Source · Select Committees · Public Accounts Committee
Recommendation 18
18
The Treasury confirmed to us that it ultimately bears the financial risk for local authorities.
Conclusion
The Treasury confirmed to us that it ultimately bears the financial risk for local authorities. We expressed concerns about the level of oversight and control that the Treasury is exercising and whether it has a sufficient handle on this issue. The Treasury responded that it is working very closely with MHCLG to collect real-time data, but these regular data collection exercises have been limited to special-ringfenced funding allocations for COVID-19.37 The Treasury also stated that MHCLG has shared its assessment of the number of councils that are in significant financial difficulty and that its spending teams work closely with MHCLG.38 34 Redmond review, pp 72–74 35 Ministry of Housing, Communities and Local Government, Local authority financial reporting and external audit: government response to the independent review, December 2020 36 Q 103 37 Q 109 38 Q 111 Whole of Government Accounts 2018–19 13 2 Usefulness and Quality of the WGA Standardising financial reporting
Government Response
Acknowledged
HM Government
Acknowledged
4: PAC conclusion: The financial sustainability of some local authorities presents a significant risk to government. 4: PAC 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 4.1im plemTheen tgeodv earnsm seonot na garese sp wositshi bthlee .C Iot msmhoittueled’ s sreect oomum ehnodwat ioitn .k nows its oversight of local government fiscal risks is effective in the WGA given government’s exposure as the funder of last resort. 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 market and timely, transparent reporting of financial data needed to manage fiscal risks in local government. MHCLG published this response in December 2020, setting out how the government would, in partnership with key organisations, take swift action to support the ongoing sustainability of the local audit market. This includes, subject to consultation, enabling audit firms, councils and Public Sector Audit Appointments Limited (PSAA) to agree fees that more closely match the actual costs of audit, and temporarily extending the deadline for the publication of auditor opinions on local authorities’ accounts. This is alongside an additional £15 million to affected local authorities in 2021-22 to help councils to both meet the growing cost pressures in the audit market and deliver Sir Tony Redmond’s recommendations.