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

10 results

1 Recommendation Acknowledged

On the basis of a Report by the Comptroller and Auditor General, we took evidence...

Recommendation

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 Summary

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.

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10 Recommendation Acknowledged

When we asked about a potential ballooning effect due to local authorities continually delaying and...

Recommendation

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 Summary

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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22 Recommendation Acknowledged

This Committee noted in 2016 that local authorities were facing an uncertain environment due to...

Recommendation

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 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 series of proposed reforms awaiting decisions; the same points arose again in 2019.87 Since 2016 the sector has faced a four-year settlement that in practice was characterised by one-off and short-term funding initiatives, followed by two one-year settlements.88 In December 2021, the government announced a further single settlement for the 2022–23 financial year.89 In the run-up to the 2021 Spending Review, decisions about multiple significant reforms or updates relevant to local government finance were still outstanding, some of which had been first raised in 2015 or 2016. The outstanding decisions included potential changes to the underlying nature of business rates themselves, redistributing business rates growth between local authorities, updating the funding formula for calculating the spending need of local authorities and determining the distribution of much local government funding, changing the proportion of business rates retained by local authorities, and reforming the funding of adult social care (the service on which local authorities spend the most).90 80 Q 91 81 Committee of Public Accounts, COVID-19: Local government finance, Fourth Report of Session 2021–22, HC 239, 4 June 2021, para 21 82 Office for Budget Responsibility, Economic and fiscal outlook: October 2021, CP 545, October 2021, paragraph 2.89 83 Qq 91, 99, 100 84 Committee of Public Accounts, Transforming children’s services, Eighty-Eighth Report of Session 2017–2019, HC 1741, March 2019, conclusion 1; Qq 101–104 85 Q 101 86 Committee of Public Accounts, Financial sustainability of local authorities, Twenty-Sixth Report of Session 2016–17, HC 708, 18 November 2016, conclusion 6 87 Committee of Public Accounts, Financial Show less

Government Response Summary

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.

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23 Conclusion Acknowledged

We have previously concluded that the implications of reductions in service spending for service users...

Conclusion

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 Summary

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

The spending review confirmed the timing of the next and future business rates revaluations and...

Recommendation

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 Summary

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

We have previously recommended that reform of local government finance should take place in a...

Conclusion

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 Summary

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.

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26 Recommendation Acknowledged

A Local Government Association review found 448 individual grants to local authorities between 2015–16 and...

Recommendation

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 Summary

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.

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27 Conclusion Acknowledged

The new Secretary of State told the Housing, Communities and Local Government Committee that he...

Conclusion

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 Summary

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28 Conclusion Acknowledged

The Treasury told us the balance between formula and competitive funding should be different for...

Conclusion

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 Summary

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29 Conclusion Acknowledged

We noted the interactions between different government policy areas and the “tab” that ultimately falls...

Conclusion

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 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 review, it had discussed those settlements for other departments and that money going in to other areas such as special educational needs, housing, transport, skills and changes to universal credit would have positive effects for the local government sector.112 This Committee has previously made several recommendations about the need for greater co-ordination within central government with regard to local government: in relation to assessing service impact, measuring financial sustainability, and the structure of funding schemes.113 This Committee has particularly highlighted the importance of a coordinated plan with clear milestones towards achieving the net zero target, and the importance of co- ordinated engagement with local government.114 Cross-government working is important to understand interdependencies within such a wide-ranging programme as net zero and enable processes for managing them.115 111 Qq 60, 102 112 Q 60 113 Committee of Public Accounts, Financial sustainability of local authorities, Fiftieth Report of Session 2017–19, HC 970, 4 July 2018, recommendations 2 and 4; Committee of Public Accounts, Local government spending, Seventy- Sixth Report of Session 2017–19, HC 1775, 6 February 2019, recommendation 1; Committee of Public Accounts, Local government governance and accountability, Ninety-Seventh Report of Session 2017–19, HC 2077, 15 May 2019, recommendation 1; Committee of Public Accounts, COVID-19: Local government finance, Fourth Report of Session 2021–22, HC 239, 4 June 2021, recommendation 3 114 Committee of Public Accounts, Achieving net zero, Forty-Sixth Report of Session 2019–21, HC 935, 5 March 2021, page 3 and recommendation 6 115 Comptroller & Auditor General, Achieving net ze Show less

Government Response Summary

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.

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