Select committee inquiry
COVID-19: Local Government finance
Closed
What the inquiry looked at
“Local authority finances are under significant pressure in the context of the COVID-19 pandemic, with central government asking local authorities to deliver many additional services on top of the cost of many existing services increasing, opportunities to implement savings programmes being disrupted, and various locally generated income streams have fallen. These challenges follow a decade in which local authority funding has reduced while demand for key services has risen. As a result, the ability of authorities to maintain financial and service sustainability this year and over the medium-term is being tested. The Committee will question senior officials at HM Treasury and MHCLG on the evolving financial pressures on local government and support provided by central government , and whether government has taken effective steps both in asking local government to deliver new services and in meeting its responsibilities for supporting financial sustainability across the sector. If you have evidence on these questions, please submit it here by 6:00 pm on Thursday 11 March 2021.”
The committee's words, from the inquiry page on parliament.uk ↗.
What it found
In the committee's words, from the summary of Fourth Report - COVID-19: Local government finance ↗
Despite receiving additional funding during Covid, many local authorities are in a precarious financial situation and will experience long-term financial effects from the pandemic. Many expect to make cuts to their budgets for local services in 2021–22.
Typical council tax bills will rise by an average of 4.3% across England in 2021–22, meaning that local people could be paying more for less.
The government does not have sufficient information about how these financial pressures will impact on local services. Despite this in many respects, the Ministry of Housing, Communities & Local Government has acted effectively to stave off widespread financial failure within the sector despite the unprecedented impacts of the pandemic in the short term. Regular submission of financial data by local authorities has given the Department a timely evidence base to support local authorities, the £9.7 billion of increased costs and lost income faced by local authorities to December 2020 were nearly matched by the £9.1 billion of government support provided. However, there are still lessons that the Department and the rest of government need to learn from the experience of the pandemic to ensure the financial sustainability of the sector and discussion between local authorities and the Department when a council is in serious financial difficulty are still behind closed doors. The Government should be more transparent with the National Audit Office about the level of financial stress in councils and the potential for Section 114 notices to enable better scrutiny of these issues which hit taxpayers and service users hard if a council fails financially.
While the Department has worked well with local authorities, it was not sufficiently prepared for the financial impacts of the pandemic. Across government, support schemes have not always been designed with sufficient knowledge or consideration of local government finance, which can create confusion and excessive bureaucracy.
Crucially, uncertainty about government funding and support has hindered local authority financial planning for the year ahead and been a driver for cost cutting.
Despite the Department’s detailed work in earlier years, longer-term reform of local government finance has been delayed twice, first by Brexit and now by the pandemic, and reform to adult social care remains undelivered. Even if the sector’s current financial situation is stabilised, there is a looming problem in local government finance that needs a structural solution which needs to take account of the impacts of the pandemic.
What the government said
The government responded on 2 September 2021. The deadline was 4 August 2021.
Summary written by Accountability Index from the government's response.
The government states that it "agrees with the Committee's recommendation" on each of the Committee's recommendations, setting target implementation dates between October 2021 and the end of 2021, with some commitments dependent on the 2021 Spending Review.
- On preparedness, the department "accepts that it had not modelled a crisis of this scale" and will write to the Committee by the end of 2021 on how it is improving its oversight of local government finance to prepare for future emergencies.
- On data, the department has launched a review of pre-existing local government finance data collections and will write in October 2021. It intends to change the collections to require more detailed information on earmarked reserves, and will "soon consult" on this.
- On sharing information with the National Audit Office, the department recognises its "legitimate statutory interest" but says local authorities must be able to engage "in confidence", and will "continue to engage" with the NAO on how to meet its needs.
- On funding reform and certainty, the government will set out its future plan at the 2021 Spending Review, and the timing of its response is "subject to the conclusion" of that review. It "intends to confirm" the 2022-23 settlement at the review.
Read the government's response ↗ Read the report ↗ Report an error
How the inquiry ran
Each dot is a dated item listed on this page, from the inquiry's opening on 8 February 2021 to 16 November 2021. The dashed mark is the deadline Parliament records for the government's response.
- Oral evidence 2 sessions
- Report 4 Jun 2021
- Government response 2 Sep 2021
- Correspondence 4 letters
What it recommended 18 recommendations · 8 conclusions
2The pandemic has exposed limitations in the data that the Department normally collects from local...
