Skip to main content

No Government plan to secure councils' financial future

4 July 2018

'Complacent' Ministry of Housing, Communities and Local Government overly reliant on favourable Spending Review outcome, warns Public Accounts Committee report.

Local authorities under real strain

After seven years of government funding reductions totalling nearly 50 per cent and rising demand for services, local authorities are under real strain.

Key services that support vulnerable people, such as social care and housing, are now under enormous pressure. Other important local services in areas such as planning, transport, and cultural services have seen spending cut by between a third and a half.

Local authorities face an estimated funding gap of over £5 billion by the end of the decade.

The harsh reality is that more and more local authorities are now showing signs of financial stress such as overspending on services. They now face a period of greater uncertainty as their funding framework beyond 2019–20 is unclear.

Department overly reliant on favourable outcome from 2019 Spending Review

The Ministry of Housing, Communities and Local Government (the Department) has not yet developed a plan to secure their long-term financial future. It is not transparent enough about its understanding of the pressures faced by local authorities, meaning Parliament and the taxpayer cannot be sure that it genuinely understands or is addressing the issue.

The Department is overly reliant on a favourable outcome from the 2019 Spending Review to address authorities' financial issues. This is particularly complacent given that the previous Spending Review settlement resulted in many local authorities having to rely on reserves to fill the gaps in funding. This is an unsustainable situation.

The recent announcement about additional money for the NHS did not include anything for social care. Given that social care is the other half of the equation, it is vital that there is a long-term solution.

Chair's comments

Comment from Committee Chair, Meg Hillier MP:

"It is no secret that councils are under the cosh. The mystery is how central government expects their finances to improve when it has such an apparently shaky grasp of the issues.

It beggars belief that the Department responsible for the local government financial framework, and which takes the lead in assessing councils' funding requirements, has neither an agreed measure of sustainability nor a clear definition of ‘unsustainable'.

These are fundamental weaknesses in its approach to assessing the financial risks facing councils and the sector as a whole – risks that, as the evidence bears out, are clear and pressing. 

Local authority spending power has fallen by more than a quarter over a period in which demand for vital services, in particular social care, has grown significantly.

Many councils have been forced to plunder their reserves to keep essential services going, and made deep cuts to spending in other important areas. The council funding gap is likely to top £5 billion by the end of the decade.

Clearly, this is not sustainable. There is only so far the elastic can be stretched before it snaps. Yet, as our report makes clear, central government's response to this looming crisis smacks of complacency.

Councils seeking to set budgets that are both sustainable and provide value for money need far greater clarity on the implications of changes to the way they are funded, and the amount of money they will have available.

Central government's view is, in effect, that it expects everything to work out in the end. We beg to differ.

In response to our report we urge it demonstrate that it properly understands the performance of and pressures upon councils and the impact on citizens, and a commitment to working with them and within central government to ensure councils are properly equipped to tackle the challenges they face now and in future."

Further information

Image: iStockphoto