Fourth Report - COVID-19: Local government finance

Select Committee

Public Accounts Committee HC 239 4 June 2021

Report Status Government responded

Conclusions & Recommendations 26 items (18 recs)

Source View on Parliament website

Government Response (AI assessment · 26 of 26 classified)

Accepted 15

Deferred 5

Not Addressed 2

Government response

Treasury minutes: Government response to the Committee of Public Accounts on the Fourth report from Session 2021-22 · published 2 Sep 2021

Read the government response ↗ Response on the tracker

Recommendations & Conclusions

15 results

3 Recommendation Accepted

Government support schemes during the pandemic were not always designed with sufficient knowledge of local...

Recommendation

Government support schemes during the pandemic were not always designed with sufficient knowledge of local government finance or input from the sector. Representatives of the local government sector assert that government departments other than MHCLG did not always engage with … Read more

Government Response Summary

The government accepts the recommendation and commits to coordinating a written response by October 2021 from relevant departments, outlining their plans to improve and maintain their understanding of local government finance and pressures.

HM Treasury

5 Recommendation Accepted

The Department’s over-optimism about the impact of the pandemic on local authorities risks leading to...

Recommendation

The Department’s over-optimism about the impact of the pandemic on local authorities risks leading to reductions in services for local people. The Department is confident about the sector’s stability and sustainability in relation to the immediate and short-term impacts of … Read more

Government Response Summary

The government agrees with the recommendation, stating it has already engaged with other departments and established analytical working groups to understand the long-term impacts of COVID-19 for the 2021 Spending Review, and will report back to the Committee in October 2021.

HM Treasury

7 Recommendation Accepted

It is unacceptable that local authorities continue to face uncertainty about the level of financial...

Recommendation

It is unacceptable that local authorities continue to face uncertainty about the level of financial support they can expect from government on top of the other pressures and uncertainty with which they are currently required to cope. The pandemic has … Read more

Government Response Summary

The government agrees to explore ways to provide more financial certainty, stating it wrote to the committee on 22 June 2021 and plans to confirm the 2022-23 funding settlement at the 2021 Spending Review, aiming for early financial certainty and timely release of the Local Government Finance Settlement.

HM Treasury

1 Conclusion Accepted

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

Conclusion

On the basis of a report by the Comptroller and Auditor General, we took evidence from the Ministry of Housing, Communities & Local Government (the Department) and HM Treasury about local government finance in England during the COVID-19 pandemic.1 We … Read more

Government Response Summary

The government acknowledges the committee's introductory conclusion and states it will write to the Committee by the end of 2021 to detail how it is improving its oversight of local government finance to prepare for future emergencies.

HM Treasury

9 Recommendation Accepted

The Department introduced a monthly survey in April 2020 to collect data on the financial...

Recommendation

The Department introduced a monthly survey in April 2020 to collect data on the financial pressures faced by local authorities due to the pandemic. Prior to the pandemic, the majority of its regular financial data sets tended to be collected … Read more The Department introduced a monthly survey in April 2020 to collect data on the financial pressures faced by local authorities due to the pandemic. Prior to the pandemic, the majority of its regular financial data sets tended to be collected on an annual basis. The Department told us that the switch to a monthly approach did not necessarily mean there was a problem with the data it collected before, but reflected the unprecedented nature of the challenge faced by the sector. The Department told us that the survey had given it “huge insight” into local authorities’ finances on a more immediate and responsive basis than it would normally have. The survey data was also a valuable source of information for other departments.18 In terms of learning from this experience, the Department recognised that there was a benefit to having more information on the sector over the longer-term, 13 Housing, Communities and Local Government Committee, Oral evidence: Work of the Department, HC 302, Monday 4 May 2020; Letter to the Secretary of State from the Chair of the Housing, Communities and Local Government Committee requesting further information following his appearance on 4 May, 14 May 2020; Committee of Public Accounts, Oral evidence: Local authority commercial investment, Friday 15 May 2020; Committee of Public Accounts, Oral evidence: Whole of Government Response to COVID-19, HC 404, 15 June 2020; Committee of Public Accounts, Oral evidence: Readying the NHS and social care for the COVID-19 peak, HC 405, 22 June 2020; Committee of Public Accounts, Oral evidence: Progress in Remediating Dangerous Cladding, HC 406, 6 July 2020; Housing, Communities and Local Government Committee, Oral evidence: Work of the Department, HC 302, 22 July 2020 14 Qq 84–85 15 Q85, 87, 94; C&AG’s Report, paras 2.35–2.36, 4.3 and Figure 7 16 Qq 90, 93–94; C&AG’s Report, para 2.24, 2.31 and Figure 7 17 Qq 87, 90, 94, 120, 123, 135, 139–140, 161; C&AG’s Report, Figure 10 18 Qq 100, 103 and 105; C&AG’s re Show less

Government Response Summary

The government agrees with the recommendation and has launched a review of existing local government finance data collections, with a first steering group meeting in June 2021. The department commits to writing to the Committee by October 2021 to provide an update on the review and how it is incorporating lessons learned from pandemic data collection.

