarily being spent on adult social care.11

The Department’s lack of ambition for the financial sustainability of the sector

8.When we examined the financial sustainability of local authorities in July 2018, we concluded that sustained funding reductions had left an increasing number of local authorities in a worrying financial position and asked the Department to explain its assessment that the sector was financially sustainable.12 We asked the Department about the financial health of local government, and whether the sustainability of the sector had improved since the last time the Department gave evidence. The Department told us that the sector’s financial health was “pretty similar” and continued to involve a substantial amount of pressure and risk across the system.13 It told us that it had identified additional factors that it considered to add more risk to the financial sustainability of the sector, and admitted that “over the summer some of the figures looked more worrying”. It asserted, however, that having provided extra money in the Budget, it had now stabilised the risks to the sector for 2019-20 and that the sector was now balanced. When we asked about risk to individual councils, the Department told us that no council was “close to the edge” in this financial year or 2019-20, and “certainly not one approaching Northamptonshire’s situation.”14 However, the Department’s assurance is limited to this Spending Review period, running to the end of March 2020.15

9.We asked the Department about the risk rating it had assigned to the financial sustainability of local authorities. The Department told us that it “would never expect something like this to be less than amber.” It acknowledged that some councils are very worried about what comes after 2019-20. However, it told us that the risk rating for the sector in the future would be dependent on the next Spending Review.16 In our previous report, we concluded that the Department was overly reliant on the next Spending Review to address the financial challenges being faced by local authorities. We cautioned that if the Department was not able to secure sufficient funding for local authorities from the Spending Review, alternative means of ensuring that local authorities remain financial sustainable would be needed.17 The Department promised to write to us about the steps it was taking, in addition to those that relate to levels of central funding, to help the sector meet future funding and demand challenges.18 In its subsequent letter, the Department outlined three categories of work it was undertaking. Firstly, work on future initiatives (business rates reform and the fair funding review) where we have already criticised the lack of clarity and the Department’s lack of a long-term plan for local government finance. Secondly, efficiency initiatives (such as a £7.5m Local Digital Fund) that are potentially worthwhile but not of a scale that matches the challenges facing local government. Thirdly, systematic engagement between the Department and five other departments, initially focused on the Spending Review but to be maintained afterwards. While noting these changes, consideration of more ambitious and fundamental reforms might nonetheless be necessary to ensure the future of local government as a living, breathing organism that serves the public. 19

Inability to demonstrate financial sustainability

10.When we examined the financial sustainability of local authorities in July 2018, we concluded that the Department did not have a consistent and transparent method to assess financial risk in local authorities. We found that the Department used a range of data and information to assess sustainability in the local authority sector, but that it did not share its methodology with the sector or publish the outputs of its work, meaning there was no shared definition of what financial sustainability means in practice in the local authority sector.20 In response to our report, the Department committed to publishing more information about projections for demand and spending six months after the conclusion of the next Spending Review, but it did not agree to work with the sector to reach and publish a shared definition of financial sustainability.21 When we questioned the Department about the current position of the sector, it mentioned recent short-term funding increases and told us that the sector is financially sustainable. It made the same point in June 2018, following one set of short-term funding increases but before the most recent set of increases.22

11.We asked the Department about the basis for its continued assurance that the local authority sector is sustainable despite a repeated need to provide additional funding, and the methodology it used to determine this. The Department’s answers were frustratingly vague. When we asked how far above ‘sustainable’ councils are, the Department told us that is could not give us an answer because its assessment is based on a complicated, “nuanced and broad judgement” that did not give it “a sense of some metric or threshold over which the sector either is or is not” sustainable.23 When we asked about the methodology, information and analysis underlying the Department’s judgement, the Department told us its assessment was based on “a professional judgement rather than an arithmetical one” and provided no further detail to enable us to understand this element of its work. It told us that Ministers had decided to publish less of the information that relates to the Department’s judgement than prior to 2010-11, and that internal analysis was produced for Ministers and so could not be published.24 We did not find similar arguments convincing in our last report and we are disappointed that the Department did not fully agree with our previous recommendation.25


1 Committee of Public Accounts, Financial sustainability of local authorities, Fiftieth Report of Session 2017-19, HC 970, July 2018; Committee of Public Accounts, Financial sustainability of local authorities, Twenty-Sixth Report of Session 2016-17, HC 708, November 2016; Committee of Public Accounts, Financial sustainability of local authorities 2014, Thirty-Fourth Report of Session 2014-15, HC 833, January 2015

2 Comptroller and Auditor General, Financial sustainability of local authorities 2018, Session 2017–19, HC 834, March 2018, paras 2, 3.3; figures 10, 17

3 National Audit Office, Departmental Overview: Local authorities, October 2018

4 Comptroller and Auditor General, Financial sustainability of local authorities 2018, Session 2017–19, HC 834, March 2018, para 3

5 Committee of Public Accounts, Financial sustainability of local authorities, Fiftieth Report of Session 2017-19, HC 970, July 2018

6 Public Accounts Committee, Financial sustainability of local authorities, Fiftieth Report of Session 2017-19, HC 970, July 2018

7 Comptroller and Auditor General, Financial sustainability of local authorities 2018, Session 2017–19, HC 834, March 2018, figure 3; Hansard HC, 15 December 2016, vol. 618

8 HM Treasury, Budget 2018, HC 1629, October 2018, paras 4.15 and 5.15 to 5.18, with table 2.1 (subtracting Barnett consequentials)

9 Q 17, Public Accounts Committee, Financial sustainability of local authorities, Fiftieth Report of Session 2017-19, HC 970, July 2018

10 Qq 17-20, 23-25 25

11 Qq 20, 38, 42

12 Public Accounts Committee, Financial sustainability of local authorities, Fiftieth Report of Session 2017-19, HC 970, July 2018, para 1

13 Qq 1, 79

14 Qq 13-15, 107-108, 150

15 Qq 68, 100, 108, 110

16 Qq 107-109, 111, 121, 135

17 Public Accounts Committee, Financial sustainability of local authorities, Fiftieth Report of Session 2017-19, HC 970, July 2018

20 Public Accounts Committee, Financial sustainability of local authorities, Fiftieth Report of Session 2017-19, HC 970, July 2018

22 Qq 1-2, 82, 106, Public Accounts Committee, Financial sustainability of local authorities, Fiftieth Report of Session 2017-19, HC 970, July 2018

23 Qq 77-80

24 Qq 61-65, 88-100

25 Public Accounts Committee, Financial sustainability of local authorities, Fiftieth Report of Session 2017-19, HC 970, July 2018, conclusion and recommendation 3; HM Treasury, Treasury Minutes: Government response to the Committee of Public Accounts on the Forty Third to the Fifty Eight reports from Session 2017-19, Cm 9702, October 2018, pp. 28-29




Published: 6 February 2019