Recommendations & Conclusions
20 items
1
Recommendation
Second Report - Local authority financi…
Accepted
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 …
Read more
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 could largely restore local government finances. The Government’s current policy of effectively forcing local councils to impose successive above-inflation council tax rises is imposing additional burdens on council tax payers. It is disappointing that the recent Queen’s Speech made so little mention of plans to reform social care funding. We are also concerned about the cuts to more discretionary services arising from councils’ need to prioritise social care provision. We recommend that the Government urgently reform the funding of social care in England. (Paragraph 13) Funding
Show less
Government response AI summary
The government has committed to investing an additional £5.4 billion over three years, following a 7 September 2021 announcement, to begin a comprehensive programme of reform for adult social care. Further details will be published in a White Paper later this year.
Read full response →
Ministry of Housing, Communities and Local Government
2
Conclusion
Second Report - Local authority financi…
Rejected
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 …
Read more
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 predecessor Committee concluded, the Business Rates Retention Scheme is too complex in seeking to both incentivise growth and redistribute funding according to need. We are reassured that the Government remains committed to implementing the Fair Funding Review, which, along with the business rates “reset”, could partly restore the link between funding and need, but in the long term we do not see how the BRRS can be the most sensible means of matching funding to need.
Show less
Government response AI summary
The government stated it would not proceed with the implementation of the Fair Funding Review and business rates reset in 2021/22. It confirmed that decisions on the future direction of local government finance reform will be taken at the ongoing Spending Review.
Read full response →
Ministry of Housing, Communities and Local Government
3
Conclusion
Second Report - Local authority financi…
Deferred
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 …
Read more
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 with no incentive to build up their tax base, whereas no equalisation would leave some councils chronically underfunded through no fault of their own. The system of local government finance should both enable councils to increase revenue by growing their tax base and protect those in more deprived areas. Rules about equalisation need to be transparent, comprehensible and predictable.
Show less
Government response AI summary
The government has deferred decisions on local government finance reform, including the BRRS and equalisation rules, to an ongoing Spending Review, citing the need to assess the pandemic's impact.
Read full response →
Ministry of Housing, Communities and Local Government
4
Recommendation
Second Report - Local authority financi…
Rejected
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 …
Read more
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 a net increase in funding, we urge it not to impose commensurate cuts to grant funding. The additional funding should then be put towards equalisation in a separate grant designed for this purpose. We also urge the Government to clarify what level of funding equalisation it considers to be appropriate for local government. (Paragraph 26) 40 Local authority financial sustainability and the section 114 regime
Show less
Government response AI summary
The government explicitly rejected the immediate implementation of the Fair Funding Review and 75% Business Rates Retention, stating that decisions on the way forward will be taken at the ongoing Spending Review.
Read full response →
Ministry of Housing, Communities and Local Government
5
Conclusion
Second Report - Local authority financi…
Rejected
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 …
Read more
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 low council tax bases, but this should be done through a more predictable means of funding equalisation. Council tax is also an increasingly regressive tax that again penalises those in more deprived areas. A revaluation is long overdue. In the longer term, one possibility that could be considered is a proportional property tax.
Show less
Government response AI summary
The government rejects the implied recommendation for council tax reform and revaluation, stating it has no plans for fundamental change. It argues that a revaluation would be expensive, lead to higher bills for many households, potentially penalise those on fixed incomes, and not address disparities …
Read full response →
Ministry of Housing, Communities and Local Government
6
Recommendation
Second Report - Local authority financi…
Rejected
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 …
Read more
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 a proportional property tax.
Show less
Government response AI summary
The government rejects the recommendation, stating it has no plans to replace or fundamentally reform council tax. It argues that a revaluation would be expensive, lead to bill increases for many households, potentially penalise people on fixed incomes, and not address disparities in council tax …
Read full response →
Ministry of Housing, Communities and Local Government
7
Conclusion
Second Report - Local authority financi…
Acknowledged
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.
Read more
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.
Show less
Government response AI summary
The government defends the current charging regime and highlights existing local flexibilities for council tax. It states that the Chancellor’s Fundamental Review of Business Rates is considering reform options, including greater local flexibility, and will conclude in Autumn.
