Recommendations & Conclusions
12 items
4
Recommendation
Thirty-Fourth Report - Local Government…
Accepted
The Department is making some welcome improvements to its oversight of the sector although it remains to be seen what concrete difference these changes will make. Over time the Department has improved its analysis of financial Local Government Finance System: Overview and Challenges 7 risk and its engagement with local …
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The Department is making some welcome improvements to its oversight of the sector although it remains to be seen what concrete difference these changes will make. Over time the Department has improved its analysis of financial Local Government Finance System: Overview and Challenges 7 risk and its engagement with local authorities: the sector praised Departmental engagement during the pandemic highly. However, while we do not expect the Department to micro-manage local authorities, there is clearly more it can do as part of its stewardship role. The Department recognises the gaps and plans to collect more detailed information on local authority reserves from the next financial year. It will also start collecting data on local authority holdings of commercial property, companies, and financial investments regularly. These changes, which we recommended in 2016, are welcome but we will only be fully reassured when we see the Department taking decisive and effective action where this new data reveals pressing risks. Recommendation: Alongside its Treasury Minute response to this report, the Department should write with more detail about its new data collections and how it plans to use these data, including those relating to borrowing and investment.
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Government response AI summary
The government is strengthening its data collections on local authority risk and reserves to improve its oversight of local government and collecting more detailed information from local authorities on the different types and purposes of earmarked reserves.
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HM Treasury
5
Recommendation
Thirty-Fourth Report - Local Government…
Accepted
We are concerned the Department is worryingly complacent in its view that the spending review will put local services on a sustainable footing. The spending review provided an extra £4.8 billion, £1.6 billion per year for the period 2022– 23 to 2024–25, along with assumed council tax rises (although lower …
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We are concerned the Department is worryingly complacent in its view that the spending review will put local services on a sustainable footing. The spending review provided an extra £4.8 billion, £1.6 billion per year for the period 2022– 23 to 2024–25, along with assumed council tax rises (although lower rises than in recent years). These plus assumed growth in business rates will need to provide the “business as usual” funding for adult social care. The Department’s view is that this funding leaves the sector in a sustainable position, enabling local authorities to improve services and meet the rising demand and cost pressures they are facing. It is confident there will be no need to go back to the Treasury to ask for additional pots of short-term funding, as in previous years. Yet we remain sceptical when neither the Department nor the Treasury can explain how the adult and children’s social care pressures are built into the spending review settlement, council tax is rising by less than inflation this year and the pandemic means business rates growth is even more uncertain than usual. Recommendation: Alongside its Treasury Minute response to this report the Department should write with more detailed assurance on the expected impact of the spending review on services and, working with other government departments, set out its plans to keep this under review.
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Government response AI summary
The department recognises the pressures on local services and the importance of a sustainable funding platform, and the spending review provides an estimated average annual increase in Core Spending Power of 3% in real terms each year. They also wrote to the Committee in April …
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HM Treasury
8
Recommendation
Thirty-Fourth Report - Local Government…
Accepted
This Committee highlighted in 2016 that the Department appeared complacent about the risks from local authorities increasingly acting as property developers and commercial landlords with the primary aim of generating income. It also pointed out a risk that the local capital finance framework might not be able to cope with …
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This Committee highlighted in 2016 that the Department appeared complacent about the risks from local authorities increasingly acting as property developers and commercial landlords with the primary aim of generating income. It also pointed out a risk that the local capital finance framework might not be able to cope with the current, rapidly changing and uncertain institutional and economic environment.19 In that financial year (2016–17), English local authorities acquired commercial property worth £1.8 billion.20 The then Committee recommended the Department develop a much better understanding of these risks, and ensure the framework governing local government capital finance reflected developments in the sector.21 The Department worked with the Chartered Institute of Public Finance and Accountancy (CIPFA) to ensure changes to CIPFA’s statutory prudential and treasury management codes by December 2017. The codes are key parts of the framework governing local authority borrowing and local authorities are required to “have regard” to them. The Department revised its own statutory guidance on local authority investments by February 2018.22 Local authorities bought a further £5.8 billion worth of commercial property in 2017–18, 2018–19 and the first half of 2019–20. In May 2020, the Department told us that its changes had not had “all the effect” that was needed and further changes were required. We concluded the Department had continued to be complacent about the true nature and scale of the issue and that the ‘soft’ approach of guidance changes had failed.23 The Treasury made changes in November 2020 to stop local authorities borrowing from government if they make commercial property purchases. The Department told us these changes had “a very significant impact on borrowing”.24
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Government response AI summary
The government will update Statutory Guidance on Local Government Investments in 2022, having worked with CIPFA to update the Prudential Code. They consulted on strengthening the Minimum Revenue Provision (MRP) duty and plan to publish its response in spring 2022.