Recommended (the committee's words)
The pandemic has exposed limitations in the data that the Department normally collects from local authorities, meaning it has not had a proper picture of local financial resilience. Prior to the pandemic, the Department’s collection of local authority finance data covering areas such as service spending and income from sources such as council tax, business rates and sales fees and charges was generally undertaken on an annual basis. This approach could not provide information quickly enough to navigate a fast-moving and unprecedented pandemic. The Department has put in place a monthly survey collecting data on authorities’ spending and income pressures due to COVID-19. The data from the monthly survey has underpinned decision making in the Department and has also informed decision making in some other government departments. The Department’s new approach to data collection included gathering experimental data on the level of reserves authorities had available to respond to the pandemic. Information on the financial reserves held by local authorities is central to understanding local authorities’ financial resilience and their ability to balance their budgets. However, the Department accepts that its experimental approach has not been entirely successful, with 65 local authorities responding that they had no reserves available to respond to the pandemic. In addition to data collected specifically in the pandemic to assess financial sustainability the Department has an existing financial risk framework with which it monitors the sector. Using information collected through this framework, the Department was aware of some financial weaknesses at Croydon Council before the pandemic. However, the Department did not fully understand the depths of the commercial and other problems facing the council, and had not begun intensive work with the council until April 2020. The financial 6 COVID-19: Local government finance pressures faced by the council have ultimately resulted i
3Government support schemes during the pandemic were not always designed with sufficient knowledge of local...
Recommended (the committee's words)
Government support schemes during the pandemic were not always designed with sufficient knowledge of local government finance or input from the sector. Representatives of the local government sector assert that government departments other than MHCLG did not always engage with the sector during the pandemic sufficiently and consequently were not well informed about the pressures and needs of the sector when designing support schemes. This has resulted in support schemes being designed with too much bureaucracy, a lack of co-ordination, and a focus on speed of delivery that does not always take account of the need for assurance against fraud. These issues place additional burdens on local authorities. For instance, an announcement that business support grants would be simplified came almost one year after they were introduced. The Department recognises that communication with local government is variable across Whitehall. At least one other department has now recognised this itself. The Department for Health and Social Care has identified lessons in relation to adult social care through the work of the Adult Social Care taskforce, including the need to boost its expertise and capacity in relation to social care, and improve local engagement. We are less confident that other departments have recognised the issue. Recommendation: HM Treasury, the Department for Education, the Department of Health & Social Care, the Department for Business, Energy & Industrial Strategy, the Department for Environment, Food & Rural Affairs, and the Department for Digital, Culture, Media & Sport, in co-operation with the Department, should write to us by October 2021 setting how they will improve, and then maintain, their understanding of the operational realities of local government finance and the financial pressures authorities face.
4The Department has not fulfilled previous assurances that it will be transparent about financial risk...
Recommended (the committee's words)
The Department has not fulfilled previous assurances that it will be transparent about financial risk in the sector by sharing information with the National Audit Office. The Department previously told us that it would ensure the National Audit Office can see any information that it needs to about local authority financial risk in order to support proper scrutiny by this Committee on behalf of Parliament. COVID-19: Local government finance 7 However, the Department has not provided all the information the National Audit Office has requested. Without this information, it is not possible for the National Audit Office or Parliament to get a full picture of the financial stress in the sector or evaluate how effectively the Department has addressed any issues. The Department has not yet found a satisfactory way of being transparent about the level of financial stress within the sector while maintaining appropriate levels of confidentiality in respect of information provided by local authorities. In the absence of other oversight mechanisms, Parliamentary scrutiny of the Department’s handling of financial risk in the sector is essential. Recommendation: In discussion with the National Audit Office, within three months the Department should find a way to share information relevant to financial risk in the sector, including about individual local authorities, while indicating on what basis it can or cannot be shared further.
5The Department’s over-optimism about the impact of the pandemic on local authorities risks leading to...
Recommended (the committee's words)
The Department’s over-optimism about the impact of the pandemic on local authorities risks leading to reductions in services for local people. The Department is confident about the sector’s stability and sustainability in relation to the immediate and short-term impacts of the pandemic. However, it recognises that there will be financial impacts on local authorities. Local government sector representatives are clear that most councils will not be able to manage solely using reserves and will also need to make service cuts in 2021–22. We were told about many councils facing multi-million pound budget reductions due to COVID-19, even after government support. Typical council tax bills will rise by an average of 4.3% across England in 2021–22, meaning that local people could be paying more for less. We have previously found that there is insufficient monitoring of the way that local government financial pressures affect services. Given this, we are not convinced by the Department’s confidence about the sustainability of services. Both the Department and local government representatives recognise that the pandemic will affect the sector’s finances in the short and medium term as they seek to understand the ‘new normal’ for local services. Recommendation: The Department, working with other government departments, should ensure that decision-making about actions to stabilise local government finance is informed by sufficient information about the service implications of current financial pressures. Recommendation: The Department and HM Treasury should ensure that their work for the next Spending Review includes full consideration of the longer-term effects of the pandemic on local government finance and the demands placed on local authorities.
6The Department has yet to address the longstanding structural issues within local government finance.
