Local Government Finance system: Overview and challenges

Public Accounts Committee Closed Inquiry
Opened: 21 Oct 2021 Closed: 7 Apr 2022 Parliament page
After a series of PAC reports on the state of local authority finances over the last year including on the system of local government audit ; local authority exposure to risky commercial investment and potential losses in Covid support schemes ; and the overall sustainability of the local authority finances … Read more
15 Recommendations
14 Conclusions
1 Report
1 Oral session
4 Letters
1 Event
Activity timeline 7 events
28 Apr
2022
Report published
21 Apr
2022
Correspondence
22 Feb
2022
Correspondence
2 Feb
2022
Report published
11 Jan
2022
Correspondence
11 Jan
2022
Correspondence
29 Nov
2021
Oral evidence
Oral evidence sessions 1 session
29 Nov 2021
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Local Government Finance system: Overview and challenges
Alex Skinner · Department for Levelling Up, Housing and Communities Catherine Frances · Department for Levelling Up, Housing and Communities Jeremy Pocklington · Ministry of Defence Will Garton · Department for Levelling Up, Housing and Communities
Title HC No. Published Items Response
Thirty-Fourth Report - Local Government Finance System: Overview… HC 646 2 Feb 2022 29 Responded
Recommendations & Conclusions
29 results
2 Recommendation Not Addressed
Thirty-Fourth Report - Local Gover…
Too often the Department has failed to act with sufficient urgency to address risks to...
Too often the Department has failed to act with sufficient urgency to address risks to financial sustainability in the sector, leading to problems becoming entrenched. This Committee warned in 2016 that the local capital finance framework might not be able … Read more
Government Response
The government discusses broadband coverage and targets, which is not relevant to the recommendation about local government finance sustainability.
HM Treasury
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3 Recommendation Deferred
Thirty-Fourth Report - Local Gover…
The Department did not act with sufficient urgency, nor has it set out an overarching...
The Department did not act with sufficient urgency, nor has it set out an overarching plan and timetable, to address the severe and pressing problems with the local government audit market. Significantly delayed audits are a serious gap in local … Read more
Government Response
The department will update the Committee in spring 2022, after the outcome of the consultation Local audit framework and BEIS's response on the White Paper Restoring trust in audit and corporate governance have been published and the early stages of the procurement process completed.
HM Treasury
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4 Recommendation Accepted
Thirty-Fourth Report - Local Gover…
The Department is making some welcome improvements to its oversight of the sector although it...
The Department is making some welcome improvements to its oversight of the sector although it remains to be seen what concrete difference these changes will make. Over time the Department has improved its analysis of financial Local Government Finance System: … Read more
Government Response
The government is strengthening its data collections on local authority risk and reserves to improve its oversight of local government and collecting more detailed information from local authorities on the different types and purposes of earmarked reserves.
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5 Recommendation Accepted
Thirty-Fourth Report - Local Gover…
We are concerned the Department is worryingly complacent in its view that the spending review...
We are concerned the Department is worryingly complacent in its view that the spending review will put local services on a sustainable footing. The spending review provided an extra £4.8 billion, £1.6 billion per year for the period 2022– 23 … Read more
Government Response
The department recognises the pressures on local services and the importance of a sustainable funding platform, and the spending review provides an estimated average annual increase in Core Spending Power of 3% in real terms each year. They also wrote to the Committee in April alongside this Treasury Minute with more detailed assurance of the impact of the Spending Review on services.
HM Treasury
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6 Recommendation Not Addressed
Thirty-Fourth Report - Local Gover…
The sector is still facing uncertainty and stop-gap financial arrangements until such time as the...
The sector is still facing uncertainty and stop-gap financial arrangements until such time as the longer-term reforms are put in place. The sector is once again faced with a single-year settlement for the 2022–23 finance year. It has now had … Read more
Government Response
The government discusses broadband coverage and plans for market surveys and contract signings, which is not relevant to the recommendation about supporting the local government sector through an interim period.
HM Treasury
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7 Recommendation Not Addressed
Thirty-Fourth Report - Local Gover…
It is still not clear how the government will take a strategic, cross-government approach to...
It is still not clear how the government will take a strategic, cross-government approach to rationalising local authority funding, which is particularly important for cross-cutting priorities like net zero and levelling up. Responding to concerns about the burden of bidding … Read more
Government Response
The government's response is a preamble and introduction to the overall document, and doesn't address the recommendation about rationalising local authority funding.
HM Treasury
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1 Recommendation Acknowledged
Thirty-Fourth Report - Local Gover…
On the basis of a Report by the Comptroller and Auditor General, we took evidence...