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HM Treasury
9
Recommendation
Thirty-Fourth Report - Local Government…
Accepted
Where a local authority borrows, it must set aside money each year to repay the debt, so the costs do not fall wholly on future council taxpayers; this is known as Minimum Revenue Provision (MRP). MRP ensures councils reflect the cost of borrowing 16 C&AG’s Report, p. 39; Committee of …
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Where a local authority borrows, it must set aside money each year to repay the debt, so the costs do not fall wholly on future council taxpayers; this is known as Minimum Revenue Provision (MRP). MRP ensures councils reflect the cost of borrowing 16 C&AG’s Report, p. 39; Committee of Public Accounts, COVID-19: Local government finance, Fourth Report of Session 2021–22, HC 239, 4 June 2021; Q11. 17 Comptroller and Auditor General, Local government finance in the pandemic, Session 2019–21, HC 1240, 10 March 2021, para 2.16 18 Committee of Public Accounts, Oral evidence: Department for Levelling Up, Housing and Communities recall, HC 744, 1 November 2021, Qq 11–17 and 55. 19 Committee of Public Accounts, Financial sustainability of local authorities, Twenty-Sixth Report of Session 2016–17, HC 708, 18 November 2016 20 C&AG’s Report, Figure 14. 21 Committee of Public Accounts, Financial sustainability of local authorities, Twenty-Sixth Report of Session 2016–17, HC 708, 18 November 2016, recommendations 1 and 6, pages 5 and 7 22 Comptroller and Auditor General, Local authority investment in commercial property, HC 45, Session 2019–20, 13 February 2020. 23 Committee of Public Accounts, Local authority investment in commercial property, Eleventh Report of Session 2019–21, HC 312, 13 July 2020; C&AG’s Report, Figure 14 24 Ministry of Housing, Communities & Local Government, Local authority capital finance framework: planned improvements, policy paper, 28 July 2021, available at Local authority capital finance framework: planned improvements - GOV.UK (www.gov.uk); Q14 12 Local Government Finance System: Overview and Challenges in their current budgets and act prudently.25 In 2016, when the then Committee asked the Department about its ability to identify capital and investment trends it told us it had identified changes in MRP practice that were “worth analysing”.26 The Department changed its statutory guidance on MRP in February 2018.27 Nonetheless, the level of MRP made i
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Government response AI summary
The government intends to update its Statutory Guidance on Local Government Investments in 2022 and is consulting on strengthening the Minimum Revenue Provision (MRP) duty, with plans to publish a response in Spring 2022, addressing the use of asset sales proceeds and MRP on debt …
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HM Treasury
11
Conclusion
Thirty-Fourth Report - Local Government…
Accepted
The Institute of Chartered Accountants in England and Wales (ICAEW) noted that while the local audit market is in crisis, government’s response to date has not recognised 25 Committee of Public Accounts, Local authority investment in commercial property, Eleventh Report of Session 2019–21, HC 312, 13 July 2020, para 15. …
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The Institute of Chartered Accountants in England and Wales (ICAEW) noted that while the local audit market is in crisis, government’s response to date has not recognised 25 Committee of Public Accounts, Local authority investment in commercial property, Eleventh Report of Session 2019–21, HC 312, 13 July 2020, para 15. 26 Committee of Public Accounts, Financial sustainability of local authorities, Twenty-Sixth Report of Session 2016–17, HC 708, 18 November 2016, oral evidence of 10 October 2016, qq 30–31 27 Comptroller and Auditor General, Local authority investment in commercial property, HC 45, Session 2019–20, 13 February 2020, Figure 21. 28 C&AG’s Report, Figure 13 data table 29 Committee of Public Accounts, Oral evidence: Local authority commercial investment, HC 312, Friday 15 May 2020, qq 105–106; Committee of Public Accounts, Local authority investment in commercial property, Eleventh Report of Session 2019–21, HC 312, 13 July 2020, recommendation 3 on page 6 30 Q14 31 Department for Levelling Up, Housing & Communities, Changes to the capital framework: Minimum Revenue Provision, consultation paper, 30 November 2021, available at: Changes to the capital framework: Minimum Revenue Provision - GOV.UK (www.gov.uk) 32 Q 22 33 Q 20 34 Qq 21–24. 