Recommendations & Conclusions
5 items
2
Recommendation
Fourth Report - COVID-19: Local governm…
Deferred
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 …
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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
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Government response AI summary
The government agrees to address data limitations and has launched a review of pre-existing local government finance data collections, which will also consider the future of the monthly COVID-19 monitoring, with an update to be provided to the Committee in October 2021.
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HM Treasury
6
Recommendation
Fourth Report - COVID-19: Local governm…
Deferred
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 …
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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.
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Government response AI summary
The government agrees with the recommendation but defers providing concrete plans for local government finance reform and a stable funding environment until the conclusion of the 2021 Spending Review, which will set out the future plan.
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HM Treasury
20
Recommendation
Fourth Report - COVID-19: Local governm…
Deferred
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 …
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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
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Government response AI summary
The government agrees with the recommendation regarding long-term financial sustainability, committing to examine and model the pandemic's emerging long-term impact on local authority finances, and will report back after the 2021 Spending Review.
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HM Treasury
21
Recommendation
Fourth Report - COVID-19: Local governm…
Deferred
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 …
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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
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Government response AI summary
The government agrees with the recommendation to reform local government finance, but has deferred setting out the future plan until the conclusion of the 2021 Spending Review, where it will consider the pandemic's impact.
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HM Treasury
26
Recommendation
Fourth Report - COVID-19: Local governm…
Deferred
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 …
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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
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Government response AI summary
The government agrees with the recommendation for greater financial certainty, stating it will confirm the overall funding settlement for 2022-23 at the 2021 Spending Review and aims to provide early financial certainty to the sector.
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HM Treasury