Recommended (the committee's words)
The Department has yet to address the longstanding structural issues within local government finance. Since 2015–16, the government has been planning to put in place significant changes to local government finance, but these have yet to be introduced. Parts of the current finance system are broken or flawed. The pandemic has also cast doubt on planned financial reforms which were centred on greater local retention of business rates. For instance, local authorities expect to collect £1.6 billion less in business rates for 2020–21 than planned. Reforms to local government finance need to be co-ordinated with long-awaited reforms to adult social care, with 8 COVID-19: Local government finance social care proposals now promised in 2021. The Department recognises that there are a range of significant issues that should not be dealt with separately. It will be crucial to put in place meaningful and well thought-through reforms that reflect the lasting changes flowing from the pandemic and ensure that there is a period of financial stability in the interim while new reforms are being devised. Recommendation: The Department should write to us by October 2021 setting out its plans to ensure that: • local government finance is reconsidered from first principles, reformed in a measured fashion working with the sector, and ultimately new arrangements put in place that are fit for purpose and built to last; and • 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.
7It is unacceptable that local authorities continue to face uncertainty about the level of financial...
Recommended (the committee's words)
It is unacceptable that local authorities continue to face uncertainty about the level of financial support they can expect from government on top of the other pressures and uncertainty with which they are currently required to cope. The pandemic has created financial uncertainty for local authorities about their future commercial and other income, service needs, ability to make savings, and ability to collect local taxes. Additional uncertainty and late information about government funding on top of this could risk cuts to the services residents and businesses rely on. The Department and HM Treasury recognise the importance of funding certainty and early information to good financial management. Yet neither have committed to improving their current approach in light of recent experience. Local authority public health grant allocations were published by the Department for Health & Social Care in mid-March 2020, after local authorities had set their budgets for 2021–22, and only 15 days before the end of the financial year. We welcome the announcement that the government will take steps to rule out business rates appeals related to changes in circumstances due to the pandemic, removing a source of uncertainty for local authority finances. However, this decision came less than a week before the end of the financial year. Recommendation: HM Treasury, working with the Department and other departments as necessary, should explore ways that the government can give local authorities more financial certainty as they develop their 2022–23 spending plans and write to us with conclusions by June 2021. COVID-19: Local government finance 9 1 Supporting local authority financial sustainability in the first year of the pandemic
1On the basis of a report by the Comptroller and Auditor General, we took evidence...
Concluded (the committee's words)
On the basis of a report by the Comptroller and Auditor General, we took evidence from the Ministry of Housing, Communities & Local Government (the Department) and HM Treasury about local government finance in England during the COVID-19 pandemic.1 We also took evidence from the Society of County Treasurers, the Society of Local Authority Chief Executives and Senior Managers (SOLACE), the Chartered Institute of Public Finance and Accountancy (CIPFA) and Manchester City Council.
8In addition to the March and April unringfenced funding, the Department provided two further tranches...
Concluded (the committee's words)
In addition to the March and April unringfenced funding, the Department provided two further tranches of unringfenced funding in 2020–21, bringing the total value of these grants to £4.55 billion. The Department took us through the ways in which its approach to allocating unringfenced funding changed. It used three different approaches (existing funding formulas, population, and a new formula drawing on pandemic data returns) to allocate funding of £3.7 billion between March and July 2020. Since July 2020 the approach to funding allocation has been stable, although when asked if the current formula needed further revision the Department did not commit itself either way.16 By early December 2020 estimated financial support for the sector from the Department in unringfenced grants and support for sales, fees and charges income losses, funding from other government departments, and support from clinical commissioning groups stood at £9.1 billion. In December 2020 authorities estimated their full COVID-19 costs pressures and income losses for 2020–21 at £9.7 billion.17 Departmental data on local authority financial resilience during the pandemic
9The Department introduced a monthly survey in April 2020 to collect data on the financial...
Recommended (the committee's words)
The Department introduced a monthly survey in April 2020 to collect data on the financial pressures faced by local authorities due to the pandemic. Prior to the pandemic, the majority of its regular financial data sets tended to be collected on an annual basis. The Department told us that the switch to a monthly approach did not necessarily mean there was a problem with the data it collected before, but reflected the unprecedented nature of the challenge faced by the sector. The Department told us that the survey had given it “huge insight” into local authorities’ finances on a more immediate and responsive basis than it would normally have. The survey data was also a valuable source of information for other departments.18 In terms of learning from this experience, the Department recognised that there was a benefit to having more information on the sector over the longer-term, 13 Housing, Communities and Local Government Committee, Oral evidence: Work of the Department, HC 302, Monday 4 May 2020; Letter to the Secretary of State from the Chair of the Housing, Communities and Local Government Committee requesting further information following his appearance on 4 May, 14 May 2020; Committee of Public Accounts, Oral evidence: Local authority commercial investment, Friday 15 May 2020; Committee of Public Accounts, Oral evidence: Whole of Government Response to COVID-19, HC 404, 15 June 2020; Committee of Public Accounts, Oral evidence: Readying the NHS and social care for the COVID-19 peak, HC 405, 22 June 2020; Committee of Public Accounts, Oral evidence: Progress in Remediating Dangerous Cladding, HC 406, 6 July 2020; Housing, Communities and Local Government Committee, Oral evidence: Work of the Department, HC 302, 22 July 2020 14 Qq 84–85 15 Q85, 87, 94; C&AG’s Report, paras 2.35–2.36, 4.3 and Figure 7 16 Qq 90, 93–94; C&AG’s Report, para 2.24, 2.31 and Figure 7 17 Qq 87, 90, 94, 120, 123, 135, 139–140, 161; C&AG’s Report, Figure 10 18 Qq 100, 103 and 105; C&AG’s re
10Local authorities need to hold sufficient reserves to deal with known future needs and the...