On the basis of a Report by the Comptroller and Auditor General, we took evidence from the Department for Levelling Up, Housing & Communities (the Department) and HM Treasury (the Treasury) about local government finance in England.1 The Department is … Read more
Government Response
The department concluded a review of local authority expenditure and borrowing statistics, has improved data collection on capital borrowing and investments, receives borrowing and investment plans, and is establishing a new independent body focused on data, transparency, and robust evidence.
HM Treasury
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8 Recommendation Accepted
Thirty-Fourth Report - Local Gover…
This Committee highlighted in 2016 that the Department appeared complacent about the risks from local...
This Committee highlighted in 2016 that the Department appeared complacent about the risks from local authorities increasingly acting as property developers and commercial landlords with the primary aim of generating income. It also pointed out a risk that the local … Read more
Government Response
The government will update Statutory Guidance on Local Government Investments in 2022, having worked with CIPFA to update the Prudential Code. They consulted on strengthening the Minimum Revenue Provision (MRP) duty and plan to publish its response in spring 2022.
HM Treasury
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9 Recommendation Accepted
Thirty-Fourth Report - Local Gover…
Where a local authority borrows, it must set aside money each year to repay the...
Where a local authority borrows, it must set aside money each year to repay the debt, so the costs do not fall wholly on future council taxpayers; this is known as Minimum Revenue Provision (MRP). MRP ensures councils reflect the … Read more
Government Response
The government intends to update its Statutory Guidance on Local Government Investments in 2022 and is consulting on strengthening the Minimum Revenue Provision (MRP) duty, with plans to publish a response in Spring 2022, addressing the use of asset sales proceeds and MRP on debt used to purchase commercial assets.
HM Treasury
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10 Recommendation Acknowledged
Thirty-Fourth Report - Local Gover…
When we asked about a potential ballooning effect due to local authorities continually delaying and...
When we asked about a potential ballooning effect due to local authorities continually delaying and deferring payments on borrowing the Department told us the measures being consulted on would ensure that local authorities are paying MRP from revenue rather than … Read more
Government Response
The government published a policy paper and intends to update its Statutory Guidance, consulted on strengthening the Minimum Revenue Provision (MRP) duty, and will consider further actions with HM Treasury for non-compliant local authorities.
HM Treasury
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11 Conclusion Accepted
Thirty-Fourth Report - Local Gover…
The Institute of Chartered Accountants in England and Wales (ICAEW) noted that while the local...
The Institute of Chartered Accountants in England and Wales (ICAEW) noted that while the local audit market is in crisis, government’s response to date has not recognised 25 Committee of Public Accounts, Local authority investment in commercial property, Eleventh Report … Read more
Government Response
The government agrees with the recommendation and states it remains committed to strengthening the local audit market, acting as interim system leader, securing agreement with key partners, and that PSAA announced that 99% of eligible local bodies have joined its national scheme for auditor appointments.
HM Treasury
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12 Recommendation Deferred
Thirty-Fourth Report - Local Gover…
This Committee recently recommended the Department should set out a detailed plan and timetable for...
This Committee recently recommended the Department should set out a detailed plan and timetable for getting local audit timeliness back on track. We also recommended the Department explain how it intended to work with the Department for Business, Energy and … Read more
Government Response
The department will update the Committee in Spring 2022 after the outcome of the consultation and BEIS's response on the White Paper have been published and the procurement process has been completed, enabling a more detailed response on the transition to the new arrangements and proposed junctures for further updates.
HM Treasury
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13 Recommendation Deferred
Thirty-Fourth Report - Local Gover…
In 2018, this Committee recommended the Department should review the way local authority audit committees...
In 2018, this Committee recommended the Department should review the way local authority audit committees operate in examining and challenging local risks to financial sustainability.47 In 2019 this Committee highlighted that 27% of external auditors did not agree that audit … Read more
Government Response
The government agrees with the recommendation but defers concrete action, stating it will publish the response to its consultation on the local audit framework and update the Committee in Spring 2022 after the outcome of this consultation and a BEIS White Paper.
HM Treasury
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14 Conclusion Accepted
Thirty-Fourth Report - Local Gover…
The Department’s Accounting Officer is responsible for the overall accountability system for local government, including...
The Department’s Accounting Officer is responsible for the overall accountability system for local government, including providing assurance that it is working effectively and understanding risk, both across the system and in relation to individual councils.54 The Department has improved aspects … Read more
Government Response
The government agrees with the recommendation, is strengthening its data collections on local authority risk and reserves, and is bringing together data with intelligence from ongoing engagement with the sector to provide an overall understanding of the risks affecting the sector.
HM Treasury
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15 Conclusion Accepted
Thirty-Fourth Report - Local Gover…
This Committee recommended in 2016 that the Department should strengthen its understanding of the scale...
