Financial distress in local authorities

Housing, Communities and Local Government Committee Closed Inquiry
Opened: 2 Nov 2023 Closed: 19 Mar 2024 Parliament page
Since 2018 eight English local authorities have issued section 114 notices. The results can be significant for local service delivery and local democracy. Various sources continue to report that other authorities are financially unsustainable and are at risk issuing a section 114 notice. This inquiry examines the current landscape of … Read more
15 Recommendations
13 Conclusions
1 Report
4 Oral sessions
6 Letters
4 Events
Activity timeline 16 events
14 May
2024
Correspondence
26 Mar
2024
Report published
1 Feb
2024
Report published
14 Dec
2023
Correspondence
6 Dec
2023
Oral evidence
6 Dec
2023
Formal meeting (oral evidence session) · Room 8, Palace of Westminster
5 Dec
2023
Correspondence
5 Dec
2023
Correspondence
5 Dec
2023
Correspondence
28 Nov
2023
Correspondence
20 Nov
2023
Oral evidence
20 Nov
2023
Formal meeting (oral evidence session) · The Grimond Room, Portcullis House
Oral evidence sessions 4 sessions
6 Dec 2023
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Oral Evidence
Joanna Key · Department for Levelling Up, Housing and Communities Nico Heslop · Ministry of Housing, Communities and Local Government Rt Hon Michael Gove · Department for Levelling Up, Housing and Communities
20 Nov 2023
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Oral Evidence
Nico Heslop · Ministry of Housing, Communities and Local Government Simon Hoare MP · Department for Levelling Up, Housing and Communities
13 Nov 2023
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Oral Evidence
Abdool Kara · National Audit Office Bob Watson · Surrey Heath Borough Council Gary Fielding · North Yorkshire Council Jonathan Carr-West · Local Government Information Unit Lorna Baxter · Association of Local Authorities’ Treasurer Societies Mr David Phillips · Institute for Fiscal Studies Paul Dossett · Grant Thornton Steve Thompson · Blackpool Council
8 Nov 2023
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Oral Evidence
Councillor Barry Lewis · County Councils Network Councillor Claire Holland · London Councils Councillor Graham Chapman · SIGOMA Councillor John Fuller OBE · Local Government Association Councillor Sam Chapman-Allen · District Councils Network Stephen Jones · Core Cities UK
Title HC No. Published Items Response
Third Report - Financial distress in local authorities HC 56 1 Feb 2024 28 Responded
Recommendations & Conclusions
28 results
1 Conclusion Accepted in Part
Third Report - Financial distress …
Local authorities face systemic underfunding and £4 billion gap from demand and inflation.
Local authorities have seen significant reductions in their spending power coincide with increasing demand for their services and inflationary pressures exceeding those in the wider economy. Recent funding settlements, while increasing in cash terms, have not kept pace with these … Read more
Government Response
The government acknowledges significant funding pressures and details recent additional measures for local authorities, including £600 million extra funding, increased rural grants, and a 4% Core Spending Power increase for all councils for 2024-25, while committing to return to multi-year settlements in the next Parliament.
Ministry of Housing, Communities and Local Government
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2 Recommendation Accepted in Part
Third Report - Financial distress …
Include additional funding in 2024–25 settlement to bridge local authorities' £4bn gap, outlining prioritisation.
The Government must include additional funding in the local government finance settlement for 2024–25 to ensure local authorities bridge their estimated £4 billion funding gap. The Government must set out which local authorities are being prioritised and why for this … Read more
Government Response
The government committed an additional £600 million for local authorities in 2024-25, prioritising social care councils and rural populations. It noted an overall increase in Core Spending Power of up to £4.5 billion, but stated longer-term support and multi-year settlements are matters for the next Spending Review in the next Parliament.
Ministry of Housing, Communities and Local Government
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3 Conclusion Rejected
Third Report - Financial distress …
Council tax is outdated, regressive, and disproportionately impacts deprived local authorities' funding.
There is widespread agreement that Council tax is outdated, regressive, and long overdue for reform. The Government’s increasing reliance on council tax to fund local authorities is causing a disproportionately negative impact on funding levels for authorities in the most … Read more
Government Response
The government acknowledges the need to improve the local government finance landscape in the next Parliament but states it has no plans to revalue council tax bands and defends its existing referendum principles for council tax increases.
