MPs warn public sector accounts were undermined by local audit backlog
The Public Accounts Committee called for swift action to address delays in independent assessments of council finances.
Unreliable data in government accounts has resulted in income and debt being overstated by tens of billions of pounds while undermining transparency and financial oversight, it has emerged.
A report on the whole of government accounts (WGA) 2022-23 warns that gaps in detail and delayed independent financial assessments mean the Government cannot effectively monitor the health of councils’ balance sheets at a time of repeated warnings that more may be forced to declare effective bankruptcy.
As a result of the backlog, the National Audit Office has been unable to sign off the Government accounts for 2022-23, with just 10% of the 426 local authorities in England submitting reliable data for that year.
This has prompted the Public Accounts Committee to raise concern that the Ministry of Housing, Communities and Local Government (MHCLG) is not able to track the state of finances across local government and intervene where necessary.
The lack of transparency on councils’ outlook comes at a time when they face rising populations, growing demand for support services and lower incomes, the committee said.
The report found the impact of missing data is estimated at net income in the WGA, a consolidated set of financial statements for the UK public sector, being overstated by £34.4 billion – while net debt was overstated by £31.7 billion.
The Government told the committee that it is aware of what is happening at councils across the country and, despite the unreliable data, there are other ways to check the health of local government finances.
These were cited as informal conversations, other forms of data, and auditors’ duty to issue reports on significant issues in the public interest.
However, the committee highlighted the case of Barnet Council which issued a section 114 notice following unlawful pensions spending in 2020, but MHCLG only became aware of it in 2024.
The committee has called on the Government to set out within six months how it will reduce the scale of missing data, amid uncertainty surrounding current plans to fix council audit arrangements.
The Government has introduced a series of legal backstop deadlines by which council accounts must be completed, while committing to establish a local audit office.
However, the committee said the Treasury and MHCLG had been too slow in its response, adding it remains unclear how the deadlines will be enforced, or what consequences there will be for councils who fail to meet them.
With audit firms continuing to have limited capacity to conduct assessments at the required scale, there is also a lack of clarity about how the audit office will deliver on its remit.
Chair of the committee Sir Geoffrey Clifton-Brown said: “The WGA should provide an accurate picture of the UK’s public finances for Parliament and the wider public.
“But for the first time in the WGA’s history, the National Audit Office has been unable to sign them off.
“The unreliability of its data hinders transparency for the taxpayer’s pound, and it is currently wide of the mark in its assessment of net debt and income by tens of billions of pounds.
“For accounting purposes, the UK public finances are virtually a closed book when viewed through the WGA. ”
Sir Geoffrey added that while the missing data provides a “helpful snapshot” of the “miserable state of local audit”, the Government must act quickly to address flaws in the WGA.
He added: “The UK faces extreme uncertainty, both in the domestic fiscal situation and the foreign geopolitical situation.
“To tackle this uncertainty with confidence, it becomes all the more important for the Government to act to bring the WGA fully up to date as a basis for accurate and sound decision-making as soon as possible.”
The WGA is intended to provide a comprehensive picture of the UK’s public sector finances and inform management of fiscal risks.
The 2022-23 WGA highlights risks posed by climate change, rising health spending, and geopolitical tensions which are projected to increase pressures on the public finances.
The OBR’s report also notes that public sector net debt is expected to almost treble over the next 50 years if current trends continue.
“However, the WGA does not put this challenge into the context of the current government spending, liabilities and commitments reporting in the WGA or provide the information necessary to allow stakeholders to understand the extent of financial challenges for the UK,” the report adds.
An MHCLG spokesperson said: “This government inherited a crumbling local government sector, with no functioning early warning system in place to sound the alarm when a council requires support. That’s why we committed to reforming failing local government audit in our manifesto.
“As part of this overhaul have already taken decisive action to clear the local audit backlog to fix the system.
“This on its own is not enough and that is why we have published a strategy setting out our commitment to radically overhaul the system over the coming years through our Plan for Change.”