Read full response →
Ministry of Housing, Communities and Local Government
8
Recommendation
Second Report - Local authority financi…
Accepted in Part
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 …
Read more
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 we will consider in our future report on devolution in England. Giving local government more powers to raise and spend money is a position supported by our predecessor Committee. We also recommend that the Government reform business rates, in particular by finding a mechanism by which to level the playing field between bricks- and-mortar and online retailers. This is an issue we will return to in our upcoming report on supporting high streets after covid-19.
Show less
Government response AI summary
The government largely upholds the current charging regime and council tax flexibility, while noting an ongoing review of business rates that will conclude in the Autumn. It also highlighted a new Health and Social Care Levy that will provide revenue to local authorities.
Read full response →
Ministry of Housing, Communities and Local Government
9
Conclusion
Second Report - Local authority financi…
Deferred
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 …
Read more
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 settlements bring. If the next spending review is not a multi- year settlement, the recovery of local authority finances after the covid-19 pandemic will be impeded. We are pleased that the Minister acknowledged the importance of multi-year settlements to local government but note he expressed only the hope that the next one would be a multi-year settlement.
Show less
Government response AI summary
The government agrees that multi-year settlements provide certainty for effective planning. However, the approach to the next settlement will be informed by the ongoing Spending Review, and the government is exploring opportunities to simplify the funding system.
Read full response →
Ministry of Housing, Communities and Local Government
10
Conclusion
Second Report - Local authority financi…
Acknowledged
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 …
Read more
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 to match spending to need. Reducing their number would give councils greater control over spending and would be consistent with our previous recommendation that councils be given great revenue- raising powers. (Paragraph 43) Local authority financial sustainability and the section 114 regime 41
Show less
Government response AI summary
The government agrees that a stable funding environment is important and recognizes the challenges of multiple competitive funds. It states it is exploring opportunities to simplify the system, while also noting that ringfences and competitions can be helpful.
Read full response →
Ministry of Housing, Communities and Local Government
11
Recommendation
Second Report - Local authority financi…
Deferred
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 …
Read more
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 44) Covid-19
Show less
Government response AI summary
The government agrees that multi-year settlements provide certainty and is exploring opportunities to simplify the funding system, but defers a decision on the next settlement being multi-year, stating it will be informed by the ongoing Spending Review.
Read full response →
Ministry of Housing, Communities and Local Government
12
Conclusion
Second Report - Local authority financi…
Accepted
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 …
Read more
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 concerned that the Government has not committed to covering costs arising in future years, including from lost council tax and business rates. We are concerned, too, that some local authorities have been worse hit than others, particularly shire districts, and that some of these councils, even with the additional government funding, will still be left out of pocket. The disproportionate impact on local authorities will not assist the Government’s levelling up agenda.
Show less
Government response AI summary
The government highlighted over £12 billion in funding already committed to councils, stating that allocations are based on need and that it continues to monitor local authority finances to inform the ongoing Spending Review and support individual authorities.
Read full response →
Ministry of Housing, Communities and Local Government
13
Recommendation
Second Report - Local authority financi…
Acknowledged
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
Read more
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
Show less
Government response AI summary
The government states it has committed over £12 billion in funding and distributed it based on need. It is using monitoring and engagement to inform the ongoing Spending Review and will continue to work with individual authorities and keep the situation under review, without committing …
Read full response →
Ministry of Housing, Communities and Local Government
14
Conclusion
Second Report - Local authority financi…
Accepted
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 …
Read more
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 PWLB loans can be used. In understanding local authorities’ use of commercial investment, we must acknowledge that previous Governments encouraged councils to be more commercial.
Show less
Government response AI summary
The government is strengthening the capital system and Prudential Framework by working with CIPFA to amend statutory codes, with planned implementation from April 2022, and by tightening legislation on Minimum Revenue Provision duty and borrowing capping powers.
Read full response →
Ministry of Housing, Communities and Local Government
15
Conclusion
Second Report - Local authority financi…
Accepted in Part
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.
