Written evidence submitted by The Local Government Association (WGA0001)

1.           About the Local Government Association (LGA)

• The LGA is the national membership body for councils in England, working on their behalf to champion and be the voice of local government, ensuring it has the resources, powers and support to deliver the best possible outcomes.

• The work of the LGA is guided by four clear goals: to represent, improve and innovate with local government, and sustain itself, while adhering to the values of collaboration, inclusion, ambition and respect.

• In so doing, it promotes, advocates and lobbies for its members and provides a range of services to all authorities. It offers expert guidance and resources on critical issues like social care, housing and climate change, helping councils address complex challenges.

2.           Key messages

• This is the second year in succession that the Whole of Government Accounts have been disclaimed due to the lack of audited accounts for English local authorities. This is no surprise. Last year in our evidence to the Public Accounts Committee (PAC) we warned that this was likely to happen. This is due to widespread systemic issues with local audit that meant that local authorities did not have audited data to submit to the Whole of Government Accounts. It was not due to failings of governance in local authorities.

• Despite progress being made on the reform of local audit, including provisions in the English Devolution and Community Empowerment Bill and other regulatory changes, it is likely that the problem will recur next year for the 2024/25 accounts. This being so, we recommend that consideration should be given to whether the value of including local authorities in Whole of Government Accounts is outweighed by the problems it causes. There may be value in excluding local authority figures in their entirety for the 2024/25 Whole of Government Accounts.

3.           Problems with local audit and impact on the Whole of Government Accounts

• It is no surprise that the Whole of Government Accounts for 2023/24 have been disclaimed due to the problems with local audit. Last year in our evidence to the PAC we warned that this was likely to happen. As with last year, this is due to widespread systemic issues with local audit that meant that local authorities did not have audited data to submit to the Whole of Government Accounts. It was not due to failings of governance in local authorities. This is acknowledged in HM Treasury’s report on the Whole of Government Accounts, where the most significant challenge identified is “the current state of the local audit market”.

• The problems with local audit are long standing and well documented. At 30 September 2023 there were 918 overdue audit opinions for English local authorities covering several years; by 30 September 2024 this figure is likely to have exceeded 1,000 except that by that time the audit reset programme meant that 30 September was no longer the due date for 2023/24 accounts.

• The causes of this crisis are complex, with factors including: (i) insufficient audit resources, with a limited number of audit firms within the market and a shortage of suitably qualified auditors working for them; (ii) additional audit work due to tighter and stricter regulation of auditors following audit failures in the private sector; and (iii) local authority accounts are complicated and hard to understand which add to the amount of audit work and the work for accounts preparers.

• The Government has set its strategy for the reform of local audit and the relevant associated legislation is included in the English Devolution and Community Empowerment Bill. We will continue to work with the Government on its proposals to restore confidence in the local audit arrangements, restore timely audits permanently and improve financial reporting, but this will be a lengthy process.

• The Government has also taken action to reset the local audit system. This reset is underpinned by a series of backstop dates. Local authority audited accounts now have to be published by these dates whether the audit is completed or not. If the audit has not been completed at the date of the backstop, then the auditor will issue a disclaimed audit opinion and the accounts will be published with a disclaimed audit opinion.

• So far two backstop dates have been implemented. On 13 December 2024, all accounts for the 2022/23 financial year as well as all earlier years had to be published, and on 28 February 2025 audited accounts for the 2023/24 financial year had to be published.

• At the 13 December 2024 backstop, the number of disclaimed accounts for the 2022/23 financial year was 205 (out of a total of 467 accounts). At the 28 February 2025 backstop, the year that directly affects the 2023/24 Whole of Government Accounts, the number of disclaimed accounts was 216 (out of a total of 460 accounts). The next backstop, for accounts for the 2024/25 financial year, is 27 February 2026.