Recommended (the committee's words)
Local authorities need to hold sufficient reserves to deal with known future needs and the financial risks they face. Accordingly, reserve levels are a key measure of the financial sustainability of local authorities over the medium-term.20 As part of its monthly survey the Department collected data on local authorities’ reserves in order to assess the extent to which their reserves were under pressure. To do this the Department did not use the traditional categorisation in which reserves are classed either as allocated (for defined purposes) or unallocated (and therefore available for any purpose). Instead the Department introduced a new, experimental category of “available” reserves. The concept of availability reflects the fact that owing to local authority accounting practices not all an authority’s unallocated reserves are necessarily available, while some of their allocated reserves may be. This means that despite the publication of data on allocated and unallocated reserves it is not possible to identify the level of reserves that an authority actually has available to respond to the pandemic or any other issue. However, the Department told us that it was “not sure that [the collection of this experimental data] has been entirely successful” as 65 authorities simply replied that they did not have reserves available to respond to the pandemic. The Department told us that later in the year, rather than concentrating on reserves it instead focused on the capacity of authorities to set their 2021–22 budgets. It explained that it was reassured by the fact that all authorities either had, or were in the process of, agreeing their 2021–22 budgets.21
11The Department’s monthly survey is an addition to a broader framework of risk monitoring that...
Recommended (the committee's words)
The Department’s monthly survey is an addition to a broader framework of risk monitoring that draws on a range of other information sources.22 Through the use of this framework the Department had placed Croydon Council on its ‘long list’ of councils at financial risk for some years. However, it was only in the light of the council’s return to the Department’s monthly survey in April 2020 and subsequent conversations that the Department became fully aware of the scale of the financial challenge faced by the sector.23 The council’s section 151 officer subsequently issued a section 114 notice in October 2020, indicating that the council was at risk of failing to balance its budget, which is unlawful. We challenged the Department on whether it should have taken earlier action in relation to the council. The Department told us that in its view the authority itself was not fully aware of the scale of its own financial pressures for much of 2020, and by extension that the Department could not have been expected to know.24 The Department has agreed £120 million worth of capitalisation directions, which allow local authorities to either borrow or use receipts from the sale of capital assets to support revenue spending, in order to stabilise the council’s finances.25 19 Qq 100 and106 20 C&AG’s Report, paras 3.15, 3.16 and 3.21 21 Q103; C&AG’s Report, paras 3.17 and 3.19 22 Comptroller and Auditor General, Financial sustainability of local authorities 2018, HC 834, Session 2017–2019, 8 March 2018, para 21 23 C&AG’s report, para 3.27 24 Qq 97–98 25 Letter from Jeremy Pocklington CB, Permanent Secretary Ministry of Housing, Communities & Local Government to the Committee of Public Accounts regarding exceptional financial support, dated 17 March 2021. The £120 million comprises £70 million confirmed for 2020–21 and £50 million in principle for 2021–22. COVID-19: Local government finance 13 Designing schemes to support local authorities and their communities during the pandemic
12We asked representatives of the local government sector how well the Department had engaged with...
Concluded (the committee's words)
We asked representatives of the local government sector how well the Department had engaged with it over the last year. We heard and received evidence praising the quality of the Department’s engagement with the sector during the pandemic. For example, Manchester City Council told us that the Department’s engagement had been good both in relation to individual authorities and collectively with the sector as a whole.26 However, the Society of County Treasurers conveyed an equally clear message that the engagement by other government departments was not as good and that other departments had not listened as much to the sector. It suggested that this should be a key lesson the government should learn from the pandemic.27 The Department told us it recognised that communication with local government “is variable across departments” because they differ in their normal exposure to local government, but asserted that increased joint working during the pandemic had strengthened relationships in key areas of public health and social care.
13The Department highlighted “the excellent work” within the Department for Health and Social Care (DHSC)...