Read more
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.
Show less
Government response AI summary
The government is improving its monitoring of the sector through enhanced data collection, intelligence gathering, and developing tools for earlier risk identification, and requires local authorities to submit three-year capital spending and borrowing plans. However, it does not directly address the concern about the lack …
Read full response →
Ministry of Housing, Communities and Local Government
16
Recommendation
Second Report - Local authority financi…
Accepted in Part
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
Read more
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
Show less
Government response AI summary
The government states that local authorities already have a duty to "have regard to" the Prudential Code and is working with CIPFA to make changes to statutory codes, with implementation from April 2022. It also details a programme of work to strengthen the capital system …
Read full response →
Ministry of Housing, Communities and Local Government
17
Conclusion
Second Report - Local authority financi…
Accepted in Part
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 …
Read more
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 own auditor and about the lack of a co-ordinating body responsible for monitoring the performance of auditors and joining up auditor findings across the country. We are pleased the Government has now announced its plans for instituting a new audit system leader, and we can see the argument for separating regulation and procurement. We are also pleased that the Department has accepted the recommendation in the Redmond Review that the new system leader produce annual reports on the state of local audit, although it is not clear to what extent it will be able to join up individual auditor findings with a view to identifying systemic issues across local government. We also note that the new Audit, Reporting and Governance Authority, in which the standalone unit will sit, is being set up primarily to audit the private sector. Given that local authority audit is different from private sector audit, in that it must consider such additional matters as public interest and value for money, it remains to be seen if a standalone unit within ARGA can provide the necessary specialism that local authority audit requires. We have concerns that the Government has not established a regulator along the lines suggested in Sir Tony Redmond’s independent review, rather than as a standalone unit within another regulator.
Show less
Government response AI summary
The government has undertaken several activities in response to the Redmond review, including extending audit deadlines and confirming its intention to establish ARGA as the new system leader for local audit, while also keeping existing arrangements under review following a consultation.
Read full response →
Ministry of Housing, Communities and Local Government
18
Recommendation
Second Report - Local authority financi…
Accepted
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 …
Read more
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 it should not be local authorities themselves, and ARGA doing so could lead to a conflict of interest. We also ask the Government to confirm that the new system leader will be able to join up individual auditor findings with a view to identifying systemic issues across local government. Without a central body responsible for oversight of the sector, we see no way of ensuring a robust and transparent regime of local audit.
Show less
Government response AI summary
The government has confirmed its intention to establish the Audit, Reporting and Governance Authority (ARGA) as the new system leader for local audit and considers the Public Sector Auditor Appointments Ltd (PSAA) as the best placed appointing body. It has also undertaken a consultation on …
Read full response →
Ministry of Housing, Communities and Local Government
19
Conclusion
Second Report - Local authority financi…
Rejected
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 …
Read more
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 lacks intermediary measures that councils can use to flag up concerns. Croydon Council delayed issuing a notice for fear of the negative publicity and the statement it would make about its financial position. Northamptonshire Council also delayed. We believe that an intermediary “yellow card” measure that could be applied by the Chief Finance Officer might have forced these councils to confront much earlier the seriousness of the problems facing them.
Show less
Government response AI summary
The government defends Section 114 notices as an important and effective part of the finance system, stating they operate within a wider system of checks and balances that should lead to earlier action, thus not committing to an intermediary "yellow card" measure.
Read full response →
Ministry of Housing, Communities and Local Government
20
Recommendation
Second Report - Local authority financi…
Accepted
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 …
Read more
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 Finance Officers report to both the Executive and appropriate scrutiny committees on a quarterly basis on the state of local authority finances and, in particular, draw attention to potential serious financial problems. (Paragraph 90) Local authority financial sustainability and the section 114 regime 43
Show less
Government response AI summary
The government defends the existing Section 114 regime as effective and states that a wider system of checks and balances, including statutory reporting duties for Section 151 Officers and powers for external auditors, already provides mechanisms to highlight financial concerns.
Read full response →
Ministry of Housing, Communities and Local Government