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18.11.16

DCLG accused of ‘alarming’ lack of understanding of council pressures

The DCLG has an “alarming” lack of understanding of the risks and pressures of local authority budgets, as councils are driven into commercial activity in order to make up for spending cuts, the Public Accounts Committee (PAC) has said in a damning report.

The report argued that the department did not have a good understanding of the effects of revenue pressures on local authorities’ capital spending and resourcing activities.

It found that local authorities are increasingly spending on commercial property instead of services to try to balance their strained finances, with councils’ spending plummeting by 14% in real terms between 2010 and 2015.

Meg Hillier MP, chair of the PAC, said: “Central government wants local authorities to become largely self-financing and against this backdrop councils are exploring new ways to raise cash.

“It is therefore alarming that the DCLG does not have a firm grasp of the changes happening locally and their implications for taxpayers.

“Our committee has previously highlighted gaps in the commercial skill of the Civil Service as a factor in the failure of some projects and we have similar concerns about local government. Poor investment decisions cost money—money that might otherwise be spent on public services.”

Cllr Claire Kober, chair of the LGA resources board, pointed to the fact that councils experienced a 40% drop in core central government funding over the last Parliament, with funding pressures set to continue.

“This means difficult decisions continue to have to be made about which services are scaled back or stopped altogether to plug funding gaps,” she argued.

“Against this continued backdrop of financial austerity, councils are having to continuously look for new ways to generate revenue.”

MPs in the PAC accused the government of lacking understanding of significant financial risks for councils, such as commercial property investments and deposited investments with commercial banks, which are now at a record level of £26.1bn.

Furthermore, they said that the DCLG’s figures for capital spending in the sector were not sufficiently detailed to identify changes.

They also criticised the department for not “being sufficiently proactive” in fulfilling its promise to review the local capital finance framework, despite admitting that it might not be able to cope with rapid changes such as Brexit and government plans to introduce the New Homes Bonus and 100% business rates retention.

The committee asked the DCLG to consider the impact of current financial pressures when it designs business rates retention, and to work with CIPFA to ensure that the capital finance framework remains current.

In addition, it said it should report back by summer 2017 on how it is improving its understanding of local government finance.

“Local authorities need the skill-set to invest wisely and the department must bear its share of responsibility for ensuring these skills are in place,” Hillier continued.

“But more fundamentally, the information central government uses is inadequate for understanding trends and associated risks in local government finance. This is a serious flaw in its ability to plan properly for the future and ensure councils are following a sustainable path, which includes ensuring the local capital finance framework remains fit for purpose.

“Add in the uncertainty around Brexit, as well as the new roles and responsibilities being created through elected mayors and further devolution, and it is clear the landscape is changing significantly.

“Local authorities must have confidence central government has got their backs.”

A DCLG spokesperson said: “It is right that local authorities take a key role in promoting economic growth.  They understand their local areas and are best-placed to make decisions that deliver value for money and better services for residents.

“Local authorities are required to ensure they have the right skills and commercial expertise to make investment decisions, and there strong checks and balances in place to protect taxpayers’ money.”

(Top image c. Clive Gee and PA)

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