Concluded (the committee's words)
The Department highlighted “the excellent work” within the Department for Health and Social Care (DHSC) as an example of “that deepening of the connection with local government”.28 In June 2020, DHSC created the Social Care Sector COVID-19 Support Taskforce to oversee the delivery of two packages of support for the care sector as well as support the government’s work on community outbreaks and consider how to reduce the risk of infection in care homes and the wider social care sector. The Taskforce was chaired by an individual with substantial operational experience as the former President of the Association of Directors of Adult Social Services and drew members from across the sector. In September 2020, the Taskforce published its report setting out progress and learning from the first phase of the pandemic and recommendations to help improve resilience in the sector. As part of this, it recommended that DHSC “significantly boosts its own expertise and capacity in relation to social care”, to continue beyond the pandemic, and used this expertise to link effectively with regional and local structures. This included bringing in senior local authority figures with experience within social care and public health.29
14We received written evidence from representative of the local government sector criticising a range of...
Recommended (the committee's words)
We received written evidence from representative of the local government sector criticising a range of support schemes that were introduced during the pandemic, particularly business grants, as being complex or challenging to administer.30 Pandemic business rates relief started in March 2020 and the first business support grants distributed through local authorities started in April 2020.31 In relation to business grants, SOLACE told us that “the centrally set rules have been counterproductive” and on occasion had led to some councils “rapidly trying to ‘chuck the money out of the door’”, risking the effectiveness of spending and some assurance against fraud. SOLACE also told us “we made it clear to the Government early on with our business community that [the 26 Q32; LGF0007 submission from SIGOMA paras 2.18, 3.1; C&AG’s report, para 2.15–2.16. 27 Qq 34, 47 28 Q89 29 Department of Health & Social Care, Social Care Sector: Covid-19 Support Taskforce Final Report, September 2020, particularly recommendation 34 30 Qq 10, 12, 30, 33; LGF0011 submission from SOLACE pages 2 and 3, LGF0003 submission from DCN paragraphs 13 and 17, LGF0007 submission from SIGOMA paragraphs 2.15 and 2.16, LGF0010 submission from CIPFA paragraphs 3.5–3.6; C&AG’s Report, para 2.17 31 Financial support for businesses during coronavirus (COVID-19); Coronavirus grant funding: local authority payments to small and medium businesses 14 COVID-19: Local government finance proliferation of business grants] just needed to be rationalised.”32 However, the District Council Network (DCN) observed that it was not until March 2021 that BEIS responded to calls to simplify the schemes.33 SIGOMA pointed out in relation to a wide range of grants that “there seems to be a lack of appreciation in government” that the nature and timing of the government’s own scheme rules would have an impact on the speed with which authorities would start to make payments under the schemes.34 In April 2020, the London Chamber of
15The Department told us that during the early months of the pandemic it developed greater...
Recommended (the committee's words)
The Department told us that during the early months of the pandemic it developed greater structure and a stronger framework around exceptional financial support for individual authorities. Exceptional financial support is used where the Department accepts authorities face unmanageable financial pressures despite other government support measures.36 The Department asserted that it had been transparent in relation to cases where Ministers had agreed to provide exceptional financial support.37 However, the Department did not and does not share information on the total number of authorities that have approached it in relation to financial pressures, or the number of authorities where the Department has identified financial concerns itself. Similarly, while the NAO calculated the number of authorities at different levels of risk of financial failure using Departmental thresholds for comparing COVID-19 related funding gaps to reserves for individual authorities, the Department did not share with us or the NAO its own assessment of authorities at risk or how this had changed over time.38
16The Department told the NAO that sharing information on the number of authorities interested in...
Recommended (the committee's words)
The Department told the NAO that sharing information on the number of authorities interested in exceptional financial support or at risk more generally would invite public speculation on the identity of the authorities affected. However, the information the Department does not share is valuable for assessing the level of financial stress in the sector and therefore how well the Department’s other measures have served to deal with the burdens the pandemic has placed on local authorities. This information is needed to support Parliamentary scrutiny: the NAO told us it was not possible for it to get a full picture of the financial stress in the sector or evaluate how effectively the Department had addressed any issues without knowing the level of demand for exceptional support or the Department’s view on financial risk more generally.39
17We previously discussed the provision of this type of information with the Department as part...
Recommended (the committee's words)
We previously discussed the provision of this type of information with the Department as part of our examination of the Department’s Starter Home programme. We recognised that sensitive information should not necessarily be made public, but we asked the Department to commit to ensuring “the National Audit Office can see anything it needs 32 Qq 12 and 30, LGF0011 submission from SOLACE page 2 33 LGF0003 submission from DCN paragraph 17 34 LGF0007 submission from SIGOMA paragraph 2.16 35 LCCI comment on coronavirus grant roll-out by councils (londonchamber.co.uk) 36 Qq 82, 85; C&AG’s Report, paras 19 and 2.5 37 Q 56; letter from Jeremy Pocklington CB, Permanent Secretary Ministry of Housing, Communities & Local Government to the Committee of Public Accounts regarding exceptional financial support, dated 17 March 2021. 38 Qq 109–115; C&AG’s Report paras 2.45–2.46 and 3.22–3.23. 39 Q110; C&AG’s Report, paras 2.45–2.46 COVID-19: Local government finance 15 to” in relation to financial pressure on individual authorities. The Department agreed at the time.40 We therefore asked the Department why, given this commitment, the NAO had struggled to access this information. The Department told us that its position was that information relating to individual councils and its analysis of their financial position should remain private and confidential. It asserted that it was important that it had “a private space where we can have confidential discussions with local authorities”. The NAO explained that it understood the need for this safe space but would have liked to have had more information shared with it. The NAO regularly receives confidential and highly sensitive information, in order to support Parliamentary scrutiny, and has demonstrated it can reach sensible judgements about what is put into the public domain. We therefore asked the Department what steps it thought it could take to ensure that the NAO and Parliament were aware of the scale of risk in the sector in future.
