Unstable council finances in need of swift reform, spending watchdog warns

Council finances are increasingly unsustainable and in need of reform, the public spending watchdog has warned.

The National Audit Office (NAO) warned town halls are becoming more and more preoccupied by frontline services, while preventative measures are getting less cash.

In a report diving into local government finances, the watchdog acknowledged funding available to councils had increased by 4% over the last decade to £55.7 billion.

But funding per person has decreased over the same period since 2015 by 1%, and demand for services like adult and child social care, temporary accommodation, and special educational needs and disabilities has increased more than the amount of new cash made available.

People are also finding it more difficult to access local services and when they do their needs are not well met, the NAO report – entitled “Local Government Financial Stability” – said.

Ministers must develop a plan aimed at reforming funding and services which will address the financial and demand pressures councils are facing, the watchdog recommended.

It also called on the Ministry of Housing, Communities, and Local Government to work with the Treasury on bolstering preventative programmes, to stop the most in-demand public services from being overwhelmed.

Gareth Davies, head of the NAO, said: “There have been repeated delays to local government finance reform and Government can no longer resort to short-term solutions to support local authorities.

“Action to address this must resolve the systemic weaknesses in local government financial sustainability through a comprehensive, cross-Government approach.”

Sir Geoffrey Clifton-Brown, chair of the Commons Public Accounts Committee said short-term financial support offered to councils was “a sticking plaster to the underlying pressures facing local authorities”.

He added: “Delays in local audits are further undermining public confidence in local government finances.

“There needs to be a cross-Government approach to local government finance reform, which must deliver effective accountability and value for money for taxpayers.”

Representatives from local councils also urged ministers to come forward with plans to reform the funding authorities receive.

Pete Marland, chair of the Local Government Association’s economy and resources board, said: “Without adequate funding, councils will continue to struggle to provide crucial services – with devastating consequences for those who rely on them – and it will be impossible for them to help the Government achieve its reform and growth agenda.

“The NAO rightly highlights that funding pressures are being exacerbated by a lack of reform which has weakened the financial sustainability of councils and left them with a complex, outdated funding system.

“Creating an improved and a more sustainable funding system for local government is also critical to strengthen the value for money of local spending and, most importantly, improve services for communities.”

Tim Oliver, chair of the County Councils Network, said: “As this NAO report shows, it is market-specific cost pressures, mainly in adult social care, children’ services, and special educational needs, that are driving councils’ costs rather than deprivation.

“Therefore, Government must recognise and address these pressures in its fair funding review, otherwise it will push many well-run councils to the brink.”

A Ministry for Housing, Communities and Local Government spokesperson said: “This Government is under no illusions about the financial issues facing councils. That’s why we’re reforming the funding system and delivering improved public services across the country.

“We’re determined to make progress on the inheritance we’ve been left and are allocating £69 billion to council budgets across England, bringing forward the first multi-year funding settlement in a decade and reforming the local audit system to help drive forward our Plan for Change.”