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

Select Committee

Public Accounts Committee HC 646 2 February 2022

Report Status Government responded

Conclusions & Recommendations 29 items (15 recs)

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Government Response (AI assessment · 28 of 29 classified)

Accepted 12

Acknowledged 10

Deferred 3

Not Addressed 3

Government response

Treasury minutes: Government response to the Committee of Public Accounts on the Thirty Fourth report from Session 2021-22 · published 28 Apr 2022

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Recommendations & Conclusions

12 results

4 Recommendation Accepted

The Department is making some welcome improvements to its oversight of the sector although it...

Recommendation

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 Summary

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

We are concerned the Department is worryingly complacent in its view that the spending review...

Recommendation

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 Summary

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.

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8 Recommendation Accepted

This Committee highlighted in 2016 that the Department appeared complacent about the risks from local...

Recommendation

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 Summary

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.

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9 Recommendation Accepted

Where a local authority borrows, it must set aside money each year to repay the...

Recommendation

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 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 cost of borrowing 16 C&AG’s Report, p. 39; Committee of Public Accounts, COVID-19: Local government finance, Fourth Report of Session 2021–22, HC 239, 4 June 2021; Q11. 17 Comptroller and Auditor General, Local government finance in the pandemic, Session 2019–21, HC 1240, 10 March 2021, para 2.16 18 Committee of Public Accounts, Oral evidence: Department for Levelling Up, Housing and Communities recall, HC 744, 1 November 2021, Qq 11–17 and 55. 19 Committee of Public Accounts, Financial sustainability of local authorities, Twenty-Sixth Report of Session 2016–17, HC 708, 18 November 2016 20 C&AG’s Report, Figure 14. 21 Committee of Public Accounts, Financial sustainability of local authorities, Twenty-Sixth Report of Session 2016–17, HC 708, 18 November 2016, recommendations 1 and 6, pages 5 and 7 22 Comptroller and Auditor General, Local authority investment in commercial property, HC 45, Session 2019–20, 13 February 2020. 23 Committee of Public Accounts, Local authority investment in commercial property, Eleventh Report of Session 2019–21, HC 312, 13 July 2020; C&AG’s Report, Figure 14 24 Ministry of Housing, Communities & Local Government, Local authority capital finance framework: planned improvements, policy paper, 28 July 2021, available at Local authority capital finance framework: planned improvements - GOV.UK (www.gov.uk); Q14 12 Local Government Finance System: Overview and Challenges in their current budgets and act prudently.25 In 2016, when the then Committee asked the Department about its ability to identify capital and investment trends it told us it had identified changes in MRP practice that were “worth analysing”.26 The Department changed its statutory guidance on MRP in February 2018.27 Nonetheless, the level of MRP made i Show less

Government Response Summary

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.

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11 Conclusion Accepted

The Institute of Chartered Accountants in England and Wales (ICAEW) noted that while the local...

Conclusion

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 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 of Session 2019–21, HC 312, 13 July 2020, para 15. 26 Committee of Public Accounts, Financial sustainability of local authorities, Twenty-Sixth Report of Session 2016–17, HC 708, 18 November 2016, oral evidence of 10 October 2016, qq 30–31 27 Comptroller and Auditor General, Local authority investment in commercial property, HC 45, Session 2019–20, 13 February 2020, Figure 21. 28 C&AG’s Report, Figure 13 data table 29 Committee of Public Accounts, Oral evidence: Local authority commercial investment, HC 312, Friday 15 May 2020, qq 105–106; Committee of Public Accounts, Local authority investment in commercial property, Eleventh Report of Session 2019–21, HC 312, 13 July 2020, recommendation 3 on page 6 30 Q14 31 Department for Levelling Up, Housing & Communities, Changes to the capital framework: Minimum Revenue Provision, consultation paper, 30 November 2021, available at: Changes to the capital framework: Minimum Revenue Provision - GOV.UK (www.gov.uk) 32 Q 22 33 Q 20 34 Qq 21–24. 35 Q 47; CIPFA for the Department of Levelling Up, Housing & Communities, Local Government Finance Review – Slough Borough Council, October 2021 36 Qq 20, 24 Local Government Finance System: Overview and Challenges 13 the urgency of the situation.37 This Committee has been raising repeated concerns about low audit fees since 2018, well before the pandemic.38 However, now only 9% of all local government body audits for 2020–21 were completed in time for audited accounts to be published by the extended deadline of 30 September 2021. At the same date, 70 authorities still had 2019–20 audits outstanding and 15 authorities had 2018–19 audits outstanding.39 We asked if the absence of up to three years’ audited accounts at the p Show less

Government Response Summary

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.

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14 Conclusion Accepted

The Department’s Accounting Officer is responsible for the overall accountability system for local government, including...

Conclusion

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 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 of its oversight of local government finance since 2010–11, for example by collecting information from a wider range of departments in preparation for spending reviews and creating analytical tools to inform its assessment of financial risk.55 The Department has been collecting information on the impact COVID-19 is having on local authority finances. However, it told us that it plans to cease this data collection at the end of 2021.56We previously reported on the quality of the Department’s engagement with local government during the pandemic, although the performance of 47 Committee of Public Accounts, Financial sustainability of local authorities, Fiftieth Report of Session 2017–19, HC 970, 4 July 2018, recommendation 6 48 Committee of Public Accounts, Local government governance and accountability, Ninety-Seventh Report of Session 2017–19, HC 2077, 15 May 2019, para 5 49 Committee of Public Accounts, Oral evidence: Local Government Governance and Accountability, HC 1738, Wednesday 27 March 2019, Q 27 50 Sir Tony Redmond, Independent review into the oversight of local audit and the transparency of local authority financial reporting, September 2020, para 9.6; Committee of Public Accounts, Financial sustainability of local authorities, Fiftieth Report of Session 2017–19, HC 970, 4 July 2018, recommendation 6; Committee of Public Accounts, Local government governance and accountability, Ninety-Seventh Report of Session 2017–19, HC 2077, 15 May 2019, recommendation 2 51 (LFS0001/ICAEW), paras 35 and 36 52 Qq 112–114 53 Ministry of Housing, Communities & Local Government, Local audit framework: technical consultation, 28 July 2021, paras 97–100 and questions 16, 17 54 Ministry Show less

Government Response Summary

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.

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15 Conclusion Accepted

This Committee recommended in 2016 that the Department should strengthen its understanding of the scale...

Conclusion

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 Summary

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.

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16 Conclusion Accepted

The Department told us that from April 2022, it will regularly collect much fuller information...

Conclusion

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 Summary

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17 Conclusion Accepted

The Department told us about a policy paper it had recently published about its framework...

Conclusion

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 Summary

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.

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18 Conclusion Accepted

The spending review announced on 27 October 2021, covering 2022–23 to 2024–25, provided £4.8 billion...

Conclusion

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 Summary

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.

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19 Conclusion Accepted

The Department told us the spending review “gives local government, looking at the sectoral level,...

Conclusion

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 Summary

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.

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20 Conclusion Accepted

When we pressed witnesses about the fragile state of adult social care services and continuing...

Conclusion

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 Summary

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.

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