Ministry of Housing, Communities and Local Government
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4 Recommendation Rejected
Third Report - Financial distress …
Urgently reform council tax by revaluing properties and introducing additional bands.
We repeat the recommendation made in our July 2021 report, Local Authority Financial Sustainability and the Section 114 Regime, and our November 2023 report, Council Tax Collection: namely, that: the Government must urgently reform council tax by undertaking a revaluation … Read more
Government Response
The government rejects the recommendation for urgent council tax reform, specifically revaluation and additional bands, citing cost and potential impact on low-income households, deferring wider reform discussions to the next Parliament.
Ministry of Housing, Communities and Local Government
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5 Recommendation Rejected
Third Report - Financial distress …
Raise council tax referendum threshold in line with inflation; consider its long-term removal.
Furthermore, in the short-term, the Government must raise the referendum threshold for council tax at least in line with a relevant measure of inflation. In the longer- term we recommend that the Government considers removing the threshold entirely.
Government Response
The government rejects the recommendation, stating its manifesto commitment is to protect local taxpayers from excessive council tax increases and defending the existing referendum threshold system as a balance between local authority flexibility and protecting residents. It does not agree to raise or remove the threshold.
Ministry of Housing, Communities and Local Government
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6 Conclusion Acknowledged
Third Report - Financial distress …
Additional capital flexibilities could help local authorities during financial distress.
We have previously recommended that the Government widens the funding base of local authorities and grants more flexibility over local taxes and other revenue raising powers. We therefore welcome the Government’s call for views on local authority capital flexibilities and … Read more
Government Response
The government confirms it launched a call for views on local authority capital flexibilities to encourage invest-to-save activity and is considering responses. A publication is expected before the summer recess, and some financial flexibilities have been agreed with specific councils.
Ministry of Housing, Communities and Local Government
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7 Conclusion Deferred
Third Report - Financial distress …
Using capital funding for revenue is unsustainable, risking asset sales and delaying reforms.
However, local authorities’ use of capital funding for revenue expenditure is not sustainable and at best it can only be a temporary solution to short-term financial pressures. We have concerns that the Government, if it does grant these additional flexibilities, … Read more
Government Response
The government has launched a call for views on options for capital resource flexibility and will publish a response before summer recess, while affirming that existing exceptional financial support via capitalisation directions is only for specific local issues.
Ministry of Housing, Communities and Local Government
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8 Recommendation Acknowledged
Third Report - Financial distress …
Limit capital funding flexibilities to invest-to-save and closely monitor uptake for unintended consequences.
The Government should ensure that the implications of any additional flexibilities it grants on capital funding are carefully considered. We recommend that these are limited to extending flexibilities over invest-to-save activity only. The Government must closely monitor local authorities’ uptake … Read more
Government Response
The government states it is considering responses to its call for views on capital flexibilities, acknowledging the need for balance to prevent unsustainable financial practices. It will publish a response before the summer recess but does not commit to the specific limitations or monitoring mechanisms requested at this stage.
Ministry of Housing, Communities and Local Government
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9 Conclusion Accepted
Third Report - Financial distress …
Business rates system is outdated, complex, misaligned, disproportionately impacting deprived local authorities.
The business rates system is overly complex, outdated and in urgent need of reform. The baselines used in the business rates retention scheme are over 10 years out of date and their continued use is causing a significant misalignment between … Read more
Government Response
The government states it completed a review in 2021 and passed the Non-Domestic Rating Act 2023. It will not reset the business rates retention system before 2025-26, but agrees to consider further improvements in the next Parliament.
Ministry of Housing, Communities and Local Government
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10 Recommendation Deferred
Third Report - Financial distress …
Implement business rates reset and Fair Funding Review; commit to long-term reform.
We renew our previous recommendation that the Government implements the business rates reset and Fair Funding Review. This should include transitional arrangements to ensure stability in funding levels after reset and review. The Government must commit to a fundamental long-term … Read more
Government Response
The government states the business rates retention system reset will not happen before 2025-26 due to sector calls for stability, thereby deferring its implementation. It also acknowledges the need for improvements in the local government finance landscape and commits to considering further improvements in the next Parliament, without committing to a specific fundamental long-term review of the business rates system.