18In its examinations of the local government sector prior to the pandemic, our previous Committee...
Recommended (the committee's words)
In its examinations of the local government sector prior to the pandemic, our previous Committee raised concerns in 2018 that “the Department may not know if pressures in one service area quickly transfer to others or the extent of the risk that this poses to local authorities or service users” due to insufficient data.42 In 2019 we remained similarly concerned that the Department was not fully evidencing financial sustainability using expectations across the full range of local authority services.43 When we asked about the immediate prospects for the sector, the Department told us that the local government finance settlement for 2021–22, which provides authorities with their grant funding levels and other key financial parameters, would allow, “the sector to stabilise and be sustainable.” It also explained that it had a degree of confidence in the sustainability of the sector in relation to the immediate and short-term impacts of the pandemic. The Department told us that it had been clear that “there would be financial impacts on local authorities” but suggested this would not necessarily affect services due to authorities finding efficiencies rather than reducing service provision, and the use of reserves. We asked the Department about the impact of over a decade of financial pressure on the ability of local authorities to make further efficiency savings. The Department responded by saying it recognised the pressures that authorities are managing and had consequently enabled real-terms funding increases in the last few years. It did not provide further explanation of its confidence in authorities’ ability to make widespread efficiencies.44
19Manchester City Council told us that government support has not fully mitigated the impact of...
Recommended (the committee's words)
Manchester City Council told us that government support has not fully mitigated the impact of the pandemic, and the average pressure on next year’s budget is £15 million across the 10 authorities in Greater Manchester and £32 million across the eight core cities.45 In written evidence, SIGOMA told us that despite government support, member councils would be “assessing the viability” of the services they provide in 2021–22.46 CIPFA noted that in the same financial year, council tax will rise by 4.3% on average, representing a funding gap of £217 million relative to the government’s assumption in the local government finance settlement.47 The Society of County Treasurers explained that “there will be real challenges across the country in balancing the budgets next year” and that it thought this would be “a combination of the use of reserves and having to make cuts in services”.48 An NAO survey found that 81% of respondents from district councils and 94% of respondents from single tier and county councils intended to make savings from service budgets in 2021–22.49 42 Committee of Public Accounts, Financial sustainability of local authorities, Fiftieth report of session 2017–19, HC 970, 4 July 2018 43 Committee of Public Accounts, Local government spending, Seventy-sixth report of session 2017–2019, HC 1775, 6 February 2019 44 Qq 84, 85, 132, 135–138 45 Q 9 46 LGF0007 submission from SIGOMA paragraph 3.6 47 Q13; LGF0010 submission from CIPFA paragraph 3.4 48 Q25 49 C&AG’s Report, para 4.24 COVID-19: Local government finance 17
20The Department and HM Treasury explained that their judgement of the sustainability of the local...
Recommended (the committee's words)
The Department and HM Treasury explained that their judgement of the sustainability of the local government sector was not a long-term one and any government assessment of funding needs beyond 2021–22 was a matter for the next spending review.50 Sector representatives told us “the impact of Covid will be with us for a long time yet.”51 The Department recognised that there would be short-, medium- and long-term impacts from the pandemic. In particular it told us that it was reflecting on the difference between “the scarring effects of COVID”, which would “diminish over time”, and any permanent changes as a result of the pandemic.52 We have previously expressed concern about the quality of evidence about the funding needed to sustain local authority services that has been assembled for past spending reviews.53 Around half of authorities did not expect their finances to return to pre-pandemic levels until 2023–24 at the earliest. The Department said using £400 million of reserves in 2020–21, as forecast by the Office for Budget Responsibility, was an “appropriate way of helping to manage the impact of the pandemic on local government finance.” Nonetheless, this will have lasting effects: 53% of NAO survey respondents from single tier and county councils indicated that they would need to build up their reserves in the next two to three years, but only 16% of these respondents felt confident that they would be able to do this.54 The need to reform local government finance
21Government has had plans to enact a range of local government financial reforms for a...