35 Q 47; CIPFA for the Department of Levelling Up, Housing & Communities, Local Government Finance Review – Slough Borough Council, October 2021 36 Qq 20, 24 Local Government Finance System: Overview and Challenges 13 the urgency of the situation.37 This Committee has been raising repeated concerns about low audit fees since 2018, well before the pandemic.38 However, now only 9% of all local government body audits for 2020–21 were completed in time for audited accounts to be published by the extended deadline of 30 September 2021. At the same date, 70 authorities still had 2019–20 audits outstanding and 15 authorities had 2018–19 audits outstanding.39 We asked if the absence of up to three years’ audited accounts at the p
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Government response AI summary
The government agrees with the recommendation and states it remains committed to strengthening the local audit market, acting as interim system leader, securing agreement with key partners, and that PSAA announced that 99% of eligible local bodies have joined its national scheme for auditor appointments.
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HM Treasury
14
Conclusion
Thirty-Fourth Report - Local Government…
Accepted
The Department’s Accounting Officer is responsible for the overall accountability system for local government, including providing assurance that it is working effectively and understanding risk, both across the system and in relation to individual councils.54 The Department has improved aspects of its oversight of local government finance since 2010–11, for …
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The Department’s Accounting Officer is responsible for the overall accountability system for local government, including providing assurance that it is working effectively and understanding risk, both across the system and in relation to individual councils.54 The Department has improved aspects of its oversight of local government finance since 2010–11, for example by collecting information from a wider range of departments in preparation for spending reviews and creating analytical tools to inform its assessment of financial risk.55 The Department has been collecting information on the impact COVID-19 is having on local authority finances. However, it told us that it plans to cease this data collection at the end of 2021.56We previously reported on the quality of the Department’s engagement with local government during the pandemic, although the performance of 47 Committee of Public Accounts, Financial sustainability of local authorities, Fiftieth Report of Session 2017–19, HC 970, 4 July 2018, recommendation 6 48 Committee of Public Accounts, Local government governance and accountability, Ninety-Seventh Report of Session 2017–19, HC 2077, 15 May 2019, para 5 49 Committee of Public Accounts, Oral evidence: Local Government Governance and Accountability, HC 1738, Wednesday 27 March 2019, Q 27 50 Sir Tony Redmond, Independent review into the oversight of local audit and the transparency of local authority financial reporting, September 2020, para 9.6; Committee of Public Accounts, Financial sustainability of local authorities, Fiftieth Report of Session 2017–19, HC 970, 4 July 2018, recommendation 6; Committee of Public Accounts, Local government governance and accountability, Ninety-Seventh Report of Session 2017–19, HC 2077, 15 May 2019, recommendation 2 51 (LFS0001/ICAEW), paras 35 and 36 52 Qq 112–114 53 Ministry of Housing, Communities & Local Government, Local audit framework: technical consultation, 28 July 2021, paras 97–100 and questions 16, 17 54 Ministry
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Government response AI summary
The government agrees with the recommendation, is strengthening its data collections on local authority risk and reserves, and is bringing together data with intelligence from ongoing engagement with the sector to provide an overall understanding of the risks affecting the sector.
