Second Report - Local authority financial sustainability and the section 114 regime

The government has committed to investing an additional £5.4 billion over three years, following a 7 September 2021 announcement, to begin a comprehensive programme of reform for adult social care. Further details will be published in a White Paper later this year.

The government stated it would not proceed with the implementation of the Fair Funding Review and business rates reset in 2021/22. It confirmed that decisions on the future direction of local government finance reform will be taken at the ongoing Spending Review.

The government has deferred decisions on local government finance reform, including the BRRS and equalisation rules, to an ongoing Spending Review, citing the need to assess the pandemic's impact.

The government explicitly rejected the immediate implementation of the Fair Funding Review and 75% Business Rates Retention, stating that decisions on the way forward will be taken at the ongoing Spending Review.

The government rejects the implied recommendation for council tax reform and revaluation, stating it has no plans for fundamental change. It argues that a revaluation would be expensive, lead to higher bills for many households, potentially penalise those on fixed incomes, and not address disparities in council tax base strength.

The government rejects the recommendation, stating it has no plans to replace or fundamentally reform council tax. It argues that a revaluation would be expensive, lead to bill increases for many households, potentially penalise people on fixed incomes, and not address disparities in council tax base strength.

The government defends the current charging regime and highlights existing local flexibilities for council tax. It states that the Chancellor’s Fundamental Review of Business Rates is considering reform options, including greater local flexibility, and will conclude in Autumn.

The government largely upholds the current charging regime and council tax flexibility, while noting an ongoing review of business rates that will conclude in the Autumn. It also highlighted a new Health and Social Care Levy that will provide revenue to local authorities.

The government agrees that multi-year settlements provide certainty for effective planning. However, the approach to the next settlement will be informed by the ongoing Spending Review, and the government is exploring opportunities to simplify the funding system.

The government agrees that a stable funding environment is important and recognizes the challenges of multiple competitive funds. It states it is exploring opportunities to simplify the system, while also noting that ringfences and competitions can be helpful.

The government agrees that multi-year settlements provide certainty and is exploring opportunities to simplify the funding system, but defers a decision on the next settlement being multi-year, stating it will be informed by the ongoing Spending Review.

The government highlighted over £12 billion in funding already committed to councils, stating that allocations are based on need and that it continues to monitor local authority finances to inform the ongoing Spending Review and support individual authorities.

The government states it has committed over £12 billion in funding and distributed it based on need. It is using monitoring and engagement to inform the ongoing Spending Review and will continue to work with individual authorities and keep the situation under review, without committing to specific new ways of providing future certainty.

The government is strengthening the capital system and Prudential Framework by working with CIPFA to amend statutory codes, with planned implementation from April 2022, and by tightening legislation on Minimum Revenue Provision duty and borrowing capping powers.

The government is improving its monitoring of the sector through enhanced data collection, intelligence gathering, and developing tools for earlier risk identification, and requires local authorities to submit three-year capital spending and borrowing plans. However, it does not directly address the concern about the lack of a statutory requirement for compliance with the prudential code.

The government states that local authorities already have a duty to "have regard to" the Prudential Code and is working with CIPFA to make changes to statutory codes, with implementation from April 2022. It also details a programme of work to strengthen the capital system and compliance, including improving data for monitoring sector risk and tightening related legislation.

The government has undertaken several activities in response to the Redmond review, including extending audit deadlines and confirming its intention to establish ARGA as the new system leader for local audit, while also keeping existing arrangements under review following a consultation.

The government has confirmed its intention to establish the Audit, Reporting and Governance Authority (ARGA) as the new system leader for local audit and considers the Public Sector Auditor Appointments Ltd (PSAA) as the best placed appointing body. It has also undertaken a consultation on the local audit framework and will keep arrangements under review.

The government defends Section 114 notices as an important and effective part of the finance system, stating they operate within a wider system of checks and balances that should lead to earlier action, thus not committing to an intermediary "yellow card" measure.

The government defends the existing Section 114 regime as effective and states that a wider system of checks and balances, including statutory reporting duties for Section 151 Officers and powers for external auditors, already provides mechanisms to highlight financial concerns.