The Financial Sustainability of Local Authorities inquiry
Closed
What the inquiry looked at
“Local authorities in England have maintained their overall capital spending levels, according to the National Audit Office (NAO) , but face pressure to meet debt servicing costs and to maintain investment levels in their existing asset bases. Local authorities' revenue spending power—including government grant and council tax—fell by 25.2% in real terms from 2010–11 to 2015–16. By contrast, the NAO estimates that capital grants to authorities increased by 0.2% from 2010–11 to 2014–15, although this does not include education. Capital spending by authorities increased by 5.3% in real terms overall between 2010–11 and 2014–15, but this is uneven across local authorities and service areas. Almost half (49%) of authorities reduced their capital spending. Most service areas saw an increase in capital spend with the exception of culture and leisure: capital spending fell by 22% overall in this area, including reductions in spend of 33% on open spaces and 60% on libraries. National Audit Office report The National Audit Office have found that authorities face a growing challenge to continue long-term investment in their existing assets. Total spending has remained stable, but increasingly capital activities are focused on 'invest to save' and growth schemes that cover their costs or have potential to deliver a revenue return. Many areas of authorities' asset management programmes do not meet these criteria and are now seen as a lower priority. According to the NAO, local authorities' debt servicing costs have grown as a proportion of revenue spending as their revenue resources have fallen. A quarter of single-tier and county councils now spend the equivalent of 9.9% or more of their revenue expenditure on debt servicing, with metropolitan district councils being particularly exposed.”
The committee's words, from the inquiry page on parliament.uk ↗.
What it found
While local authority revenue spending power has decreased significantly over recent years, authorities have, taken as a whole, maintained capital spending levels. However, revenue pressures have led to changes in the nature of capital spending with authorities focussing more on schemes intended to generate future revenues. Many are investing less in physical assets, such as libraries, museums and parks, and spending more on commercial investments, often involving investing in property. The Department for Communities and Local Government (the Department) has overall responsibility in government for the local government finance system. The Department expects authorities to become more ‘entrepreneurial’ as it encourages local government to become largely self-financing. But we are concerned that the Department appears complacent about the risks to local authority finances, council tax payers and local service users arising from the increasing scale and changing character of commercial activities across the sector.
The Department does not have good enough information to understand the scale and nature of authorities’ commercial activities or which authorities are placing themselves at greatest risk and it does not use the information it does have to give it a cumulative picture of risks and pressures across the sector. Unless the Department strengthens its understanding of the capital issues faced by local authorities, it will not be well placed to anticipate risks to financial and service sustainability.
What the government said
No government response is linked to this report.
How the inquiry ran
Each dot is a dated item listed on this page, from the inquiry's opening on 10 October 2016 to 18 November 2016.
- Oral evidence 10 Oct 2016
- Report 18 Nov 2016
What it recommended
The committee's recommendations are not listed here yet. Read them in 26th Report - Financial sustainability of local authorities ↗ on parliament.uk.
Evidence
Oral evidence sessions 1
- 10 Oct 2016No witnesses recordedparliament.uk ↗