Local Government Finance System: Overview and Challenges – Report Summary

Summary

For many years this Committee has raised important concerns about local government financial sustainability and the potential impact on local services. There is a real risk that the much-heralded extra funding in the Spending Review 2021 merely allows local government to stand still rather than allowing it to address the significant service pressures and risks which have built up. Central government funding for local authorities fell in real terms by over 50% between 2010–11 and 2020–21. As funding has fallen demand for key services such as social care has risen with local authorities spending as much as eight pounds out of every ten from their core funding to deliver these services, but even here there is still unmet need. This inevitably puts pressure on the other services people rely on such as planning, cultural, and regulatory services. From 2010–11 to 2019–20 non-social care services have seen an overall real-terms decrease of 25%.

To offset these cuts local authorities have turned to their residents to fund services by increasing council tax and raising more by charging for services. In addition, they set up companies and purchased properties to provide income streams. Such activities do not always go to plan, and in some cases have led directly to the failure of local authorities. However even with local people shouldering an increased share of the cost of services, core resources available to provide services has fallen by 26% in real terms over ten years. Yet disappointingly the Department for Levelling Up, Housing and Communities (the Department) has only a very limited understanding of the impact this has had on the services people receive.

The Department is finally taking action to increase the information it has on local authority finances, but it has been frustratingly slow to act, and local authorities face continuing uncertainty as Ministers reconsider or consult on longstanding major reforms. In the meantime, its oversight relies on a system of local accountability hampered by shockingly late audit opinions and declining local authority spending on governance.