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HM Treasury
15
Conclusion
Thirty-Fourth Report - Local Government…
Accepted
This Committee recommended in 2016 that the Department should strengthen its understanding of the scale and nature of authorities’ commercial activities, ensure that the purpose and geographical location of capital spending can be ascertained, and strengthen its use of quantitative data to ensure it understands risks across the sector relating …
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This Committee recommended in 2016 that the Department should strengthen its understanding of the scale and nature of authorities’ commercial activities, ensure that the purpose and geographical location of capital spending can be ascertained, and strengthen its use of quantitative data to ensure it understands risks across the sector relating to capital spending.59 Further recommendations about improving data on, or monitoring of, commercial risk followed in 2019 and 2020.60 We have also recommended the Department collect more useful data on local authority reserves.61
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Government response AI summary
The government agrees with the recommendation and states they have concluded a comprehensive review of local authority expenditure and borrowing statistics, and have taken specific action to improve data collection on capital borrowing and investments, including regular information on the performance of local authority investments.
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HM Treasury
16
Conclusion
Thirty-Fourth Report - Local Government…
Accepted
The Department told us that from April 2022, it will regularly collect much fuller information on local authority commercial property, companies and financial investments, the latter two of which it described as “an obvious risk”.62 The information on property investment will include location, which the Department acknowledged “in hindsight …
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The Department told us that from April 2022, it will regularly collect much fuller information on local authority commercial property, companies and financial investments, the latter two of which it described as “an obvious risk”.62 The information on property investment will include location, which the Department acknowledged “in hindsight … would have been helpful” previously.63 From the same date the Department will also collect more detailed data on reserves, breaking down overall figures into new categories, and told us this will improve its ability to understand why authorities are holding reserves and why the levels of reserves are changing. The Department was clear that these changes reflect past Committee interest and recommendations.64
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Government response AI summary
The government agrees with the recommendation and states they have concluded a comprehensive review of local authority expenditure and borrowing statistics, and have taken specific action to improve data collection on capital borrowing and investments, including regular information on the performance of local authority investments.
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HM Treasury
17
Conclusion
Thirty-Fourth Report - Local Government…
Accepted
The Department told us about a policy paper it had recently published about its framework for detecting, managing and preventing risk.65 In relation to concrete actions, the Department told us it was “looking at the statutory powers that we have to cap borrowing” and the policy paper also says the …
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The Department told us about a policy paper it had recently published about its framework for detecting, managing and preventing risk.65 In relation to concrete actions, the Department told us it was “looking at the statutory powers that we have to cap borrowing” and the policy paper also says the Department is “communicating earlier with local authorities when we become aware of certain activities”.66 In 2020 we recommended the Department should “strike a better balance between supporting localism and ensuring local authorities act within the frameworks that underpin local freedoms”, including by publicly challenging behaviour where it has concerns, developing and rapidly deploying interventions that target extreme risk taking, and ensuring that future interventions are more timely and effective.67 57 Committee of Public Accounts, COVID-19: Local government finance, Fourth Report of Session 2021–22, HC 239, 4 June 2021, para 12. 58 Qq 14, 19 59 Committee of Public Accounts, Financial sustainability of local authorities, Twenty-Sixth Report of Session 2016–17, HC 708, 18 November 2016, recommendations 1, 4 and 5 60 Committee of Public Accounts, Local government governance and accountability, Ninety-Seventh Report of Session 2017–19, HC 2077, 15 May 2019, recommendation 4; Committee of Public Accounts, Local authority investment in commercial property, Eleventh Report of Session 2019–21, HC 312, 13 July 2020, recommendation
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Government response AI summary
The government published its policy paper on 28 July 2021, setting out measures to ensure local authority investment decisions comply with the Prudential Framework. It worked with CIPFA on the updated Prudential Code. The government intends to update its own Statutory Guidance on Local Government …
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HM Treasury
18
Conclusion
Thirty-Fourth Report - Local Government…
Accepted
The spending review announced on 27 October 2021, covering 2022–23 to 2024–25, provided £4.8 billion (£1.6 billion each year) of new grant funding for local authorities.68 It also announced that council tax would be able to rise by 2% each year without triggering a council tax referendum.69 In addition, authorities …
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The spending review announced on 27 October 2021, covering 2022–23 to 2024–25, provided £4.8 billion (£1.6 billion each year) of new grant funding for local authorities.68 It also announced that council tax would be able to rise by 2% each year without triggering a council tax referendum.69 In addition, authorities with social care responsibilities would be able to set a 1% adult social care precept each year.70 Taking these points together, the government estimated that core spending power would rise by 3% each year after taking account of expected inflation.71 Separately, £3.6 billion will be made available to local authorities outside the local government settlement to fund government reforms to the way service users are charged for adult social care.72
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Government response AI summary
The government agrees with the recommendation and states that the 2021 Spending Review settlement provides local authorities with an estimated average annual increase in Core Spending Power of 3% in real terms, including investment in Adult Social Care reform.