Ministry of Housing, Communities and Local Government
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11 Conclusion Accepted
Third Report - Financial distress …
Children's social care reforms lack sufficient short-term financial support for local authorities.
We agree with the Government that comprehensive reform of the children’s social care system is urgent and necessary. We are concerned, however, at the receding prospect of timely delivery of reforms and note that, despite the additional funding that the … Read more
Government Response
The government agrees on the urgency of children's social care reform and has provided £1.5 billion in additional grant for social care for 2024-25, including a recent £500 million uplift. It also committed £165 million over four years to expand children's home capacity and is exploring ways to combat profiteering.
Ministry of Housing, Communities and Local Government
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12 Recommendation Accepted
Third Report - Financial distress …
Work urgently with local authorities to develop short-term support for children's social care.
The Government must work urgently with local authorities to better understand their short-term budgetary pressures in this area and work to develop a package of support and funding to enable continued service delivery while wider system reforms are implemented. (Paragraph … Read more
Government Response
The government agrees on the urgency of children's social care reform and has announced £1.5 billion in additional grant funding for social care for 2024-25, including a recent £500 million uplift. It also committed £165 million over four years to expand children's home capacity and is exploring ways to combat profiteering.
Ministry of Housing, Communities and Local Government
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13 Recommendation Accepted
Third Report - Financial distress …
Review ways to facilitate local authority collaboration for direct delivery of children's care services.
The Government should support local authorities by reviewing possible ways of facilitating greater collaboration across local authorities so that they can collectively deliver more children’s care services directly rather than through private suppliers. Read more
Government Response
The government commits to supporting greater collaboration among local authorities for collectively delivering care services, citing ongoing co-design work and the Regional Care Cooperative pathfinder programme. It also provided capital funding to increase local authority provision and will publish proposals to combat profiteering later this year.
Ministry of Housing, Communities and Local Government
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14 Conclusion Accepted
Third Report - Financial distress …
Local authorities face acute financial pressures for adult social care, requiring sustainable funding increases.
While the additional funding announced in Autumn Statement 2022 has provided some brief respite for local authorities facing particularly acute pressures, a consistent and sustainable increase in funding is required. We have heard evidence of ongoing concerns about the continuing … Read more
Government Response
The government details significant additional funding of up to £8.6 billion over two years and £1.5 billion in grant increases for 2024-25 for adult social care, arguing this addresses the pressures and enables local authorities to improve services.
Ministry of Housing, Communities and Local Government
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15 Recommendation Accepted
Third Report - Financial distress …
Plan a sustainable mechanism to deliver billions in annual funding for adult social care.
We reiterate the recommendation we made in our July 2022 report Long-term Funding of Adult Social Care, that the Government needs to recognise the need for more funding to local authorities for delivery of adult social care, in the order … Read more
Government Response
The government has recognized the pressures in adult social care, making available up to £8.6 billion of additional funding over two years, including over £1.5 billion in new grants for 2024-25, to support local authorities in delivering social care.
Ministry of Housing, Communities and Local Government
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16 Recommendation Rejected
Third Report - Financial distress …
Publish a 10-year plan to implement reforms from People at the Heart of Care white paper.
We also reiterate the recommendation we made in our July 2022 report for the Government to publish a 10-year plan for implementing the reforms set out in its white paper People at the Heart of Care. (Paragraph 95) Chapter 4: … Read more
Government Response
The government rejects the recommendation to publish a 10-year plan for adult social care reforms, stating that such plans are subject to future Spending Reviews and fiscal events which prevent long-term funding certainty. It highlights its 'Next steps to put people at the heart of Care' plan for the current Spending Review period instead.
Ministry of Housing, Communities and Local Government
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17 Conclusion Accepted
Third Report - Financial distress …
Funding for Special Educational Needs provision is insufficient to meet demand from EHC plans.