4.           Whole of Government Accounts next year (2024/25)

• Once a local authority’s accounts have been disclaimed, the auditor will need to go through a process of building back assurance of the previous years’ accounts in order to audit the accounts of future years. The scale of this will depend on the amount of audit work completed before the disclaimed opinion was issued, but as a minimum there will need to be significant additional work to verify opening balances in the new year’s accounts. This is a lengthy process. Many local authorities are being advised by auditors that if they have a disclaimed opinion for 2023/24 accounts at the backstop in February 2025, then they will also have a disclaimed opinion at the forthcoming backstop on 27 February 2026 for the 2024/25 accounts. This is because there are insufficient local audit resources to audit both the 2024/25 accounts in full in one year and to re-build sufficient assurance for the previous years.

• The Government is providing grant funding to local authorities to pay for the costs of additional audit fees incurred in the build back of assurance and £49 million was made available in the first tranche this year. However, it appears that the problems with resources are deeper and that insufficient specialist local audit resources will be available to provide sufficient build back in one year even with this additional funding. This is also despite a significant overall increase in all audit fees under the new contract which councils are having to fund themselves. We would repeat our call for the Government to fully fund this overall increase in audit fees.

• It is therefore very likely that a large number of local authorities will be unable to submit audited data for the 2024/25 Whole of Government Accounts next year. If so, this is likely to result in a further disclaimer for that year’s Whole of Government Accounts.

• There is a further problem in that the deadline for local authorities for the Whole of Government Accounts 2024/25 is 3 October 2025. By this date local authorities are required to submit data based on audited accounts together with a copy of their final published accounts. This is several months before the backstop date on 27 February 2026 and it is highly unlikely that there will be many local authorities that will have audited accounts by that date, even those that are given a clean audited opinion later.

• This is despite the majority of local authorities publishing their draft 2024/25 accounts on time. Research by LG Improve published in the Room 151 magazine, has found that 75% of councils published their 2024/25 draft accounts by the 30 June 2025 deadline and by the end of July (one month after the deadline) 90% had been published.

• We have previously queried whether the value of including local authorities in the Whole of Government Accounts is outweighed by the problems it causes. We would again raise this point and query whether there may be value in excluding local authority figures in their entirety for the forthcoming 2024/25 Whole of Government Accounts. This would be a temporary measure and could be reviewed for future years (2025/26 onwards) when it should be clearer whether the number of disclaimed opinions is likely to fall considerably.

• Consideration also needs to be given to how future changes to the funding of local government may impact on the workload of local auditors.

5.           Accounting for infrastructure assets and qualification of Whole of Government Accounts

• In previous years (before 2022/23) Whole of Government Accounts have been qualified, in part due to local authorities following a different accounting treatment for local infrastructure assets (primarily highways) compared with the process followed by central government.

• This would have resulted in a qualification for 2023/24 (and 2022/23) as well, had the accounts not already been disclaimed. We discussed this issue in our submission to the PAC inquiry on the Whole of Government Accounts 2021/22 and also in our submission to the inquiry on the 2022/23 accounts.

• Our views on this remain the same. In essence it is crucial that it is accepted that the figures in local authority final accounts for values of infrastructure assets can never be more than notional, and that therefore a pragmatic and cost-effective approach needs to be adopted that serves the needs of the Whole of Government Accounts without imposing an undue burden on local authorities. Changing the methodology to that used by central government may be good for the Whole of Government Accounts but it would create a great deal of extra work for those involved in preparing and auditing local authority accounts and it would significantly alter balance sheet figures without actually altering real finances, making local authority accounts harder to understand.

• Instead of seeking to change the valuation methodology used by local government, it should be accepted that central and local values are always going to be different and prepare the Whole of Government Accounts on that basis. If this is still thought to be a problem for the Whole of Government Accounts, then consideration should be given to excluding the figure for infrastructure assets in local government from the Whole of Government Accounts. It is a figure that has very little meaning for councils’ real finances despite having a potential paper value that could be as much as £100 billion.

September 2025