Recommended (the committee's words)
Government has had plans to enact a range of local government financial reforms for a number of years, but these have not yet been introduced.55 Witnesses from the sector were clear that this reform was still required. The Society of Local Authority Chief Executives (SOLACE) described current arrangements as “a very broken system”.56 However, CIPFA raised questions over whether simply restarting the previous planned reform arrangements to increase the share of locally retained business rates to 75% and design a new funding allocation model were appropriate in the light of the impact of the pandemic. Manchester City Council explained that a key issue was the uncertainty over the impact that the pandemic has had on business rates over the long-term. This was in addition to existing concerns, expressed by SOLACE for instance, over whether a business tax system based on physical properties was effective in the context of the rapid growth of online business activity. As a result of the pandemic local authorities expect to collect £1.6 billion less from business rates for 2020–21 than budgeted.57
22CIPFA and SOLACE called for a broader review of potential reform options rooted in a...
Concluded (the committee's words)
CIPFA and SOLACE called for a broader review of potential reform options rooted in a deeper understanding of the impact of the pandemic on council tax and business rates, encompassing the government’s promised reforms to adult social care funding, and potentially leading to more radical reforms than current proposals.58 However, Manchester City Council and the Society of County Treasurers were clear that these reforms should not be rushed. This was both to allow the effects of the pandemic on local government finance to settle down, and also to ensure that sufficient time was available to allow for 50 Qq 125, 132, 141 51 Q1, Q5 52 Qq 145, 159 53 Committee of Public Accounts, Local government spending, Seventy-sixth report of session 2017–2019, HC 1775, 6 February 2019, conclusions 3, 4 and 5 54 Q108; C&AG’s Report, paras 4.28–4.29 55 C&AG’s Report, para 1.6 56 Q43 57 Qq 15, 19, 39; C&AG’s Report, para 12 58 Qq 15, 17, 38 18 COVID-19: Local government finance the creation of substantive and workable reforms. SOLACE also called for stability in any interim period, ideally in the form of a multi-year settlement, while a new system is designed.59 The Department told us that it will set out its plans for taking reform forward before the end of this calendar year. However, it was clear that there was a “big suite of moving parts” involving other departments such as HM Treasury’s review of business rates, and the Department of Health and Social Care’s plans for social care. Nonetheless, the Department committed to reflecting on the messages from the sector “which is first, […] ‘Do not rush,’ and secondly, ‘Please make sure it is fit for purpose.’”60 Financial uncertainty for local authorities
23Local authority representatives told us about the unprecedented level of financial uncertainty they have faced...
Concluded (the committee's words)
Local authority representatives told us about the unprecedented level of financial uncertainty they have faced and continue to face as a result of the pandemic.61 Manchester City Council said that the impact on local authority commercial income, which does not attract any government support, was beyond what could “have reasonably been planned for or fully mitigated in the budget and reserves”.62 DCN similarly told us that councils faced significant uncertainties on the income they will receive from business rates and council tax. It explained that the long-term impact of the pandemic on business was still to be seen and increasing numbers of households were seeking support with council tax.63 Business failures can reduce authority business rates income, for example if properties become vacant.64 If a household receives council tax support, then the council tax income received by the authority is reduced by up to 100% .65 SIGOMA stressed that council 2020–21 budgets and plans included changes to increase efficiency which would have delivered savings into 2021–22 and beyond. These changes, and so these savings, may now not be possible.66 Manchester City Council told us that the pandemic had created pressures in its services due to ongoing demand for homelessness, adult social care and children’s services. CIPFA, SOLACE and Manchester City Council suggested that public expectations of some local authority services, such as libraries, parks and open spaces, may well have also increased.67
24Representatives of the local government sector told us that the way in which government support...
Concluded (the committee's words)
Representatives of the local government sector told us that the way in which government support had been designed or announced has also created or perpetuated uncertainty. SIGOMA explained that “2020–21 has been a year of month to month existence with incremental and mostly reactive funding without which all of our members would have failed”.68 The LGA highlighted that councils were receiving more funding through specific grants accessed by making bids in competition with other councils; while CIPFA observed that “this preponderance of bids [as a basis for funding decisions] is making life even more uncertain”.69 We also heard about delayed or late announcements of the details of funding, leaving local authorities in uncertainty, for example the date of 59 Qq 38–43 60 Qq 143–144 61 LGF0001 submission from LGA page 2, LGF0008 submission from Surrey CC paragraphs 7–9 62 Q6 63 LGF0003 submission from DCN paragraph 20; C&AG’s Report, paras 4.4–4.5 64 Business rates relief – GOV.UK (www.gov.uk) 65 Apply for Council Tax Reduction – GOV.UK (www.gov.uk) 66 LGF0007 submission from SIGOMA paragraph 4.3; C&AG’s Report, 1.16 67 Qq 9, 13, 14, 16, 39 68 LGF0007 submission from SIGOMA paragraph 4.1; also Q4 69 LGF0001 submission from LGA page 2; Fragmented Funding – report | Local Government Association; Q15 COVID-19: Local government finance 19 the local government provisional finance settlement or of public health allocations.70 For local authorities the financial year 2021–22 starts on 1 April 2021, and local authorities were legally required to set their budgets and council tax levels for 2021–22 by either 1 March 2021 (precepting authorities) or 11 March 2021 (billing authorities).71 Local authority public health grant allocations for 2021–22 were published on 16 March 2021, so authorities were required to set their budgets for that year without full knowledge of their funding.72 We received evidence from DCN expressing concern that business rates appeals related to changes i
25We received written evidence from SOLACE, which told us that “one-year financial settlements, which are...
