Source · Select Committees · Public Accounts Committee
Recommendation 4
4
The financial sustainability of some local authorities presents a significant risk to government.
Recommendation
The financial sustainability of some local authorities presents a significant risk to government. While local authorities have autonomy over their spending, the Treasury is the ‘funder of last resort’ should a local authority become insolvent. As COVID-19 has increased the fiscal pressures many government bodies face, we expect that more local authorities will soon be unable to balance their books and will be forced to issue section 114 notices in order to suspend non-essential expenditure. We would expect the Treasury to have oversight of the sector in order to properly manage the wider risk to the public finances and expect it to report on how it is managing this risk in the WGA. The Redmond review has highlighted a lack of oversight of local government and serious issues in the local government sector, including failures in current local audit arrangements. Recommendation: The Treasury should work with the Ministry of Housing, Communities and Local Government to ensure government’s response to the Redmond review is agreed and implemented as soon as possible. It should set out how it knows its oversight of local government fiscal risks is effective in the WGA given government’s exposure as the funder of last resort.
Government Response
Acknowledged
HM Government
Acknowledged
4.1 The government agrees with the Committee’s recommendation. Target implementation date: Autumn 2021 4.2 The UK, unlike most other countries, has a long-established practice of setting its fiscal objectives by reference to the whole public sector. The medium term forecasts of fiscal activity by local authorities are included within the fiscal aggregates forecast by the OBR and reported in outturn by HM Treasury and the Office for National Statistics each month, and which are used to support management of the UK’s fiscal position. The Ministry of Housing, Communities and Local Government (MHCLG) has the responsibility to monitor fiscal risks and intervene where necessary. HM Treasury works closely with MHCLG to understand the financial issues within the sector and determine appropriate policy responses: for example, in the reforms to the terms of loans provided by the Public Works Loan Board. 4.3 The WGA 2019-20 performance report will include additional information showing how fiscal risks are monitored and managed in the local government sector and bring in wider information on finances in the sector into the performance report. In future years, WGA will also build on existing segmental reporting in the account to show more detailed breakdowns of local authority balance sheet and revenue and expenditure items in the performance report. HM Treasury will, in addition, work with MHCLG to support their implementation of the government’s response to the Redmond Review to ensure stability in the audit 18