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HM Treasury
19
Conclusion
Thirty-Fourth Report - Local Government…
Accepted
The Department told us the spending review “gives local government, looking at the sectoral level, the resources that it needs” to respond to rising demand and cost pressures, and “leaves the sector in a sustainable position.”73 The Department and the Treasury stressed the work carried out to underpin this conclusion. …
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The Department told us the spending review “gives local government, looking at the sectoral level, the resources that it needs” to respond to rising demand and cost pressures, and “leaves the sector in a sustainable position.”73 The Department and the Treasury stressed the work carried out to underpin this conclusion. They told us they considered the impact of the pandemic on local authority income and estimated demand, demographics and unit costs for key public services, including the impact of COVID-19 on demand for children’s services.74 When we asked about continued upward pressure on council tax, the Department emphasised the additional grant funding and pointed out that the increase in council tax during this spending review will be lower than in recent years.75 The Treasury pointed out that the assumptions that council tax would rise by up to 3% was lower than inflation next year.76 The Department told us that it was also providing additional support to improve the quality of services, such as through funding for family help.77 Both the Department and the Treasury were confident that this time there would be no need to return to the Treasury for top-ups and short-term funding for local government during the spending review period.78 Yet the Department acknowledged that the local government sector is under pressure at the moment and it will continue to “monitor closely and engage carefully with the sector, particularly the councils that need it the most” during the spending review period.79
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Government response AI summary
The government states that the 2021 Spending Review settlement provides local authorities with an estimated average annual increase in Core Spending Power of 3% in real terms and that it continues to work closely with the local government sector.
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HM Treasury
20
Conclusion
Thirty-Fourth Report - Local Government…
Accepted
When we pressed witnesses about the fragile state of adult social care services and continuing demographic pressure, the Department agreed the demographic pressures from both working-age and older people are quite significant but listed three sources of funding to sustain “business-as-usual social care”. These were rises in council tax (including …
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When we pressed witnesses about the fragile state of adult social care services and continuing demographic pressure, the Department agreed the demographic pressures from both working-age and older people are quite significant but listed three sources of funding to sustain “business-as-usual social care”. These were rises in council tax (including the adult social care precept), growth in business rates, and a portion of the £1.6 billion of 68 Qq 8 and 38; C&AG’s Report, page 4 69 Qq 66, 88; C&AG’s Report, page 4 70 Qq 66, 88; C&AG Report, page 4 71 HM Treasury, Autumn budget and Spending Review 2021, 27 October 2021 72 Q 91; C&AG’s Report, page 4 73 Q 8 74 Qq, 56, 57 75 Qq 9 and 10 76 Q 88 77 Q 10 78 Qq 67–68 79 Qq 8, 84–85, 101 Local Government Finance System: Overview and Challenges 17 new grant in each year announced at the spending review.80 We have previously discussed the significant uncertainty over the impact that the pandemic will have on business rates over the long term.81 The real-terms contribution of council tax over the spending review period is presently unclear as the future level of inflation is very uncertain.82 When we asked how they could be confident that additional funding would be sufficient to ensure both adult and children’s social care did not put more pressure on other services, the Department could not tell us how much of the additional grant funding would go toward meeting pressures in social care as this had not yet been determined by the government.83
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Government response AI summary
The government recognises the pressures on local services and the importance of a sustainable funding platform. The 2021 Spending Review settlement provides local authorities with an estimated average annual increase in Core Spending Power of 3% in real terms each year of the Spending Review …
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HM Treasury