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NAO warns of impact of local government funding reductions

The Government must do more to improve the evaluation of the impact of decisions on local authority finances and services, the National Audit Office has warned. The DCLG must work with other departments to achieve this.

A new report from the NAO shows that local authorities are struggling to absorb funding reductions without reducing services, such as in adult social care and libraries.

At the 2010 spending review, the Government planned to reduce local authorities’ funding by £7.6bn, or 26%, in real terms between April 2011 and March 2015. The NAO estimates that local authorities are planning to make £4.6bn savings by April 2013 and still need to find about half the savings to be made before March 2015.

Meanwhile, the demand for high-cost services such as social care is increasing.

The Government’s approach must be more comprehensive and seek to understand the cumulative effect of the changes, the report suggests. The accountability framework for addressing widespread financial failure in local government is as yet untested, it adds.

Amyas Morse, head of the NAO, said: “Local authorities are facing the challenge of reducing spending while protecting the services they provide. So far, they have generally coped well, but central government funding support will continue to reduce and the impact on individual local authorities will vary.

“The Department will need to be able to detect emerging problems and respond flexibly and quickly.”

Mayor Jules Pipe, chair of London Councils, welcomed the report and said: “Central government needs to act urgently on this recommendation. DCLG and the Department for Work and Pensions must work more closely together to understand the impact of the implementation of welfare reforms on the housing crisis in London and the knock-on impact of this on both local authority services and finances.”

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