Whitehall "must do more" to understand impact of funding cuts on councils

The Department for Communities and Local Government and other Whitehall departments must do more to evaluate the impact of decisions on local authority finances and services, the National Audit Office has warned.

A report from the spending watchdog said local authorities faced increasing difficulty over the rest of the spending review period in absorbing cuts to central government funding without having to reduce services.

Changes to funding mechanisms are also set to increase financial uncertainty and risk.

The NAO said: “Local authorities have, so far, managed with reduced funding, but more are facing the challenge of avoiding financial difficulties while meeting their obligations.”

It pointed to evidence already of reductions in services in adult social care and libraries.

According to the NAO, local authorities are planning to make £4.6bn in savings by April this year. It also estimated that councils still needed to find about half of the savings to be made before March 2015.

This was happening at a time of rising demand for high cost services such as adult and children’s care, it said.

The watchdog concluded that the scope for absorbing cost pressures through reducing other, lower cost services was diminishing, given that spending on those services had already been reduced.

It also said that it was increasingly important to understand the cumulative effect of the changes to local government funding.

The NAO meanwhile warned that the accountability framework for addressing widespread financial failure in local government was “untested”.

“Where there have been one-off failures requiring central government intervention, the failure regime has managed to resolve them,” it said.

“It is not known how the system would respond in the case of multiple financial failures in more challenging times for local authorities.”

Amyas Morse, head of the National Audit Office, said: "Local authorities are facing the challenge of reducing spending while protecting the services they provide.

“So far, they have generally coped well, but central government funding support will continue to reduce and the impact on individual local authorities will vary. The Department will need to be able to detect emerging problems and respond flexibly and quickly."

Cllr Sir Merrick Cockell, chairman of the Local Government Association, said: “Cuts to local government funding, amounting to 33% across this spending period, have been coming from all angles and the report shows that central Government has not taken a comprehensive and coordinated approach to assessing the impact of its decisions on local services.
 
“Cuts aren’t just numbers on a page. They represent less money to deliver services on which people rely. It is concerning that the departments examined by the NAO had not fully scoped the demand for and cost of delivering services to different areas and that not enough effort was made across Whitehall to assess what savings were possible before cuts would start eating into frontline services."

Sir Merrick added: “Big changes like the local retention of business rates and cuts to council tax support will bounce off one another and the combined impact has to be more effectively mapped. In future an assessment of the combined impact of all relevant policies must be a basic feature of the way the Government makes decisions.”

The LGA chairman also called for radical reform to the public sector, “starting with the removal of barriers which are preventing local and central government services, the police, health services, and other organisations from working in a more coordinated way”.

A copy of the report can be viewed here.