31st Report - Local Government Financial Sustainability

Select Committee
Public Accounts Committee HC 647 18 June 2025
Report Status Response document linked

Missing links do not establish that no response was published. A linked document does not verify responses to individual findings.

Conclusions & Recommendations 31 items (10 recs)
Source View on Parliament website

No response data available yet.

Government response
Treasury minutes: Government response to the Committee of Public Accounts on the Thirty-first report from Session 2024-26 · published 18 Sep 2025
Read the government response ↗ Response on the tracker

Recommendations & Conclusions

31 results
2 Conclusion
Implement plan to simplify and consolidate cross-government grant funding for local authorities by autumn 2025.
Conclusion
Local authorities’ ability to improve outcomes for people is undermined by an overly complex funding system, with competing policy demands and funding streams. Local authorities receive funding through the annual local government finance settlement, which includes formula-based grants and locally … Read more
HM Treasury
View Details
3 Conclusion
Provide details on how local government finance settlement will support greater investment in prevention.
Conclusion
Significant financial pressures are constraining local authorities’ ability to invest in prevention, leading to less early intervention services which could help manage demand. Preventative services can be used to manage demand by helping to stop, delay or reduce the extent … Read more
HM Treasury
View Details
4 Conclusion
Conduct post-implementation review of National Insurance Contributions increase impact on local government services.
Conclusion
Neither MHCLG nor HM Treasury have assessed the impact that increases in national insurance contributions (NICs) will have on local government services. In April 2025, the NIC employer rate increased from 13.8% to 15% whilst the threshold at which employers … Read more
HM Treasury
View Details
5 Conclusion
Set out solution for local authority financial sustainability before statutory override ends in March 2026.
Conclusion
Financial pressures have led to short-term and unsustainable approaches to managing overspends in local government. In 2020–21, MHCLG introduced the Exceptional Financial Support (EFS) framework to help local authorities that are in financial trouble. Since then, 42 local authorities have … Read more
HM Treasury
View Details
6 Recommendation
Set out detailed timetable of local government finance reforms, implementation plans, and transitional arrangements.
Recommendation
There is significant uncertainty around how the proposed local government finance reforms and reorganisation will be implemented. Long standing plans for funding and service reforms have been delayed several times. The government has now announced a huge reform agenda for … Read more
HM Treasury
View Details
1 Conclusion
Committee received evidence on local government financial sustainability from diverse stakeholders.
Conclusion
On the basis of a report by the Comptroller and Auditor General, we took evidence from the Ministry of Housing, Communities and Local Government (MHCLG) and HM Treasury on local government financial sustainability.1 We also heard evidence from Professor Tony … Read more
HM Treasury
View Details
7 Conclusion
Significant delays persist in local government external audit assurance, creating information gaps.
Conclusion
Local audit, including reports on value for money arrangements within local authorities, helps to provide transparency and assurance to both central government and taxpayers on local authorities’ plans to achieve effective services. At 31 March 2024 only 25% of local … Read more
HM Treasury
View Details
8 Conclusion
Increased spending on SEND and temporary accommodation fails to meet people's needs.
Conclusion
Despite increased spending , there are indications that services are not meeting peoples’ needs, such as only 50% of Education, Health and Care (EHC) plans for children and young people being issued within the 20-week statutory limit in 2023.15 MHCLG … Read more
HM Treasury
View Details
9 Conclusion
MHCLG lacks comprehensive outcomes framework for local government, focusing on specific spending areas.
Conclusion
Councillor Pete Marland and Iain Murray both stressed the importance of focussing on outcomes.18 In response to our question on supporting greater transparency of spend and delivery of outcomes, MHCLG told us that there was significant work under way to … Read more
HM Treasury
View Details
10 Conclusion
Local government funding system remains excessively complex, eroding transparency and public trust.
Conclusion
The funding system for local government is extremely complex. The local government finance settlement provides formula-based funding to local authorities, which MHCLG distributes through a combination of formula- based grants, general grants and locally retained business rates. Local authorities also … Read more
HM Treasury
View Details
11 Conclusion
Single-year finance settlements hinder local authority long-term planning; multi-year committed for 2026–27.
Conclusion
In recent years, government has provided single-year finance settlements, with stakeholders consistently calling for multi-year settlements to aid longer term planning and decision making. Written evidence from Cornwall Council highlighted how single year settlements compound the financial challenges it faces … Read more
HM Treasury
View Details
12 Conclusion
Numerous ring-fenced grants create administrative burden for local authorities, prompting consolidation efforts.
Conclusion
Outside of the finance settlement, local authorities can receive hundreds of different local grants from several government departments. While there is no official count, Councillor Pete Marland suggested that there are around 300 funding streams coming from central government to … Read more
HM Treasury
View Details
13 Conclusion
Lack of joined-up working results in competing funding demands for local authorities.
Conclusion
Many departments rely on local authorities to deliver policy initiatives, although lack of joined-up working has resulted in competing funding demands. Our predecessors warned that competition between the Home Office and local authorities for local accommodation was “driving up prices … Read more
HM Treasury
View Details
14 Conclusion
Spending shifts from preventative to late intervention services, increasing later costs and worsening outcomes.
Conclusion
MHCLG recognises the importance of investing in prevention but also the challenge of funding it when finances are constrained.34 Preventative services help stop, delay or reduce the need for statutory services and can help to deliver better outcomes.35 Over the … Read more
HM Treasury
View Details
15 Recommendation
HM Treasury implements multi-year settlements to incentivise upstream prevention spending.
