Whitehall view that council funding is sustainable ‘beggars belief’ amid threats of bankruptcy

A damning new report from the Public Accounts Committee (PAC) has blasted the Ministry of Housing, Communities and Local Government (MHCLG) as “complacent,” accusing it of being overly reliant on a favourable Spending Review outcome instead.

The report argues that after seven years of government funding cuts totally nearly 50% and increasing demand on services, local authorities and their vital services – such as housing and social care – are under serious threat.

It also accuses the MHCLG of lacking transparency in its understanding of the pressures faced by local authorities, especially in light of the lack of social care announcements in the latest NHS funding pledge.

“Signs of financial pressure are now present amongst local authorities, particularly those with social care responsibilities. Nearly two-thirds of these local authorities drew on their funding reserves in 2016-17 to support their spending and over 80% overspent their social care budgets,” the report explained.

“Some of these local authorities are rapidly depleting their reserves: more than one in 10 local authorities with social care responsibilities will have completely exhausted their reserves within three years if they continue to use them at the rate they did in 2016–17.”

In February, Northamptonshire County Council was forced to issue a section 114 notice indicating that the authority was at risk of bankruptcy, while Somerset has recently suggested it could be going down the same path. “Despite this evidence of financial pressure, the department’s view is that the local authority sector is sustainable,” PAC stated.

The PAC recommended that the department should write to the committee by September to explain why it believes the current local authority sector is sustainable in the current Spending Review period, and what it is doing to minimise the risk of financial failure of councils currently on its risk register.

The committee’s chair, Meg Hillier, commented: “It is no secret that councils are under the cosh. The mystery is how central government expects their finances to improve when it has such an apparently shaky grasp of the issues.

“It beggars belief that the department responsible for the local government financial framework, and which takes the lead in assessing councils’ funding requirements, has neither an agreed measure of sustainability nor a clear definition of ‘unsustainable.’

“These are fundamental weaknesses in its approach to assessing the financial risks facing councils and the sector as a whole – risks that, as the evidence bears out, are clear and pressing.”

She added that it is not feasible for councils to have to dip into their reserves to keep essential services running and to dodge a deficit.

Hillier continued: “Councils seeking to set budgets that are both sustainable and provide value for money need far greater clarity on the implications of changes to the way they are funded, and the amount of money they will have available.

“Central government’s view is, in effect, that it expects everything to work out in the end. We beg to differ.”

Despite these findings, central government has failed to indicate that more money could be on the horizon for local government. During his keynote speech at yesterday’s LGA Conference, communities secretary James Brokenshire dodged every single question relating to the potential for more cash in the upcoming Spending Review, as well as failed to clarify whether he was lobbying the chancellor for a higher settlement.

When pressed by members of the audience – who were astonished at the secretary of state’s calls for a ‘local government renaissance’ without backing this up with more funding – Brokenshire simply said that he was “listening intently” to council concerns and will seek to “champion local government” as best he can.

An MHCLG spokesperson said: “Local authorities are responsible for their own funding decisions, but over the next two years, we are providing councils with £90.7 billion to help them meet the needs of their residents, including social care.

“We recognise the pressures councils are facing, so we are working with local government to develop a funding system for the future.

“On top of this, we are giving them the power to retain more of the income they get from business rates so they can use it to drive further growth in their area.”

Top image: Robert Ingelhart via iStock


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