The rise in numbers of EHC plans following the Children and Families Act 2014 has significantly increased demand for more costly forms of SEND provision and home to school transport. The funding available to local authorities, through the Dedicated Schools … Read more
Government Response
The government agrees on the importance of tackling SEND provision costs, highlighting a 60% rise in the high needs budget to £10.5 billion by 2024-25, and detailing support programmes like Safety Valve and Delivering Better Value with £1 billion in additional funding to help local authorities manage deficits.
Ministry of Housing, Communities and Local Government
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18 Conclusion Accepted
Third Report - Financial distress …
Temporary funding fails to resolve fundamental mismatch in Dedicated Schools Grant and SEND costs.
The Government’s use of the statutory override and one-off ‘safety valve’ funding are temporary measures and do not address the underlying mismatch between demand, costs, and annual Dedicated Schools Grant funding. They will not prevent local authorities from accumulating further … Read more
Government Response
The government acknowledges the concern about funding mismatches but states it is already addressing the issue through significant increases to the high needs budget, existing Safety Valve and Delivering Better Value in SEND programmes with additional funding, and published guidance.
Ministry of Housing, Communities and Local Government
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19 Conclusion Not Addressed
Third Report - Financial distress …
Lack of clarity on funding responsibility for remaining deficits after statutory override ends.
The Government has provided no clarity on whether it will fund, or it will expect local authorities to fund, deficits remaining when the statutory override ends in March 2026.
Government Response
The government highlights its commitment to placing local authorities on a sustainable financial footing regarding SEND provision, detailing ongoing Safety Valve and Delivering Better Value in SEND programmes with funding and expert support to help LAs eliminate deficits. However, it does not provide clarity on who will fund any deficits remaining after the statutory override ends in March 2026.
Ministry of Housing, Communities and Local Government
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20 Conclusion Accepted
Third Report - Financial distress …
Improved school provision insufficient to address EHC plan demand or short-term financial pressures.
It is clear that the Government’s aim to improve existing mainstream and locally available special school provision will not be sufficient on its own to influence parents’ Financial distress in local authorities 45 or carers’ views on Education, Health and … Read more
Government Response
The government highlights its existing efforts, including the SEND Green Paper and Improvement Plan, which aim to establish a single national system, implicitly addressing concerns about sufficiency and timing, and stating a further review is unnecessary.
Ministry of Housing, Communities and Local Government
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21 Recommendation Accepted
Third Report - Financial distress …
Agree realistic steps and sufficient funding with local authorities to eliminate DSG deficits.
The Government should provide clarity to local authorities on its specific expectations for resolving existing DSG budget deficits, and agree with local authorities a set of realistic and achievable steps, supplemented by sufficient additional funding, for eliminating these existing budget … Read more
Government Response
The government states it is already working to provide clarity and support to local authorities through existing programmes like Safety Valve and Delivering Better Value in SEND. These programmes involve bespoke support, individualised local plans, and around £1 billion in additional funding to help authorities sustainably manage their high needs systems and eliminate DSG deficits.
Ministry of Housing, Communities and Local Government
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22 Recommendation Rejected
Third Report - Financial distress …
Commission independent review of EHC Plans for fundamental reform and financially sustainable SEND provision.
The Department should commission a cross-government independent review of Education, Health and Care Plans and consider fundamental reform of this system, to put SEND provision on a financially sustainable footing for local authorities whilst ensuring that all children and young … Read more
Government Response
The government rejects the recommendation for a new independent review, stating that a comprehensive SEND Review has already been completed, leading to a Green Paper and an Improvement Plan, making a further review unnecessary.
Ministry of Housing, Communities and Local Government
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23 Recommendation Accepted
Third Report - Financial distress …
Assess and publish benefits of statutory guidance for less costly shared home-to-school transportation
Additional funding for home-to-school transport is necessary in the short-term. Therefore, the Government should assess the benefits of introducing new statutory guidance aimed at encouraging the use of less costly forms of shared transportation. In response to this Report, the … Read more
Government Response
The government states existing statutory guidance already empowers local authorities to make suitable travel arrangements and avoid expensive individual transport. It outlines the SEND and Alternative Provision Improvement Plan and investment in new provision that aims to reduce home-to-school travel costs over time, but does not commit to additional short-term funding or new statutory guidance.