Concluded (the committee's words)
We received written evidence from SOLACE, which told us that “one-year financial settlements, which are delivered late in the budget planning cycle, presents risks and can result in very damaging cuts to services residents and businesses rely on.” Similarly, CIPFA argued that delayed or incomplete information from government adds to the complexity of financial planning and leads to increased financial instability and may result in service reduction. SIGOMA similarly emphasised that without certainty, councils “cannot plan a future service structure that fits within a known, sustainable funding envelope”.75 The provisional local government finance settlement for 2021–22 was published on 17 December 2020 and Manchester City Council stressed the need for earlier information next year, citing that not having certainty on funding for 2022–23 until December was going to be “incredibly difficult to manage”.76
26We asked the Department about the sector’s concerns that government information coming late in the...
Recommended (the committee's words)
We asked the Department about the sector’s concerns that government information coming late in the day and leaving little time to finalise plans tended to lead to decisions that were not the best value for money. We also asked when local authorities can expect to see a long-term financial plan for the sector. HM Treasury praised local authority finance directors for driving value for money “based on the information they have at any given time” and recognised that this had been particularly difficult and challenging in the last year. The Department and HM Treasury told us they had heard the desire for greater certainty by local authorities. Neither department made any commitments, however. HM Treasury stressed “the importance of multi-year certainty for good financial management and good financial planning”, but also emphasised that the length of spending reviews were Ministerial decisions.77 70 Q16; LGF0001 submission from LGA page 2, LGF0006 submission from Core Cities paragraph 5.7, LGF0007 submission from SIGOMA paragraph 3.3, LGF0010 submission from CIPFA paragraph 3.9 71 Local Government Finance Act 1992, sections 30(6), 40(5), 116(1) https://www.legislation.gov.uk/ukpga/1992/14/ contents and Local Government Association, A councillor’s workbook on local government finance, March 2018 72 Public health grants to local authorities: 2021 to 2022 – GOV.UK (www.gov.uk) 73 LGF0003 submission from DCN paragraph 9; C&AG’s Report, paras 4.2–4.3. 74 Business rates relief boosted with new £1.5 billion pot – GOV.UK (www.gov.uk) 75 LGF0011 submission from SOLACE page 3; LGF0010 submission from CIPFA paragraph 3.9; LGF0003 submission from SIGOMA, paragraph 4.5 76 Q16; Provisional local government finance settlement: England, 2021 to 2022 – GOV.UK (www.gov.uk) 77 Qq 88, 124, 129–131 20 COVID-19: Local government finance
Evidence
Oral evidence sessions 2
- 18 Mar 2021COVID-19: Local Government Finance4 witnesses: Alex Skinner, Catherine Frances, Cat Little, Jeremy Pocklington CBparliament.uk ↗
- 15 Mar 2021COVID-19: Local Government Finance4 witnesses: Carol Culley, Lorna Baxter, Martin Reeves, Rob Whitemanparliament.uk ↗
Who gave evidence 8 witnesses
- Alex SkinnerDirector of Local Government Finance, Department for Levelling Up, Housing and Communities
- Carol CulleyDeputy Chief Executive, Manchester City Council
- Cat LittlePermanent Secretary, Cabinet Office
- Catherine FrancesDirector General, Local Government, Strategy and Analysis, Department for Levelling Up, Housing and Communities
- Jeremy Pocklington CBPermanent Secretary, Ministry of Defence
- Lorna BaxterFinance Director, Oxfordshire County Council
- Martin ReevesFinance Lead, Solace
- Rob WhitemanChief Executive, CIPFA
Correspondence 4 letters
- 16 Nov 2021Correspondence from Jeremy Pocklington CB, Permanent Secretary, Department for Levelling Up, Housing and Communities, re Fourth Report of the Public Accounts Committee (PAC) from Session 2021-22, on COVID-19 Local Government Finance, dated 29 October 2021
- 29 Jun 2021Correspondence from Tom Scholar, Permanent Secretary, HM Treasury, re Local government finance, dated 22 June 2021
- 20 Apr 2021Correspondence from Jeremy Pocklington CB, Permanent Secretary, Ministry of Housing, Communities and Local Government, re Local Government and the Pandemic: Supplementary information, dated 15 April 2021
- 18 Mar 2021Correspondence from Jeremy Pocklington CB, Permanent Secretary Ministry, of Housing, Communities & Local Government, re Exceptional financial support, dated 17 March 2021