HM Treasury

10 Recommendation Accepted

Local authorities need to hold sufficient reserves to deal with known future needs and the...

Recommendation

Local authorities need to hold sufficient reserves to deal with known future needs and the financial risks they face. Accordingly, reserve levels are a key measure of the financial sustainability of local authorities over the medium-term.20 As part of its … Read more

Government Response Summary

The government agrees to collect more detailed information on local authority reserves. It intends to make changes to its revenue and financing collections to require more granular data on earmarked reserves and will consult with stakeholders on these proposed changes, committing to provide an update to the Committee by October 2021.

HM Treasury

11 Recommendation Accepted

The Department’s monthly survey is an addition to a broader framework of risk monitoring that...

Recommendation

The Department’s monthly survey is an addition to a broader framework of risk monitoring that draws on a range of other information sources.22 Through the use of this framework the Department had placed Croydon Council on its ‘long list’ of … Read more The Department’s monthly survey is an addition to a broader framework of risk monitoring that draws on a range of other information sources.22 Through the use of this framework the Department had placed Croydon Council on its ‘long list’ of councils at financial risk for some years. However, it was only in the light of the council’s return to the Department’s monthly survey in April 2020 and subsequent conversations that the Department became fully aware of the scale of the financial challenge faced by the sector.23 The council’s section 151 officer subsequently issued a section 114 notice in October 2020, indicating that the council was at risk of failing to balance its budget, which is unlawful. We challenged the Department on whether it should have taken earlier action in relation to the council. The Department told us that in its view the authority itself was not fully aware of the scale of its own financial pressures for much of 2020, and by extension that the Department could not have been expected to know.24 The Department has agreed £120 million worth of capitalisation directions, which allow local authorities to either borrow or use receipts from the sale of capital assets to support revenue spending, in order to stabilise the council’s finances.25 19 Qq 100 and106 20 C&AG’s Report, paras 3.15, 3.16 and 3.21 21 Q103; C&AG’s Report, paras 3.17 and 3.19 22 Comptroller and Auditor General, Financial sustainability of local authorities 2018, HC 834, Session 2017–2019, 8 March 2018, para 21 23 C&AG’s report, para 3.27 24 Qq 97–98 25 Letter from Jeremy Pocklington CB, Permanent Secretary Ministry of Housing, Communities & Local Government to the Committee of Public Accounts regarding exceptional financial support, dated 17 March 2021. The £120 million comprises £70 million confirmed for 2020–21 and £50 million in principle for 2021–22. COVID-19: Local government finance 13 Designing schemes to support local authorities and their communities during the pandemic Show less

Government Response Summary

The government agrees with the implied recommendation to improve engagement with local authorities at risk and states it has already increased its engagement and improved internal risk processes since the pandemic. It notes lessons learned from Croydon Council are reflected in new external assurance reviews and commits to writing to the Committee in October 2021 to set out its full response.

HM Treasury

12 Conclusion Accepted

We asked representatives of the local government sector how well the Department had engaged with...

Conclusion

We asked representatives of the local government sector how well the Department had engaged with it over the last year. We heard and received evidence praising the quality of the Department’s engagement with the sector during the pandemic. For example, … Read more

Government Response Summary

The government agrees with the implied recommendation to improve inter-departmental understanding of local government finance. It commits to working with other departments to achieve this and will coordinate a written response to the Committee by October 2021, detailing how each department plans to improve their understanding and engagement.

HM Treasury

13 Conclusion Accepted

The Department highlighted “the excellent work” within the Department for Health and Social Care (DHSC)...

Conclusion

The Department highlighted “the excellent work” within the Department for Health and Social Care (DHSC) as an example of “that deepening of the connection with local government”.28 In June 2020, DHSC created the Social Care Sector COVID-19 Support Taskforce to … Read more

Government Response Summary

The government agrees, stating it has worked closely with other departments and will coordinate a written response by October 2021 outlining how each department plans to improve and maintain their understanding of the operational realities of local government finance.

HM Treasury

18 Recommendation Accepted

In its examinations of the local government sector prior to the pandemic, our previous Committee...

Recommendation

In its examinations of the local government sector prior to the pandemic, our previous Committee raised concerns in 2018 that “the Department may not know if pressures in one service area quickly transfer to others or the extent of the … Read more

Government Response Summary

The government agrees with the recommendation and has launched a review of existing local government finance data collections, with a first steering group meeting in June 2021. The department commits to writing to the Committee by October 2021 to provide an update on the review and how it is incorporating lessons learned from pandemic data collection.