Ministry of Housing, Communities and Local Government
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24 Conclusion Accepted
Third Report - Financial distress …
Delay in increasing Local Housing Allowance rates exacerbated family housing crisis
We welcome the Government’s decision to increase Local Housing Allowance rates to the 30th percentile of local market rents from 1 April 2024. However, this is an urgent matter that required the Government’s immediate action. It is therefore disappointing that … Read more
Government Response
The government acknowledges the importance of stable housing, confirms the £1.2 billion investment to increase LHA rates to the 30th percentile from April 2024, and commits to annual reviews of LHA rates. It also highlights ongoing funding for Discretionary Housing Payments and wider affordable housing programmes.
Ministry of Housing, Communities and Local Government
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25 Recommendation Acknowledged
Third Report - Financial distress …
Maintain Local Housing Allowance rates at 30th percentile of market rents annually
We recommend that the Government reconsider its position on re-freezing local housing allowance rates from 2025–26 onwards. Instead, the Government must maintain LHA rates at least at the 30th percentile of local market rents each year to ensure that those … Read more
Government Response
The government acknowledges the importance of stable housing and commits to reviewing Local Housing Allowance rates every year, considering factors like local rents and the broader fiscal context. It highlights the £1.2 billion investment from April 2024 to increase LHA rates to the 30th percentile, but does not commit to maintaining this level annually from 2025-26 onwards.
Ministry of Housing, Communities and Local Government
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26 Conclusion Acknowledged
Third Report - Financial distress …
Prioritise fundamental reforms for local authority funding and service delivery systems
The Government elected in the next UK General Election is faced with the task of designing and implementing a series of fundamental reforms to the way in which local authorities are funded, the services that they are currently required to … Read more
Government Response
The government acknowledges the need to improve the local government finance system in the next Parliament and commits to significant consultation, but explicitly states it does not support land value taxation.
Ministry of Housing, Communities and Local Government
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27 Recommendation Deferred
Third Report - Financial distress …
Review local authority funding and taxation, including land value taxes and fiscal devolution
The next Government must embark on a fundamental review of the system of local authority funding and local taxation, exploring all options for removing its current regressive elements and bringing it into the 21st Century. This should include consideration of … Read more
Government Response
The government commits to improving the local government finance system in the next Parliament, requiring significant consultation, but explicitly rejects the consideration of land value taxation.
Ministry of Housing, Communities and Local Government
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28 Recommendation Accepted
Third Report - Financial distress …
Explore and implement fundamental reforms for social care funding and delivery methods
The next Government must ensure that it explores all options for fundamental reform of funding and delivery of social care services and implements reforms that address the underlying causes of the acute funding and delivery pressures that local authorities are … Read more
Government Response
The government outlines its ongoing commitment to extensive system-wide social care reform, citing the People at the Heart of Care white paper, £700 million investment for adult social care, new CQC assessments, and £200 million for children's social care reforms through Pathfinders.
Ministry of Housing, Communities and Local Government
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Government Response AI assessment · 28 of 15 classified
Accepted 13
Accepted in Part 2
Acknowledged 4
Deferred 3
Not Addressed 1
Rejected 5
Total 15 recs + 13 conclusions
Correspondence 6 letters
14 May 2024 To committee Letter from the Chair to the Parliamentary Under Secretary of State for Local Government dated 13 May 2024 concerning the Government’s response to the Committee’s Financial Distress in Local Authorities Report
Parliament page
14 Dec 2023 To committee Letter from the Chair to the Secretary of State dated 13 December 2023 concerning Financial Distress in Local Authorities
Parliament page
5 Dec 2023 To committee Letter from Councillor Susan Hinchcliffe relating to Financial Distress in Local Authorities, dated 29 November 2023.
Parliament page
5 Dec 2023 To committee Letter from CIPFA, relating to Financial Distress in Local Authorities, dated 30 November 2023
Parliament page
5 Dec 2023 To committee Letter from the Chair to Chartered Institute of Public Finance and Accountancy dated 27 November 2023 concerning changes to local government financing
Parliament page
28 Nov 2023 To committee Letter from the Chair to the Secretary of State dated 27 November concerning Financial Distress in Local Authorities
Parliament page