Local Authority Financial Sustainability and the Section 114 Regime

Housing, Communities and Local Government Committee Closed Inquiry
Opened: 1 Dec 2020 Closed: 25 Oct 2021 Parliament page
This inquiry will consider the scale and depth of financial sustainability issues within local authorities with the potential to lead to the issuing of S114 notices, including the effect of commercial investments and the impact of Covid-19, and the role of central government in helping councils avoid this outcome. Read more
9 Recommendations
11 Conclusions
1 Report
3 Oral sessions
3 Events
Activity timeline 8 events
21 Oct
2021
Report published
19 Jul
2021
Report published
25 Mar
2021
Oral evidence
25 Mar
2021
Formal meeting (oral evidence session) · Virtual meeting
22 Feb
2021
Oral evidence
22 Feb
2021
Formal meeting (oral evidence session) · Virtual meeting
8 Feb
2021
Oral evidence
8 Feb
2021
Formal meeting (oral evidence session) · Virtual Meeting
Oral evidence sessions 3 sessions
25 Mar 2021
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Oral evidence
Chris Buss · Croydon Council Cllr Hamida Ali · Croydon Council Katherine Kerswell · Croydon Council Sarah Ironmonger · Grant Thornton
22 Feb 2021
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Oral evidence
Alex Skinner · Department for Levelling Up, Housing and Communities Luke Hall · Ministry of Housing, Communities and Local Government
8 Feb 2021
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Oral evidence
Cllr Richard Watts · Local Government Association (LGA) Rob Whiteman · CIPFA
Title HC No. Published Items Response
Second Report - Local authority financial sustainability and the… HC 33 19 Jul 2021 20 Responded
Recommendations & Conclusions
20 results
1 Recommendation
Second Report - Local authority fi…
The failure to properly fund children’s and adult social care, especially adult social care, is...
The failure to properly fund children’s and adult social care, especially adult social care, is the single biggest threat facing local government financial resilience. Given that the cost of providing social care consumes between 60% and 70% of the budgets … Read more
Ministry of Housing, Communities and Local Government
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2 Conclusion
Second Report - Local authority fi…
We agree with the principle of incentivising councils to grow business rates in their area,...
We agree with the principle of incentivising councils to grow business rates in their area, as a means of making them less reliant on central funding, but we are concerned about the impact on councils that, through no fault of … Read more
Government Response
The Government announced last year that it would not proceed with the implementation of the Review of Relative Needs and Resources (formerly the Fair Funding Review) and 75% Business Rates … Read more
Ministry of Housing, Communities and Local Government
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3 Conclusion
Second Report - Local authority fi…
The question of the BRRS is closely related to the debate about the longstanding role...
The question of the BRRS is closely related to the debate about the longstanding role of equalisation in how local government in England is funded. Whilst the purpose of equalisation is to ensure fairness between councils, there is little agreement … Read more
Government Response
The Government announced last year that it would not proceed with the implementation of the Review of Relative Needs and Resources (formerly the Fair Funding Review) and 75% Business Rates … Read more
Ministry of Housing, Communities and Local Government
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4 Recommendation
Second Report - Local authority fi…
We recommend that the Government implement the Fair Funding Review and business rates reset as...
We recommend that the Government implement the Fair Funding Review and business rates reset as soon as possible, as the quickest way of partly restoring the link between funding and need. The Government should also allow councils to retain 75% … Read more
Ministry of Housing, Communities and Local Government
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5 Conclusion
Second Report - Local authority fi…
We are pleased that the allocation of the £300 million grant for social care mitigates...
We are pleased that the allocation of the £300 million grant for social care mitigates the distributional impact of the council tax rises, but we do not think the fairness of the funding model should be reliant on one-off, short-term … Read more
Government Response
Council tax provides stable income for local authorities to deliver a range of vital local services, and predictable bills for taxpayers. This certainty is particularly important as the country recovers … Read more
Ministry of Housing, Communities and Local Government
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6 Recommendation
Second Report - Local authority fi…
The Government should reform council tax by undertaking a revaluation of properties and introducing additional...
The Government should reform council tax by undertaking a revaluation of properties and introducing additional council tax bands, in line with the recommendations of our predecessor Committee. In the longer term, the Government should consider options for wider reform of … Read more
Ministry of Housing, Communities and Local Government
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7 Conclusion
Second Report - Local authority fi…
The funding base of local government in England is very narrow.
The funding base of local government in England is very narrow. As the pandemic has highlighted, revenue derived from council tax and business rates is also insecure. As concluded by our predecessor Committee, greater fiscal autonomy could contribute to local … Read more
Government Response
The Government considers that the current charging regime for individual services strikes the right balance between allowing councils to raise revenue to cover the cost of providing services and ensuring … Read more
Ministry of Housing, Communities and Local Government
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8 Recommendation
Second Report - Local authority fi…
We recommend that the Government widen the funding base of local government to make it...
We recommend that the Government widen the funding base of local government to make it less vulnerable to shocks such as the covid-19 pandemic, including by giving councils more flexibility over local taxes and other revenue-raising powers. This would also … Read more
Ministry of Housing, Communities and Local Government
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9 Conclusion
Second Report - Local authority fi…
We understand the Government’s reasons for resorting to a one-year spending review last year, but...
