Recommendations & Conclusions
20 items
1
Recommendation
Second Report - Local authority financi…
The failure to properly fund children’s and adult social care, especially adult social care, is the single biggest threat facing local government financial resilience. Given that the cost of providing social care consumes between 60% and 70% of the budgets of top-tier councils, a solution to this funding crisis alone …
Government response. Since the start of the pandemic, we have committed over £12 billion in financial support to councils to tackle the impacts of COVID-19, including over £6 billion of un-ringfenced grants (£4.6 billion for 2020/21 and £1.55 billion for 2021/22) which …
Ministry of Housing, Communities and Local Government
2
Conclusion
Second Report - Local authority financi…
We agree with the principle of incentivising councils to grow business rates in their area, as a means of making them less reliant on central funding, but we are concerned about the impact on councils that, through no fault of their own, are less able to do this. As our …
Government response. The Government announced last year that it would not proceed with the implementation of the Review of Relative Needs and Resources (formerly the Fair Funding Review) and 75% Business Rates Retention in 2021/22. We also decided not to reset accumulated …
Ministry of Housing, Communities and Local Government
3
Conclusion
Second Report - Local authority financi…
The question of the BRRS is closely related to the debate about the longstanding role of equalisation in how local government in England is funded. Whilst the purpose of equalisation is to ensure fairness between councils, there is little agreement on the appropriate level: 100% equalisation would provide local authorities …
Government response. The Government announced last year that it would not proceed with the implementation of the Review of Relative Needs and Resources (formerly the Fair Funding Review) and 75% Business Rates Retention in 2021/22. We also decided not to reset accumulated …
Ministry of Housing, Communities and Local Government
4
Recommendation
Second Report - Local authority financi…
We recommend that the Government implement the Fair Funding Review and business rates reset as soon as possible, as the quickest way of partly restoring the link between funding and need. The Government should also allow councils to retain 75% of business rates from 2022, but so that this represents …
Government response. The Government announced last year that it would not proceed with the implementation of the Review of Relative Needs and Resources (formerly the Fair Funding Review) and 75% Business Rates Retention in 2021/22. We also decided not to reset accumulated …
Ministry of Housing, Communities and Local Government
5
Conclusion
Second Report - Local authority financi…
We are pleased that the allocation of the £300 million grant for social care mitigates the distributional impact of the council tax rises, but we do not think the fairness of the funding model should be reliant on one-off, short-term grants. It is right that certain councils be compensated for …
Government response. Council tax provides stable income for local authorities to deliver a range of vital local services, and predictable bills for taxpayers. This certainty is particularly important as the country recovers and builds back from the pandemic. To ensure fairness, each …
Ministry of Housing, Communities and Local Government
6
Recommendation
Second Report - Local authority financi…
The Government should reform council tax by undertaking a revaluation of properties and introducing additional council tax bands, in line with the recommendations of our predecessor Committee. In the longer term, the Government should consider options for wider reform of council tax and business rates, including possibly replacing them with …
Government response. Council tax provides stable income for local authorities to deliver a range of vital local services, and predictable bills for taxpayers. This certainty is particularly important as the country recovers and builds back from the pandemic. To ensure fairness, each …
Ministry of Housing, Communities and Local Government
7
Conclusion
Second Report - Local authority financi…
The funding base of local government in England is very narrow. As the pandemic has highlighted, revenue derived from council tax and business rates is also insecure. As concluded by our predecessor Committee, greater fiscal autonomy could contribute to local government financial resilience.
Government response. The Government considers that the current charging regime for individual services strikes the right balance between allowing councils to raise revenue to cover the cost of providing services and ensuring that service users are treated fairly and fully informed of …
Ministry of Housing, Communities and Local Government
8
Recommendation
Second Report - Local authority financi…
We recommend that the Government widen the funding base of local government to make it less vulnerable to shocks such as the covid-19 pandemic, including by giving councils more flexibility over local taxes and other revenue-raising powers. This would also align with giving local authorities more powers over spending, which …
Government response. The Government considers that the current charging regime for individual services strikes the right balance between allowing councils to raise revenue to cover the cost of providing services and ensuring that service users are treated fairly and fully informed of …
Ministry of Housing, Communities and Local Government
9
Conclusion
Second Report - Local authority financi…
We understand the Government’s reasons for resorting to a one-year spending review last year, but we note it followed a one-year spending review in 2019 and that the last multi-year spending review came in 2015. Local government cannot manage its spending and borrowing without the medium-term certainty that multi-year funding …
Government response. Government agrees that a stable funding environment ensures local authorities can plan effectively and recognises that multi-year settlements provide certainty. The approach to the next settlement will be informed by the ongoing Spending Review, which will be an opportunity to …
Ministry of Housing, Communities and Local Government
10
Conclusion
Second Report - Local authority financi…
The proliferation in recent years of small, often one-off and ring-fenced grants, sometimes involving a competitive bidding process, and the uncertainty around such funding, can hinder robust financial planning and management by local authorities, as has been acknowledged by the Public Accounts Committee. Ring- fenced grants also limit councils’ flexibility …
Government response. Government agrees that a stable funding environment ensures local authorities can plan effectively and recognises that multi-year settlements provide certainty. The approach to the next settlement will be informed by the ongoing Spending Review, which will be an opportunity to …
Ministry of Housing, Communities and Local Government
