Recommendations & Conclusions
10 items
1
Recommendation
Thirty-Fourth Report - Local Government…
Acknowledged
On the basis of a Report by the Comptroller and Auditor General, we took evidence from the Department for Levelling Up, Housing & Communities (the Department) and HM Treasury (the Treasury) about local government finance in England.1 The Department is responsible for working across government to support the Treasury to …
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On the basis of a Report by the Comptroller and Auditor General, we took evidence from the Department for Levelling Up, Housing & Communities (the Department) and HM Treasury (the Treasury) about local government finance in England.1 The Department is responsible for working across government to support the Treasury to make major decisions about local government funding and it plays a significant role in distributing that funding.2 The Department is also responsible for the accountability system that assures Parliament about how local authorities use their resources, including preventing and responding to financial and service failure.3
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Government response AI summary
The department concluded a review of local authority expenditure and borrowing statistics, has improved data collection on capital borrowing and investments, receives borrowing and investment plans, and is establishing a new independent body focused on data, transparency, and robust evidence.
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HM Treasury
10
Recommendation
Thirty-Fourth Report - Local Government…
Acknowledged
When we asked about a potential ballooning effect due to local authorities continually delaying and deferring payments on borrowing the Department told us the measures being consulted on would ensure that local authorities are paying MRP from revenue rather than other sources, and their MRP covers all their assets.33 We …
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When we asked about a potential ballooning effect due to local authorities continually delaying and deferring payments on borrowing the Department told us the measures being consulted on would ensure that local authorities are paying MRP from revenue rather than other sources, and their MRP covers all their assets.33 We asked whether its measures would deal with past underpayments. The Department responded that it was not planning to “because of the risks in some cases” that correcting these underpayments in one go “may have very serious impacts on the financing of the local authority”, citing the example of Slough.34 Incorrect calculation of MRP was a major contributory factor in Slough’s Section 114 notice and request for exceptional financial support.35 The Department stated that “we have a clear understanding of the local authorities that we think are at risk” and it proposes to “engage intensively with the local authorities that have an underpayment problem historically” to deal with the issue more gradually.36
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Government response AI summary
The government published a policy paper and intends to update its Statutory Guidance, consulted on strengthening the Minimum Revenue Provision (MRP) duty, and will consider further actions with HM Treasury for non-compliant local authorities.
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HM Treasury
22
Recommendation
Thirty-Fourth Report - Local Government…
Acknowledged
This Committee noted in 2016 that local authorities were facing an uncertain environment due to the Department considering further significant changes to local authority funding.86 In 2018 the Committee highlighted the use of short-term funding arrangements since 2016 and a series of proposed reforms awaiting decisions; the same points arose …
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This Committee noted in 2016 that local authorities were facing an uncertain environment due to the Department considering further significant changes to local authority funding.86 In 2018 the Committee highlighted the use of short-term funding arrangements since 2016 and a series of proposed reforms awaiting decisions; the same points arose again in 2019.87 Since 2016 the sector has faced a four-year settlement that in practice was characterised by one-off and short-term funding initiatives, followed by two one-year settlements.88 In December 2021, the government announced a further single settlement for the 2022–23 financial year.89 In the run-up to the 2021 Spending Review, decisions about multiple significant reforms or updates relevant to local government finance were still outstanding, some of which had been first raised in 2015 or 2016. The outstanding decisions included potential changes to the underlying nature of business rates themselves, redistributing business rates growth between local authorities, updating the funding formula for calculating the spending need of local authorities and determining the distribution of much local government funding, changing the proportion of business rates retained by local authorities, and reforming the funding of adult social care (the service on which local authorities spend the most).90 80 Q 91 81 Committee of Public Accounts, COVID-19: Local government finance, Fourth Report of Session 2021–22, HC 239, 4 June 2021, para 21 82 Office for Budget Responsibility, Economic and fiscal outlook: October 2021, CP 545, October 2021, paragraph 2.89 83 Qq 91, 99, 100 84 Committee of Public Accounts, Transforming children’s services, Eighty-Eighth Report of Session 2017–2019, HC 1741, March 2019, conclusion 1; Qq 101–104 85 Q 101 86 Committee of Public Accounts, Financial sustainability of local authorities, Twenty-Sixth Report of Session 2016–17, HC 708, 18 November 2016, conclusion 6 87 Committee of Public Accounts, Financial
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Government response AI summary
The government recognizes the importance of certainty and points to the Local Government Finance Settlement 2022-23, which provides £54.1 billion for local government in England, as well as a commitment to work closely with local partners before consulting on any potential funding reform.
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HM Treasury
23
Conclusion
Thirty-Fourth Report - Local Government…
Acknowledged
We have previously concluded that the implications of reductions in service spending for service users and taxpayers are unclear. We have made several recommendations that the Department should work to improve its information on and understanding of pressures on services.91 The funding formula currently in use, and which includes measures …
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We have previously concluded that the implications of reductions in service spending for service users and taxpayers are unclear. We have made several recommendations that the Department should work to improve its information on and understanding of pressures on services.91 The funding formula currently in use, and which includes measures of service need, was decided on in 2012–13 and uses some data from the 2001 census. There has been substantial growth in retained business rates since the start of the business rates retention system in 2013–14, which would be redistributed in a business rates reset.92
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Government response AI summary
The government agrees with the Committee’s recommendation to rationalise funding for local government so that local authorities can make decisions based on local priorities and says they are considering options to simplify grants.