Recommendation
HM Treasury told us how the shift to prevention takes time and needed to be done gradually.39 We challenged HM Treasury and MHCLG on how the spending review and local government finance settlement would support this shift and incentivise prevention.40 … Read more
HM Treasury
View Details
16 Conclusion
MHCLG allocates significant grants to enhance children's social care and homelessness prevention.
Conclusion
MHCLG said it had already begun to focus funding on prevention in a number of ways, including the introduction of a new £270 million grant for children’s social care prevention. It had also increased the overall homelessness prevention grant for … Read more
HM Treasury
View Details
17 Conclusion
April 2025 employer NICs rise supported by government funding for public sector.
Conclusion
In April 2025 the NIC employer rate increased from 13.8% to 15%, while the threshold at which employers start paying NIC on employees’ earnings reduced from £9,100 to £5,000. HM Treasury told us the aim was to raise more tax … Read more
HM Treasury
View Details
18 Conclusion
HM Treasury NICs compensation excludes indirect cost increases passed onto public sector.
Conclusion
HM Treasury told us that it calculated the level of compensation for public authorities by apportioning the expected increase in direct NICs between the different work forces within the public sector. We were told that this did not account for … Read more
HM Treasury
View Details
19 Conclusion
MHCLG consulted on NICs allocation for local authorities, noting varied funding practices.
Conclusion
MHCLG told us that it consulted with the sector on how best to allocate the £515 million so that it did not discriminate against local authorities that had chosen to outsource or insource specific services. It went on to say … Read more
HM Treasury
View Details
20 Recommendation
Employer NICs and National Living Wage rises create significant cost pressures for care providers.
Recommendation
Written evidence we received from Mencap, a social care provider supporting over 4,000 people with learning difficulties, indicated that the changes to employer NICs coupled with increases in the National Living Wage, could potentially cost it an additional £18 million … Read more
HM Treasury
View Details
21 Recommendation
MHCLG and HM Treasury failed to assess NIC changes impact on local government services.
Recommendation
We asked whether an impact assessment had been carried out to consider whether local authorities would be able to fully compensate organisations, particularly smaller charities providing local government services, for the increased NIC costs out of the £515 million.53 MHCLG … Read more
HM Treasury
View Details
22 Recommendation
LGA estimates over £1 billion NICs funding shortfall, unassessed by MHCLG.
Recommendation
We drew MHCLG’s attention to the Local Government Association’s calculations on the costs to local government of the increases in NICs. These suggest that the direct cost to local government is an estimated £637 million. The LGA also calculated indirect … Read more
HM Treasury
View Details
23 Recommendation
Exceptional Financial Support for councils allows capital asset use for revenue, not new funding.
Recommendation
Central government has introduced measures to help local authorities manage budget overspends. In 2020–21, MHCLG introduced the Exceptional Financial Support (EFS) framework to help local authorities that are in financial trouble.57 Since then, 42 local authorities have received over £5 … Read more
HM Treasury
View Details
24 Conclusion
Exceptional Financial Support is no longer exceptional and lacks long-term funding strategy.
Conclusion
Written evidence we received highlighted that EFS was no longer considered exceptional and there were concerns that some local authorities required measures ‘over and above’ the EFS framework, given the scale of their financial distress.64 MHCLG told us it recognised … Read more
HM Treasury
View Details
25 Recommendation
Government has not yet presented a solution for managing post-2026 SEND budget deficits.
Recommendation
Many local authorities have seen rises in Special Educational Needs (SEND) demand, and the NAO has previously reported that 101 local authorities overspent their SEND-related budgets in 2022–23.67 Department for Education (DfE) estimates suggest that by the end of 2027–28, … Read more
HM Treasury
View Details
26 Conclusion
Fundamental reform of the SEND system is essential to address ongoing deficits.
Conclusion
Iain Murray from CIPFA warned that even if these deficits were written off, local authorities would immediately start to accumulate new deficits due to high levels of demand in SEND.71 MHCLG told us that there was huge amounts of work … Read more
HM Treasury
View Details
27 Recommendation
Central government acknowledges outdated local government finance system and plans reforms.
Recommendation
Central government acknowledges the local government finance system is complex and outdated, with long-standing plans for reform not having taken place.75 In autumn 2024 government committed to reforms over the medium term. Alongside confirming the reintroduction of multi-year funding settlements … Read more
HM Treasury
View Details
28 Conclusion
MHCLG aims to align local funding with needs but acknowledges reform distribution risks.
Conclusion
We asked MHCLG how its reforms will help councils deal with the immense financial challenges they face. It told us it recognised the problems and, through funding reform, it was seeking to align the way funding is distributed much more … Read more
HM Treasury
View Details
29 Recommendation
MHCLG acknowledges insufficient funding, aiming for efficiency and demand management amid uncertainties.
Recommendation
We challenged MHCLG as to whether its reforms will put local government finance on a sustainable footing. It acknowledged that there was not enough money in the system, so the aim of the reforms was to use the money available … Read more
HM Treasury
View Details
30 Recommendation
Multiple complex local government reforms and reorganisation are happening simultaneously.
Recommendation
Given the range of proposed reforms as well as local government reorganisation, we pressed MHCLG on the timing and sequencing. MHCLG responded that “it is all happening at once”.84 It accepted that funding reform plans may need to be adapted … Read more
HM Treasury
View Details
31 Conclusion
Local government reforms and reorganisation present opportunities but begin from a fragile financial position.
Conclusion
Written evidence we received from the Chartered Institute of Public Finance and Accountancy pointed out that funding reform and local government reorganisation were opportunities to improve sustainability in the sector, but that local government approached these extensive reforms from a … Read more
HM Treasury
View Details