Transcript Slide 1

Financial sustainability of local
authorities
Presentation to Budget & Finance Scrutiny Select
Committee
13 March 2013
Contents
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Introduction
Findings
Recommendations
Criticism of report methodology
Response to report findings
Introduction
Report “Financial sustainability of local authorities”
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National Audit Office (NAO)
Methodology
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Survey of all local authorities
Analysis of published data
Semi-structured interviews:
o 27 central government staff
o 8 LG finance directors
o 5 bodies representing LG treasurers
Findings 1
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So far local authorities have absorbed reductions in central government
funding but there is some evidence that services have been reduced.
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Local authorities still need to find about half of the savings to be made
before March 2015 and may find it harder to absorb funding reductions
and maintain services.
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Most of the local authorities who responded to the NAO survey expected
to make the largest savings through efficiency improvements. However,
nearly all saw service reductions as contributing to their savings
requirements.
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The majority of local authorities have so far not drawn on financial
reserves to make up for reduced income.
Findings 2
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While changes to the local government funding regime (around business
rates and council tax support) may create financial opportunities for local
authorities, they also create financial risks and uncertainty. And while
individual government departments assessed the impact of the changes
being made, their approach was not comprehensive.
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With a range of changes to local government funding being implemented
over the spending review period, the NAO believe that it is increasingly
important to understand the cumulative effect of the changes as these
may affect local authorities differently.
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How the accountability framework for local government responds to
multiple financial failures during more challenging times for local
authorities is at present untested.
Recommendations
CLG should:
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work with other departments to understand the information needed to
support decisions affecting local authority finances and services;
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ensure that decisions on financing local authorities are made with an
assessment of their service obligations, including statutory obligations;
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satisfy itself that the assurances provided by the accountability
framework are robust enough for the more challenging financial and
service delivery conditions facing local authorities.
Criticism of report methodology
Too narrow in scope. It ignored:
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education funding and DSG
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public health
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interactions between other funding systems (eg welfare benefits) and local
government
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HRA reform
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New homes bonus
No detailed fieldwork at individual councils
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through “lack of statutory powers”
Response to report findings 1
Margaret Hodge, PAC chair:
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“potentially disastrous consequences” [on the finding that 12% of councils were at
risk of being unable to balance their books in future]
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“extraordinary” [on the government’s “lack of transparency” on the total reduction
of local authority income]
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CLG must make clear what it will do if councils fail financially
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CLG must provide a clear statement on what funding changes mean for local
services
Local Government Chronicle
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“real jaw-dropper” [on the finding that poor modelling at DfE meant CLG went into
2010 CSR thinking that cost pressures in children’s services were no greater than
inflation]
Response to report findings 2
CIPFA
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Government needs to “up its game” in evaluating the local impact of national
decisions
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Move responsibility for LG finance from CLG to HMTreasury
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Provide some legal rigour and discipline to the LG settlement process so
that it is more timely and accurate
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Assumptions should be responsibility of OBR, and be given greater
transparency and scrutiny
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NAO should review LG funding biannually and report to an ad-hoc
parliamentary committee
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Independent review of CSR framework to provide a more stable, rigorous
and transparent decision-making process
Useful links
• LGiU member briefing
o National Audit Office - Financial sustainability of local
authorities.pdf
• Source reports
o National Audit Office report - “Financial sustainability of local
authorities”
o Audit Commission report - “Tough Times 2012” (November 2012)
o CLG - Accountability System Statement