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Cuts mean councils may fail to meet legal obligations – PAC

The DCLG does not fully understand the overall impact funding reductions will have on local services, a new report from the Public Accounts Committee (PAC) has warned.

The report investigates the financial sustainability of local authorities halfway through a period of significant cuts. The Government has not done enough to model how funding changes may adversely affect other areas of the public sector, such as the NHS.

Reforms to business rates will reward those councils with growth, but removes further resources from those in decline, the report states.

With pressures on services set to increase, PAC highlighted the risks of councils being unable to meet their statutory obligations. The DCLG has “no clear strategy” for dealing with these failures.

PAC stated: “So far, the highest reductions in terms of spending power have tended to be for councils that depend most on government grant, where needs for local services tend to be greatest.”

There were also issues with a lack of data to monitor council’s ability to cope with funding changes: “It was not acceptable for us to learn that nobody is responsible for providing Parliament with information on either severance payments or the use of personal service companies by local authorities.”

Margaret Hodge MP, chair of PAC, said: “Individual councils are seeing very different levels of funding reductions. For some, the cash they spend on services has been reduced by about 1% in 2012-13. Others have had the maximum reduction of nearly 9%.

“The more grant dependent local authorities are suffering the highest reductions in spending power. But these are the very councils which serve poorer and more vulnerable communities whose need for services is the greatest.

“This raises the spectre of the worst-affected councils being unable to meet their statutory obligations. In some cases local authorities may cease to be viable, with the first such authority already identified. The Department must understand better the impact of its cuts on vulnerable groups. We also want to know what actions it would take in the event of multiple financial failures of local authorities.

“In the long term there might well be little room for further efficiency gains and services would have to be cut. There needs to be frank and open dialogue between central and local government and the public on just what services councils will be expected to provide in a prolonged period of declining funding.”

Sir Merrick Cockell, chairman of the LGA, said: “This is a stark warning to the Government that councils cannot bear the brunt of new cuts in the next spending round. The sustainability of local government is on a knife edge in many areas and, as the Committee rightly points out, some councils are already in danger of failing to meet their statutory obligations.

“The report identifies a systematic failure across Whitehall in identifying the impact on local services of the decisions taken by central government. Not enough has been done by the Government to understand the likely impact of all the policy changes on people, local services and council funding. This highlights the need to create a funding system that gives councils the freedom to target resources according to local needs.”

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