UK Inquiry Tracker

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

Treasury minutes: Government response to the Committee of Public Accounts on the Thirty Fourth report from Session 2021-22

21 Apr
2022

Correspondence

Correspondence from Jeremy Pocklington CB, Permanent Secretary, Department for Levelling Up, Housing and Communities, re the committee’s re…

22 Feb
2022

Correspondence

Correspondence from Jeremy Pocklington CB, Permanent Secretary, Department for Levelling Up, Housing and Communities, re Lessons Learnt, da…

2 Feb
2022

Report published

Thirty-Fourth Report - Local Government Finance System: Overview and Challenges

11 Jan
2022

Correspondence

Correspondence from Rt Hon Michael Gove, Secretary of State, Department for Levelling up, Housing and Communities Minister for Intergovernm…

11 Jan
2022

Correspondence

Correspondence from Catherine Frances Director General, Local Government, Strategy & Analysis Department for Levelling Up, Housing and Comm…

29 Nov
2021

Oral evidence

Local Government Finance system: Overview and challenges

Oral evidence sessions 1 session

29 Nov 2021

View on parliament.uk

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

Reports 1 report · click to expand

Title	HC No.	Published	Items	Response
Thirty-Fourth Report - Local Government Finance System: Overview…	HC 646	2 Feb 2022	29	Responded

Recommendations & Conclusions

4 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 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 to cope with changes in local authority activity, particularly in relation to investment in commercial property. The Department reacted by changing the guidance on local authority investments and on setting aside money to repay debts, but these proved ineffective in addressing key risks. Disappointingly, it took until 2020 before the Treasury took action to restrict borrowing for commercial investment, allowing billions of pounds to be borrowed and spent in the intervening period. In November 2021, the Department started consulting on legislative change to ensure all authorities act prudently and ensure they have the money to repay debts in future. The Department’s consultation was in response to local authority practices which were not fully compliant with the duty to make prudent revenue provision for borrowing. For example, some local authorities excluded a proportion of their debt when calculating their Minimum Revenue Provision (MRP); and some local authorities had used capital receipts instead of revenue resources for MRP. Meanwhile some local authorities have set aside much too little money, and they 6 Local Government Finance System: Overview and Challenges now cannot make up the difference promptly without threatening their financial position. In addition, current proposals to continue to use just guidance to encourage local authority audit committees to have an independent member, rather than make it compulsory, suggest the Department is still over-optimistic about the ability of such ‘soft’ changes to address risks. Recommendation: In its response to this report: • The Department needs to identify key areas of concern regarding the sustainability of local government finance and explain how these will be Show less

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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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 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 three one-year settlements, preceded by a four year settlement full of short-term funding initiatives. The government has proposed six major updates or reforms that could significantly alter the business rates retained by local authorities, business rates themselves, the way funding is distributed and the cost of providing adult social care - the service local authorities spend most on. While the spending review provided a final decision and a clear timescale for business rates revaluation, the remaining reforms are subject to further consideration by Ministers in the Department, the Treasury or the Department of Health and Social Care and will require public consultation. We understand that some support for adult social care will start to flow from April 2022, but it seems clear to us no other changes will be delivered before April 2023 at the very earliest. This prolongs the damaging uncertainty for local government. Although the government needs to take time to 8 Local Government Finance System: Overview and Challenges get the reforms right and ensure alignment with the levelling up agenda and other Ministerial priorities, we have previously recommended that a multi-year settlement be established, nonetheless. This would provide a stable funding environment and act as a bridging mechanism while the Department works on long-term reforms. Unfortunately the Department has again missed this opportunity and will also continue to be hindered by severely outdated funding formulae and its lack of information on services. Recommendation: Alongside its Treasury Minute response to this report, the Department should write to us setting out its plans to support the sector through this interim period. Show less

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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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

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

Parliament page

22 Feb 2022 Correspondence from Jeremy Pocklington CB, Permanent Secretary, Department for Levelling Up, Housing and Communities, re Lessons Learnt, dated 11 February 2022

Parliament page

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

Parliament page

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

Parliament page