This Committee recommended in 2016 that the Department should strengthen its understanding of the scale and nature of authorities’ commercial activities, ensure that the purpose and geographical location of capital spending can be ascertained, and strengthen its use of quantitative … Read more
Government Response
The government agrees with the recommendation and states they have concluded a comprehensive review of local authority expenditure and borrowing statistics, and have taken specific action to improve data collection on capital borrowing and investments, including regular information on the performance of local authority investments.
HM Treasury
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16 Conclusion Accepted
Thirty-Fourth Report - Local Gover…
The Department told us that from April 2022, it will regularly collect much fuller information...
The Department told us that from April 2022, it will regularly collect much fuller information on local authority commercial property, companies and financial investments, the latter two of which it described as “an obvious risk”.62 The information on property investment … Read more
Government Response
The government agrees with the recommendation and states they have concluded a comprehensive review of local authority expenditure and borrowing statistics, and have taken specific action to improve data collection on capital borrowing and investments, including regular information on the performance of local authority investments.
HM Treasury
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17 Conclusion Accepted
Thirty-Fourth Report - Local Gover…
The Department told us about a policy paper it had recently published about its framework...
The Department told us about a policy paper it had recently published about its framework for detecting, managing and preventing risk.65 In relation to concrete actions, the Department told us it was “looking at the statutory powers that we have … Read more
Government Response
The government published its policy paper on 28 July 2021, setting out measures to ensure local authority investment decisions comply with the Prudential Framework. It worked with CIPFA on the updated Prudential Code. The government intends to update its own Statutory Guidance on Local Government Investments in 2022. The department plans to publish its response in spring 2022 on the strengthening of compliance with the MRP duty.
HM Treasury
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18 Conclusion Accepted
Thirty-Fourth Report - Local Gover…
The spending review announced on 27 October 2021, covering 2022–23 to 2024–25, provided £4.8 billion...
The spending review announced on 27 October 2021, covering 2022–23 to 2024–25, provided £4.8 billion (£1.6 billion each year) of new grant funding for local authorities.68 It also announced that council tax would be able to rise by 2% each … Read more
Government Response
The government agrees with the recommendation and states that the 2021 Spending Review settlement provides local authorities with an estimated average annual increase in Core Spending Power of 3% in real terms, including investment in Adult Social Care reform.
HM Treasury
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19 Conclusion Accepted
Thirty-Fourth Report - Local Gover…
The Department told us the spending review “gives local government, looking at the sectoral level,...
The Department told us the spending review “gives local government, looking at the sectoral level, the resources that it needs” to respond to rising demand and cost pressures, and “leaves the sector in a sustainable position.”73 The Department and the … Read more
Government Response
The government states that the 2021 Spending Review settlement provides local authorities with an estimated average annual increase in Core Spending Power of 3% in real terms and that it continues to work closely with the local government sector.
HM Treasury
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20 Conclusion Accepted
Thirty-Fourth Report - Local Gover…
When we pressed witnesses about the fragile state of adult social care services and continuing...
When we pressed witnesses about the fragile state of adult social care services and continuing demographic pressure, the Department agreed the demographic pressures from both working-age and older people are quite significant but listed three sources of funding to sustain … Read more
Government Response
The government recognises the pressures on local services and the importance of a sustainable funding platform. The 2021 Spending Review settlement provides local authorities with an estimated average annual increase in Core Spending Power of 3% in real terms each year of the Spending Review period, including investment in Adult Social Care reform. The department wrote to the Committee in April alongside this Treasury Minute with more detailed assurance of the impact of the Spending Review on services and its plans to work with other government departments to keep this under review.
HM Treasury
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21 Conclusion
Thirty-Fourth Report - Local Gover…
We have previously been critical of the Department for Education’s understanding of costs within children’s...
We have previously been critical of the Department for Education’s understanding of costs within children’s social care services, and we have not yet been reassured that funding for local authorities to support unaccompanied asylum-seeking children, and care leavers who were … Read more
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22 Recommendation Acknowledged
Thirty-Fourth Report - Local Gover…
This Committee noted in 2016 that local authorities were facing an uncertain environment due to...
This Committee noted in 2016 that local authorities were facing an uncertain environment due to the Department considering further significant changes to local authority funding.86 In 2018 the Committee highlighted the use of short-term funding arrangements since 2016 and a … Read more
Government Response
The government recognizes the importance of certainty and points to the Local Government Finance Settlement 2022-23, which provides £54.1 billion for local government in England, as well as a commitment to work closely with local partners before consulting on any potential funding reform.
HM Treasury
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23 Conclusion Acknowledged
Thirty-Fourth Report - Local Gover…
We have previously concluded that the implications of reductions in service spending for service users...
