Govt flying blind on struggling council finances amid unprecedented local audit crisis

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The Government does not have sufficient oversight over worsening local authority finances. In its report published today on the Whole of Government Accounts (WGA) 2022-23, the Public Accounts Committee warns that Government’s ability to effectively monitor financial pressure within local authorities has been undermined, at a time when some councils are already in poor financial health. 

For the first time ever, the National Audit Office was unable to sign off Government’s accounts for 2022-23. This was due to the local audit crisis, whereby only 10% of 426 English local authorities submitted reliable data for the year, with 187 failing to submit at all. The PAC is concerned that the Ministry of Housing, Communities and Local Government (MHCLG) will not be able to foresee issues in local government finance and intervene where appropriate. The report warns of a lack of financial transparency for local authorities, at the same time as they face rising populations, higher demand on social care and lower council incomes.  

The overall impact of the missing data is estimated as net income being overstated in the WGA by £34.4bn, and net debt overstated by £31.7bn. Government told the PAC’s inquiry that it is aware of what is going on in the local authority area, and that there are other ways to check a council’s financial health, including informal conversations, other forms of published data, and auditors’ duty to issue reports on significant public interest matters. However, the PAC’s report notes the case of Barnet Council issuing a Section 114 notice following unlawful pensions transactions in 2020. This only came to light in 2024, with MHCLG unaware of the issue before the council declared it.  

The PAC is calling on Government to set out within six months how it will reduce the levels of missing data within the WGA in future years, noting uncertainties around current plans to try and fix the crisis in local authority audit arrangements. Government brought into law last year a series of backstop deadlines by which English council accounts must be completed, while committing to establish a Local Audit Office (LAO). It is not clear how the deadlines will be enforced, or what consequences there will be for councils who fail to meet them. The PAC’s report also warns of a lack of clarity over how the LAO will deliver its remit, in the context of existing issues with audit firms having limited capacity to do the work required. 

Chair comment

Sir Geoffrey Clifton-Brown, Chair of the Public Accounts Committee, said: “The Whole of Government Accounts should provide an accurate picture of the UK’s public finances for Parliament and the wider public. But for the first time in the WGA’s history, the National Audit Office has been unable to sign them off. The unreliability of its data hinders transparency for the taxpayer’s pound, and it is currently wide of the mark in its assessment of net debt and income by tens of billions of pounds. For accounting purposes, the UK public finances are virtually a closed book when viewed through the WGA. 

“In its missing data, however, the WGA does in its way provide a helpful snapshot - of the miserable state of local audit. The Government told our inquiry that it is confident it still has oversight of the local government finance landscape even without fully audited accounts, from the informal conversations it holds with councils and other sources. But the UK faces extreme uncertainty, both in the domestic fiscal situation and the foreign geopolitical situation. To tackle this uncertainty with confidence, it becomes all the more important for the Government to act to bring the WGA fully up to date as a basis for accurate and sound decision-making as soon as possible.” 

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