‘Complacent’ MHCLG lacks plan to combat council cash crunch

Department thinks ‘everything will work out in the end’ despite warning signs over councils’ financial health, say MPs

MHCLG's Marsham Street headquarters. Photo: Steve Cadman under CC BY-SA 2.0

By Richard Johnstone

04 Jul 2018

The Ministry of Housing, Communities and Local Government lacks a plan to address the financial pressures faced by councils after seven years of spending cuts, and is reliant on a favourable Spending Review deal to tackle shortfalls, MPs have warned.

In a report looking at how central government has managed seven years of reductions to local government, the Public Accounts Committee said that reductions totalling nearly half of total funding have left services under real strain. Key areas of support for vulnerable people, such as social care and housing, were under enormous pressure, while areas like planning, transport, and cultural services have seen significant cuts.

Amid rising demand for council services particularly social care, authorities face an estimated funding gap of over £5bn by the end of the decade, PAC chair Meg Hillier highlighted, which is “clearly not sustainable”.


“There is only so far the elastic can be stretched before it snaps. Yet, as our report makes clear, central government’s response to this looming crisis smacks of complacency,” she said. “Central government’s view is, in effect, that it expects everything to work out in the end. We beg to differ.”

“In response to our report we urge it demonstrate that it properly understands the performance of and pressures upon councils and the impact on citizens, and a commitment to working with them and within central government to ensure councils are properly equipped to tackle the challenges they face now and in future.”

The report highlighted that more and more local authorities are now showing signs of financial stress such as overspending on services, and they face greater uncertainty as both the result of the Spending Review and the sector’s wider funding framework beyond 2019-20 is unclear.

Government had planned that local business rates would be fully devolved to councils by the end of the decade, but following last year’s general election the government has only committed to 75% nationwide, without clarity on how the difference would be made up.

MPs also said the department had not been transparent on its understanding of the pressures faced by local authorities, meaning the committee cannot be sure that it genuinely understands the issue.

Relying on a favourable outcome from the 2019 Spending Review to address these financial issues is “particularly complacent”, says the committee, given that previous spending rounds resulted in the current “unsustainable situation”.

Indeed, Hillier said the department needed to develop an agreed measure of sustainability and a clear definition of ‘unsustainable’.

“These are fundamental weaknesses in its approach to assessing the financial risks facing councils and the sector as a whole – risks that, as the evidence bears out, are clear and pressing,” she added.

“Local authority spending power has fallen by more than a quarter over a period in which demand for vital services, in particular social care, has grown significantly.”

Among the committee’s recommendations is a call for MHCLG to write to MPs by the end of September explaining why it believes that the local authority sector is sustainable in the current spending review period, and detailing what it is doing to minimise the risk of financial failure in authorities currently on its risk register.

It has also been told to set out how it is planning to work with other departments effectively and make the case to Treasury for local authorities to be given additional funding at the next Spending Review. 

To support authorities’ financial planning, MHCLG must provide a clear timetable showing when it will take key decisions regarding the 75% local retention of business rates and publish the accompanying fair funding review being undertaken by officials. Ahead of this, MHCLG and the Treasury should provide assurances to local authorities that their funding for 2020-21 and 2021-22 will be within a certain margin of change, to help them plan ahead.

Responding to the report, Richard Watts, the chair of the Local Government Association’s Resources Board, said MPs had rightly recognised the significant funding pressures and huge financial uncertainty facing all councils over the next few years and into the next decade.

“The next Spending Review will be make or break for local services and we agree that plugging the funding gap and placing local government on a long-term sustainable financial footing must be an urgent priority for the government,” he said.

Responding to the report, a MHCLG spokeswoman said: “Local authorities are responsible for their own funding decisions, but over the next two years, we are providing councils with £90.7 billion to help them meet the needs of their residents, including social care.

“We recognise the pressures councils are facing, so we are working with local government to develop a funding system for the future.

“On top of this, we are giving them the power to retain more of the income they get from business rates so they can use it to drive further growth in their area.”

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