We have previously concluded that the implications of reductions in service spending for service users and taxpayers are unclear. We have made several recommendations that the Department should work to improve its information on and understanding of pressures on services.91 … Read more
Government Response
The government agrees with the Committee’s recommendation to rationalise funding for local government so that local authorities can make decisions based on local priorities and says they are considering options to simplify grants.
HM Treasury
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24 Recommendation Acknowledged
Thirty-Fourth Report - Local Gover…
The spending review confirmed the timing of the next and future business rates revaluations and...
The spending review confirmed the timing of the next and future business rates revaluations and stated the government would consult on the possible introduction of an Online Sales Tax to partially replace business rates.93 However, much remained undecided. When we … Read more
Government Response
The department has a policy to rationalise funding for local government, balancing flexibility with ensuring effective use of funds, and is considering options to simplify grants and streamline the funding process.
HM Treasury
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25 Conclusion Acknowledged
Thirty-Fourth Report - Local Gover…
We have previously recommended that reform of local government finance should take place in a...
We have previously recommended that reform of local government finance should take place in a measured fashion to ensure the new arrangements are fit for purpose and built to last. We recommended that a stable funding environment, ideally based on … Read more
Government Response
The government agrees with the Committee on the importance of certainty for local authorities and mentions the Local Government Finance Settlement 2022-23, which provides £54.1 billion and includes funding for adult social care reform, also committing to work closely with local partners before consulting on any potential funding reform.
HM Treasury
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26 Recommendation Acknowledged
Thirty-Fourth Report - Local Gover…
A Local Government Association review found 448 individual grants to local authorities between 2015–16 and...
A Local Government Association review found 448 individual grants to local authorities between 2015–16 and 2018–19, and in any one of those years local authorities received around 250 grants.103 Twenty-two grant funds were available for net zero work alone in … Read more
Government Response
The government agrees with the committee and states the department has an established policy to rationalise funding for local government so that local authorities can make decisions based on local priorities; and is considering options to simplify grants.
HM Treasury
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27 Conclusion Acknowledged
Thirty-Fourth Report - Local Gover…
The new Secretary of State told the Housing, Communities and Local Government Committee that he...
The new Secretary of State told the Housing, Communities and Local Government Committee that he recognises there are too many funding pots, with potentially overlapping criteria. He concluded “There needs to be some simplification and rationalisation” of funding arrangements and … Read more
Government Response
The government agrees with the committee and states the department has an established policy to rationalise funding for local government so that local authorities can make decisions based on local priorities; and is considering options to simplify grants.
HM Treasury
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28 Conclusion Acknowledged
Thirty-Fourth Report - Local Gover…
The Treasury told us the balance between formula and competitive funding should be different for...
The Treasury told us the balance between formula and competitive funding should be different for different areas of government activity, giving levelling up and social care as examples of areas where formula funding should predominate. In contrast, the Treasury felt … Read more
Government Response
The government agrees with the Committee’s recommendation to rationalise funding for local government so that local authorities can make decisions based on local priorities and says they are considering options to simplify grants.
HM Treasury
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29 Conclusion Acknowledged
Thirty-Fourth Report - Local Gover…
We noted the interactions between different government policy areas and the “tab” that ultimately falls...
We noted the interactions between different government policy areas and the “tab” that ultimately falls to local government, including, for example, the impact of changes to health spending or universal credit.111 The Treasury said that, as part of the spending … Read more
Government Response
The department continues to work closely with the local government sector and other government departments to ensure that councils have the resources to meet pressures and maintain current service levels. The department wrote to the Committee in April alongside this Treasury Minute with more detailed assurance of the impact of the Spending Review on services and its plans to work with other government departments to keep this under review.
HM Treasury
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Government Response AI assessment · 28 of 15 classified
Accepted 12
Acknowledged 10
Deferred 3
Not Addressed 3
Total 15 recs + 14 conclusions
Correspondence 4 letters
21 Apr 2022 Correspondence from Jeremy Pocklington CB, Permanent Secretary, Department for Levelling Up, Housing and Communities, re the committee’s report Local Government Finance System Overview and Challenges, dated 4 April 2022
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22 Feb 2022 Correspondence from Jeremy Pocklington CB, Permanent Secretary, Department for Levelling Up, Housing and Communities, re Lessons Learnt, dated 11 February 2022
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11 Jan 2022 Correspondence from Rt Hon Michael Gove, Secretary of State, Department for Levelling up, Housing and Communities Minister for Intergovernmental Relations, re Provision Local Government Finance Settlement 2022/23
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11 Jan 2022 Correspondence from Catherine Frances Director General, Local Government, Strategy & Analysis Department for Levelling Up, Housing and Communities, re Local Government Finance System Overview and challenges, dated 10 December 2021
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