11
Recommendation
Second Report - Local authority financi…
The next financial settlement for local government must be a multi-year settlement. The Government should also consolidate the number of small and ring-fenced grants, which can limit local authorities’ ability to provide services flexibly, and should reduce the number of bidding processes, which can be burdensome and time consuming. (Paragraph …
Government response. Government agrees that a stable funding environment ensures local authorities can plan effectively and recognises that multi-year settlements provide certainty. The approach to the next settlement will be informed by the ongoing Spending Review, which will be an opportunity to …
Ministry of Housing, Communities and Local Government
12
Conclusion
Second Report - Local authority financi…
The Government deserves credit for having responded to an unprecedented crisis with significant emergency funding that, from a national perspective, broadly covers all the additional financial pressures consequent on the pandemic and lockdowns in 2021–22. The effects of the pandemic will be felt for many years, however, and we are …
Government response. Providing certainty and stability to the sector throughout the pandemic has been a priority for the Government. The Government has demonstrated this by committing over £12 billion to councils in England to tackle the impacts of COVID-19, over £6 billion …
Ministry of Housing, Communities and Local Government
13
Recommendation
Second Report - Local authority financi…
We urge the Government to consider ways of mitigating the uneven financial support across local authorities and provide greater certainty to councils over what future costs incurred as a result of the pandemic it intends to cover. (Paragraph 55) Local authority commercial investment
Government response. Providing certainty and stability to the sector throughout the pandemic has been a priority for the Government. The Government has demonstrated this by committing over £12 billion to councils in England to tackle the impacts of COVID-19, over £6 billion …
Ministry of Housing, Communities and Local Government
14
Conclusion
Second Report - Local authority financi…
Commercial investment appears to pose no clear threat to local government financial resilience overall, and where it has contributed to financial instability, the councils concerned must bear ultimate responsibility. We also welcome the Government’s reforms to the PWLB’s lending terms, which are a useful clarification of the purposes for which …
Government response. Under the current system, primary legislation sets out that local authorities must have regard to the four statutory codes produced by Government and CIPFA, which includes the Prudential Code. Local authorities must appropriately comply with the codes unless there are …
Ministry of Housing, Communities and Local Government
15
Conclusion
Second Report - Local authority financi…
Furthermore, whilst we welcome the Minister’s commitment to gathering the best quality data to better understand councils’ exposure to commercial investment, we think this should have been done by now. We are also concerned about the lack of a statutory requirement on local councils to comply with the prudential code.
Government response. In reviewing the capital system, Government has drawn on the evidence from its continued monitoring of sector data and sector engagement, and evidence that has come to light from those authorities that have approached Government for emergency financial support. The …
Ministry of Housing, Communities and Local Government
16
Recommendation
Second Report - Local authority financi…
We recommend that the Government legislate to make compliance with the prudential code by local authorities a statutory duty. The Government should also make good on its commitment to improving the data it collects on local authority commercial investment. (Paragraph 72) Audit and control
Government response. Under the current system, primary legislation sets out that local authorities must have regard to the four statutory codes produced by Government and CIPFA, which includes the Prudential Code. Local authorities must appropriately comply with the codes unless there are …
Ministry of Housing, Communities and Local Government
17
Conclusion
Second Report - Local authority financi…
As highlighted in Sir Tony Redmond’s independent review of local authority audit, the local audit market is deeply flawed. We are particularly concerned about the shortage of specialist local auditors, about the principle of allowing local councils 42 Local authority financial sustainability and the section 114 regime to choose their …
Government response. In September 2020, Sir Tony Redmond published his review of local authority financial reporting and external audit. Since then, the Government has undertaken a range of activities in response to all 23 of Sir Tony’s recommendations. This includes extending audit …
Ministry of Housing, Communities and Local Government
18
Recommendation
Second Report - Local authority financi…
We recommend the Government remove the ability of local authorities to choose their own auditors. The risk is that auditors will be reluctant to flag up potential problems for fear of losing their contract. The Government should consider who will be best placed to appoint local authority auditors, given that …
Government response. In September 2020, Sir Tony Redmond published his review of local authority financial reporting and external audit. Since then, the Government has undertaken a range of activities in response to all 23 of Sir Tony’s recommendations. This includes extending audit …
Ministry of Housing, Communities and Local Government
19
Conclusion
Second Report - Local authority financi…
The absence of section 114 notices before 2018 is adduced as evidence that the regime has been broadly successful. The consequences for a council of issuing a notice are serious, however, and we are concerned that, rather than concentrating minds, the regime might be hindering good financial management, as it …
Government response. Section 114 notices are an important and effective part of the local government finance system as both a legal mechanism and as a spending control for councils that have particular issues in setting or maintaining a balanced budget. However, Section …
Ministry of Housing, Communities and Local Government
20
Recommendation
Second Report - Local authority financi…
We recommend that the Government consider changing the section 114 regime to provide Chief Finance Officers with intermediary measures that can be applied at a much earlier stage to highlight concerns before a council’s finances deteriorate so far as to require a section 114 notice. We also recommend that Chief …
Government response. Section 114 notices are an important and effective part of the local government finance system as both a legal mechanism and as a spending control for councils that have particular issues in setting or maintaining a balanced budget. However, Section …
Ministry of Housing, Communities and Local Government