HM Treasury

19 Recommendation Accepted

Manchester City Council told us that government support has not fully mitigated the impact of...

Recommendation

Manchester City Council told us that government support has not fully mitigated the impact of the pandemic, and the average pressure on next year’s budget is £15 million across the 10 authorities in Greater Manchester and £32 million across the … Read more

Government Response Summary

The government agrees with the recommendation, but states it believes its existing £6 billion in un-ringfenced funding and rapid monitoring have realistically assessed and met the sector's pressures, claiming existing resources are sufficient. It will continue its supportive role and report back.

HM Treasury

22 Conclusion Accepted

CIPFA and SOLACE called for a broader review of potential reform options rooted in a...

Conclusion

CIPFA and SOLACE called for a broader review of potential reform options rooted in a deeper understanding of the impact of the pandemic on council tax and business rates, encompassing the government’s promised reforms to adult social care funding, and … Read more

Government Response Summary

The government agrees to set out the future plan for local government funding at the 2021 Spending Review, stating it will take stock of the pandemic's impact on local authority resources and service pressures in its determination.

HM Treasury

23 Conclusion Accepted

Local authority representatives told us about the unprecedented level of financial uncertainty they have faced...

Conclusion

Local authority representatives told us about the unprecedented level of financial uncertainty they have faced and continue to face as a result of the pandemic.61 Manchester City Council said that the impact on local authority commercial income, which does not … Read more

Government Response Summary

The government agrees with the need for earlier financial certainty, committing to confirm the 2022-23 funding settlement at the 2021 Spending Review and ensuring the Local Government Finance Settlement is timed for local authorities to confirm budgets ahead of the financial year.

HM Treasury

24 Conclusion Accepted

Representatives of the local government sector told us that the way in which government support...

Conclusion

Representatives of the local government sector told us that the way in which government support had been designed or announced has also created or perpetuated uncertainty. SIGOMA explained that “2020–21 has been a year of month to month existence with … Read more Representatives of the local government sector told us that the way in which government support had been designed or announced has also created or perpetuated uncertainty. SIGOMA explained that “2020–21 has been a year of month to month existence with incremental and mostly reactive funding without which all of our members would have failed”.68 The LGA highlighted that councils were receiving more funding through specific grants accessed by making bids in competition with other councils; while CIPFA observed that “this preponderance of bids [as a basis for funding decisions] is making life even more uncertain”.69 We also heard about delayed or late announcements of the details of funding, leaving local authorities in uncertainty, for example the date of 59 Qq 38–43 60 Qq 143–144 61 LGF0001 submission from LGA page 2, LGF0008 submission from Surrey CC paragraphs 7–9 62 Q6 63 LGF0003 submission from DCN paragraph 20; C&AG’s Report, paras 4.4–4.5 64 Business rates relief – GOV.UK (www.gov.uk) 65 Apply for Council Tax Reduction – GOV.UK (www.gov.uk) 66 LGF0007 submission from SIGOMA paragraph 4.3; C&AG’s Report, 1.16 67 Qq 9, 13, 14, 16, 39 68 LGF0007 submission from SIGOMA paragraph 4.1; also Q4 69 LGF0001 submission from LGA page 2; Fragmented Funding – report | Local Government Association; Q15 COVID-19: Local government finance 19 the local government provisional finance settlement or of public health allocations.70 For local authorities the financial year 2021–22 starts on 1 April 2021, and local authorities were legally required to set their budgets and council tax levels for 2021–22 by either 1 March 2021 (precepting authorities) or 11 March 2021 (billing authorities).71 Local authority public health grant allocations for 2021–22 were published on 16 March 2021, so authorities were required to set their budgets for that year without full knowledge of their funding.72 We received evidence from DCN expressing concern that business rates appeals related to changes i Show less

Government Response Summary

The government agrees with the need for earlier financial certainty, committing to confirm the 2022-23 funding settlement at the 2021 Spending Review and ensuring the Local Government Finance Settlement is timed for local authorities to confirm budgets ahead of the financial year.

HM Treasury

25 Conclusion Accepted

We received written evidence from SOLACE, which told us that “one-year financial settlements, which are...

Conclusion

We received written evidence from SOLACE, which told us that “one-year financial settlements, which are delivered late in the budget planning cycle, presents risks and can result in very damaging cuts to services residents and businesses rely on.” Similarly, CIPFA … Read more

Government Response Summary

The government agrees with the need for earlier financial certainty, committing to confirm the 2022-23 funding settlement at the 2021 Spending Review and ensuring the Local Government Finance Settlement is timed for local authorities to confirm budgets ahead of the financial year.

HM Treasury