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NAO: Councils financial situation ‘not sustainable’

The National Audit Office (NAO) has today warned central government that the state of local authority finances is “not sustainable” as lack of funding cuts away at services.

In a new report on the financial future of councils, the watchdog has laid bare the issues and claims that many authorities have been forced to begin using their savings reserves to combat “a range of new demand and cost pressures.”

There has been a real-terms reduction in government funding of nearly 50% since 2010, the NAO says, causing a 33% drop in service spending.

This has hit font-line services most prominently, with nearly a third of households across the country having their waste collected less frequently and one in ten libraries closing.

“Local authorities face a range of new demand and cost pressures while their statutory obligations have not been reduced. Non-social-care budgets have already been reduced substantially, so many authorities have less room for manoeuvre in finding further savings,” the report says.

“The scope for local discretion in service provision is also eroding even as local authorities strive to generate alternative income streams. The current pattern of growing overspends on services and dwindling reserves exhibited by an increasing number of authorities is not sustainable over the medium term.”

It goes on to explain that the solutions government have put in place to try and deal with these increasing pressures are not expected to make a long-term difference.

“Current funding for local authorities is characterised by one-off and short-term fixes, many of which come with centrally driven conditions,” said Amyas Morse, head of the NAO.

“This restricts the capacity of local authorities and yet the weight of responsibility to respond to increased demand and maintain services remains very much on their shoulders.”

In addition to other reductions, the report found a 52% reduction in spending on planning and development, 45% on housing, 37% on highways and transport, and around 35% on cultural and related services.

The figures have prompted fears from councils about the future of local government, with the LGA pointing to “significant funding challenges” and “years of unprecedented funding reductions.”

“Councils’ ability to maintain local services at a time of inadequate resources and rising costs is already extremely stretched, and the NAO rightly warns about the huge uncertainty over how the government intends to fund local services after 2020,” said Lord Porter, LGA chairman.

“Core central government funding to councils will be further cut in half over the next two years and almost phased out completely by the end of the decade.

“The government needs to urgently address this cliff-edge and the growing funding gaps facing local services. It also needs to provide the financial sustainability and certainty needed to protect the local services our communities rely on into the next decade and beyond by committing to allow local government as a whole to keep every penny of business rates collected.”

The problems of funding reached a head in early February, when Northamptonshire County Council issued the first spending ban in 20 years, citing “severe financial challenges.”

Top image: Alphotographic

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