Fourth Report - COVID-19: Local government finance

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 … Read more 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 Show less

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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, … Read more 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. Show less

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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 …

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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 …

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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 …

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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 …

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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 …

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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 …

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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 …

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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 …

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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 …

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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 …

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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 …

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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 …

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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 …

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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 …

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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 …

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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” …

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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 …

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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 …

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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 …

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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, …

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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 …

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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 …

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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 …

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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 …

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