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HM Treasury
24
Recommendation
Thirty-Fourth Report - Local Government…
Acknowledged
The spending review confirmed the timing of the next and future business rates revaluations and stated the government would consult on the possible introduction of an Online Sales Tax to partially replace business rates.93 However, much remained undecided. When we challenged the Department on decisions to come, it noted that …
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The spending review confirmed the timing of the next and future business rates revaluations and stated the government would consult on the possible introduction of an Online Sales Tax to partially replace business rates.93 However, much remained undecided. When we challenged the Department on decisions to come, it noted that the new Secretary of State appeared not to favour going ahead with current plans to increase business rates retention in the near term, although more might be said at the provisional local government finance settlement.94 The Department told us that distributional issues like the review of the funding formula were similarly likely to be the subject of announcements with the provisional settlement.95 The provisional local government finance settlement for 2022 to 2023, announced on 16 December 2021 confirmed the continuation of the existing arrangements for business rate retention and an intention to review the funding formula.96 Following ministerial decisions, the Department committed to significant consultation with local authorities to enable them to understand what the changes would mean for them individually.97 The Treasury was clear that policy development for the online sales tax was not far enough advanced to allow any estimate of the impact that it might have on local government finance.98 We were told that the Department for Health and Social Care has yet to announce how to spend funding allocated for improvements in adult social care and workforce support, although we were assured some funding will start to flow from April 2022.99 Since then, the adult social care white paper has been published but it only sets out how some of the funding will be spent.100
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Government response AI summary
The department has a policy to rationalise funding for local government, balancing flexibility with ensuring effective use of funds, and is considering options to simplify grants and streamline the funding process.
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HM Treasury
25
Conclusion
Thirty-Fourth Report - Local Government…
Acknowledged
We have previously recommended that reform of local government finance should take place in a measured fashion to ensure the new arrangements are fit for purpose and built to last. We recommended that a stable funding environment, ideally based on a multi-year settlement, is established as a bridging mechanism while …
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We have previously recommended that reform of local government finance should take place in a measured fashion to ensure the new arrangements are fit for purpose and built to last. We recommended that a stable funding environment, ideally based on a multi-year settlement, is established as a bridging mechanism while more fundamental long-term reforms are designed.101 The latest spending review set out local government 91 Committee of Public Accounts, Financial sustainability of local authorities, Fiftieth Report of Session 2017–19, HC 970, 4 July 2018, conclusion/recommendation 4; Committee of Public Accounts, Local government spending, Seventy-Sixth Report of Session 2017–19, HC 1775, 6 February 2019, recommendations 1, 3, 4; Committee of Public Accounts, Local government governance and accountability, Ninety-Seventh Report of Session 2017–19, HC 2077, 15 May 2019, recommendation 1; Committee of Public Accounts, COVID-19: Local government finance, Fourth Report of Session 2021–22, HC 239, 4 June 2021, recommendation 5 92 C&AG’s Report, pages 16 and 33, Figures 7 and 17 93 C&AG’s Report, page 4 94 Qq 69, 74 95 Qq 69, 73–75 96 Department for Levelling Up, Housing and Communities, Provisional local government finance settlement: England 2022 to 2023, 16 December 2021 97 Qq 70–73 98 Qq 81–82 99 Qq 91, 95–96 100 Department of Health and Social Care, People at the heart of care: adult social care reform white paper, 1 December 2021. 101 Committee of Public Accounts, COVID-19: Local government finance, Fourth Report of Session 2021–22, HC 239, 4 June 2021, recommendation 6 Local Government Finance System: Overview and Challenges 19 funding for three years but was silent on the prospects for a multi-year settlement for local government.102 Government subsequently announced in December 2021 its intention for a single year settlement for 2022–2023. Rationalising funding arrangements
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Government response AI summary
The government agrees with the Committee on the importance of certainty for local authorities and mentions the Local Government Finance Settlement 2022-23, which provides £54.1 billion and includes funding for adult social care reform, also committing to work closely with local partners before consulting on …
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HM Treasury
26
Recommendation
Thirty-Fourth Report - Local Government…
Acknowledged
A Local Government Association review found 448 individual grants to local authorities between 2015–16 and 2018–19, and in any one of those years local authorities received around 250 grants.103 Twenty-two grant funds were available for net zero work alone in 2020–21, many of which were competitive funds with limited delivery …
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A Local Government Association review found 448 individual grants to local authorities between 2015–16 and 2018–19, and in any one of those years local authorities received around 250 grants.103 Twenty-two grant funds were available for net zero work alone in 2020–21, many of which were competitive funds with limited delivery timescales.104 A recent Chartered Institute of Public Finance and Accountancy paper on grant funding observed that local government receives a larger number of smaller grants than previously and concluded “Smaller, shorter-duration and less flexible grants challenge the limited resources of many councils, particularly when they are competed.”105 The National Infrastructure Commission has criticised the way infrastructure and regeneration grants are allocated through multiple decision-making processes, and the fact that much capital funding for transport projects is dependent on competitive bidding, as both create uncertainty.106
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Government response AI summary
The government agrees with the committee and states the department has an established policy to rationalise funding for local government so that local authorities can make decisions based on local priorities; and is considering options to simplify grants.