We understand the Government’s reasons for resorting to a one-year spending review last year, but we note it followed a one-year spending review in 2019 and that the last multi-year spending review came in 2015. Local government cannot manage its … Read more
Government Response
Government agrees that a stable funding environment ensures local authorities can plan effectively and recognises that multi-year settlements provide certainty. The approach to the next settlement will be informed by … Read more
Ministry of Housing, Communities and Local Government
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10 Conclusion
Second Report - Local authority fi…
The proliferation in recent years of small, often one-off and ring-fenced grants, sometimes involving a...
The proliferation in recent years of small, often one-off and ring-fenced grants, sometimes involving a competitive bidding process, and the uncertainty around such funding, can hinder robust financial planning and management by local authorities, as has been acknowledged by the … Read more
Government Response
Government agrees that a stable funding environment ensures local authorities can plan effectively and recognises that multi-year settlements provide certainty. The approach to the next settlement will be informed by … Read more
Ministry of Housing, Communities and Local Government
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11 Recommendation
Second Report - Local authority fi…
The next financial settlement for local government must be a multi-year settlement.
The next financial settlement for local government must be a multi-year settlement. The Government should also consolidate the number of small and ring-fenced grants, which can limit local authorities’ ability to provide services flexibly, and should reduce the number of … Read more
Ministry of Housing, Communities and Local Government
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12 Conclusion
Second Report - Local authority fi…
The Government deserves credit for having responded to an unprecedented crisis with significant emergency funding...
The Government deserves credit for having responded to an unprecedented crisis with significant emergency funding that, from a national perspective, broadly covers all the additional financial pressures consequent on the pandemic and lockdowns in 2021–22. The effects of the pandemic … Read more
Government Response
Providing certainty and stability to the sector throughout the pandemic has been a priority for the Government. The Government has demonstrated this by committing over £12 billion to councils in … Read more
Ministry of Housing, Communities and Local Government
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13 Recommendation
Second Report - Local authority fi…
We urge the Government to consider ways of mitigating the uneven financial support across local...
We urge the Government to consider ways of mitigating the uneven financial support across local authorities and provide greater certainty to councils over what future costs incurred as a result of the pandemic it intends to cover. (Paragraph 55) Local … Read more
Ministry of Housing, Communities and Local Government
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14 Conclusion
Second Report - Local authority fi…
Commercial investment appears to pose no clear threat to local government financial resilience overall, and...
Commercial investment appears to pose no clear threat to local government financial resilience overall, and where it has contributed to financial instability, the councils concerned must bear ultimate responsibility. We also welcome the Government’s reforms to the PWLB’s lending terms, … Read more
Government Response
Under the current system, primary legislation sets out that local authorities must have regard to the four statutory codes produced by Government and CIPFA, which includes the Prudential Code. Local … Read more
Ministry of Housing, Communities and Local Government
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15 Conclusion
Second Report - Local authority fi…
Furthermore, whilst we welcome the Minister’s commitment to gathering the best quality data to better...
Furthermore, whilst we welcome the Minister’s commitment to gathering the best quality data to better understand councils’ exposure to commercial investment, we think this should have been done by now. We are also concerned about the lack of a statutory … Read more
Government Response
In reviewing the capital system, Government has drawn on the evidence from its continued monitoring of sector data and sector engagement, and evidence that has come to light from those … Read more
Ministry of Housing, Communities and Local Government
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16 Recommendation
Second Report - Local authority fi…
We recommend that the Government legislate to make compliance with the prudential code by local...
We recommend that the Government legislate to make compliance with the prudential code by local authorities a statutory duty. The Government should also make good on its commitment to improving the data it collects on local authority commercial investment. (Paragraph … Read more
Ministry of Housing, Communities and Local Government
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17 Conclusion
Second Report - Local authority fi…
As highlighted in Sir Tony Redmond’s independent review of local authority audit, the local audit...
As highlighted in Sir Tony Redmond’s independent review of local authority audit, the local audit market is deeply flawed. We are particularly concerned about the shortage of specialist local auditors, about the principle of allowing local councils 42 Local authority … Read more
Government Response
In September 2020, Sir Tony Redmond published his review of local authority financial reporting and external audit. Since then, the Government has undertaken a range of activities in response to … Read more
Ministry of Housing, Communities and Local Government
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18 Recommendation
Second Report - Local authority fi…
We recommend the Government remove the ability of local authorities to choose their own auditors.
We recommend the Government remove the ability of local authorities to choose their own auditors. The risk is that auditors will be reluctant to flag up potential problems for fear of losing their contract. The Government should consider who will … Read more
Ministry of Housing, Communities and Local Government
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19 Conclusion
Second Report - Local authority fi…
The absence of section 114 notices before 2018 is adduced as evidence that the regime...
The absence of section 114 notices before 2018 is adduced as evidence that the regime has been broadly successful. The consequences for a council of issuing a notice are serious, however, and we are concerned that, rather than concentrating minds, … Read more
Government Response
Section 114 notices are an important and effective part of the local government finance system as both a legal mechanism and as a spending control for councils that have particular … Read more
Ministry of Housing, Communities and Local Government
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20 Recommendation
Second Report - Local authority fi…
We recommend that the Government consider changing the section 114 regime to provide Chief Finance...
We recommend that the Government consider changing the section 114 regime to provide Chief Finance Officers with intermediary measures that can be applied at a much earlier stage to highlight concerns before a council’s finances deteriorate so far as to … Read more
Ministry of Housing, Communities and Local Government
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