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HM Treasury
27
Conclusion
Thirty-Fourth Report - Local Government…
Acknowledged
The new Secretary of State told the Housing, Communities and Local Government Committee that he recognises there are too many funding pots, with potentially overlapping criteria. He concluded “There needs to be some simplification and rationalisation” of funding arrangements and has asked the Department to lead on this.107 When we …
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The new Secretary of State told the Housing, Communities and Local Government Committee that he recognises there are too many funding pots, with potentially overlapping criteria. He concluded “There needs to be some simplification and rationalisation” of funding arrangements and has asked the Department to lead on this.107 When we asked the Department specifically about net zero and levelling up the Department told us it had been asked to look at whether there is a case to simplify and rationalise both the processes around levelling up funds and the pots themselves. Its aim for levelling up was to move to a system where funding was divided into two funds, one focused on infrastructure and the other focused on people.108
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Government response AI summary
The government agrees with the committee and states the department has an established policy to rationalise funding for local government so that local authorities can make decisions based on local priorities; and is considering options to simplify grants.
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HM Treasury
28
Conclusion
Thirty-Fourth Report - Local Government…
Acknowledged
The Treasury told us the balance between formula and competitive funding should be different for different areas of government activity, giving levelling up and social care as examples of areas where formula funding should predominate. In contrast, the Treasury felt that net zero is an area where it is the …
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The Treasury told us the balance between formula and competitive funding should be different for different areas of government activity, giving levelling up and social care as examples of areas where formula funding should predominate. In contrast, the Treasury felt that net zero is an area where it is the right thing to have a competitive process as it can lead to better outcomes for taxpayers by, for example, ensuring that funding flows to the locations and projects where the most carbon will be saved.109 Operating net zero funding in this way led to significant disparities in grant funding per person across different council areas, with some receiving over £50 per person in 2020–21 and others receiving less than £12.50 per person.110 102 HM Treasury, Autumn budget and Spending Review 2021, 27 October 2021; (LGA/LFS0002) 103 Local Government Association, Fragmented funding: the complex local authority funding landscape, October
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Government response AI summary
The government agrees with the Committee’s recommendation to rationalise funding for local government so that local authorities can make decisions based on local priorities and says they are considering options to simplify grants.
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HM Treasury
29
Conclusion
Thirty-Fourth Report - Local Government…
Acknowledged
We noted the interactions between different government policy areas and the “tab” that ultimately falls to local government, including, for example, the impact of changes to health spending or universal credit.111 The Treasury said that, as part of the spending review, it had discussed those settlements for other departments and …
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We noted the interactions between different government policy areas and the “tab” that ultimately falls to local government, including, for example, the impact of changes to health spending or universal credit.111 The Treasury said that, as part of the spending review, it had discussed those settlements for other departments and that money going in to other areas such as special educational needs, housing, transport, skills and changes to universal credit would have positive effects for the local government sector.112 This Committee has previously made several recommendations about the need for greater co-ordination within central government with regard to local government: in relation to assessing service impact, measuring financial sustainability, and the structure of funding schemes.113 This Committee has particularly highlighted the importance of a coordinated plan with clear milestones towards achieving the net zero target, and the importance of co- ordinated engagement with local government.114 Cross-government working is important to understand interdependencies within such a wide-ranging programme as net zero and enable processes for managing them.115 111 Qq 60, 102 112 Q 60 113 Committee of Public Accounts, Financial sustainability of local authorities, Fiftieth Report of Session 2017–19, HC 970, 4 July 2018, recommendations 2 and 4; Committee of Public Accounts, Local government spending, Seventy- Sixth Report of Session 2017–19, HC 1775, 6 February 2019, recommendation 1; Committee of Public Accounts, Local government governance and accountability, Ninety-Seventh Report of Session 2017–19, HC 2077, 15 May 2019, recommendation 1; Committee of Public Accounts, COVID-19: Local government finance, Fourth Report of Session 2021–22, HC 239, 4 June 2021, recommendation 3 114 Committee of Public Accounts, Achieving net zero, Forty-Sixth Report of Session 2019–21, HC 935, 5 March 2021, page 3 and recommendation 6 115 Comptroller & Auditor General, Achieving net ze
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Government response AI summary
The department continues to work closely with the local government sector and other government departments to ensure that councils have the resources to meet pressures and maintain current service levels. The department wrote to the Committee in April alongside this Treasury Minute with more detailed …
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HM Treasury