MPs accuse Government of not having sufficient oversight of local authority finances
The Government does not have sufficient oversight over "worsening" local authority finances and its ability to effectively monitor financial pressure within local authorities has been undermined, at a time when some councils are already in poor financial health, the Public Accounts Committee (PAC) has warned.
The PAC report on the Whole of Government Accounts for 2022-23 comes after the National Audit Office in November 2024 said it was unable to sign them off because of the local audit crisis, the first time the spending watchdog had taken such a step.
MPs on the committee noted that the Government's accounts could not be signed off as only 10% of 426 English local authorities submitted reliable data for the year, with 187 failing to submit at all.
The committee also voiced concern that the Ministry of Housing, Communities and Local Government (MHCLG) will not be able to foresee issues in local government finance and intervene where appropriate.
Their report warns of a lack of financial transparency for local authorities, at the same time as they face rising populations, higher demand on social care and lower council incomes.
The Government assured the inquiry that it is aware of what is going on in the local authority area and that there are other ways to check a council's financial health, including informal conversations, other forms of published data, and auditors' duty to issue reports on significant public interest matters.
However, the committee's report highlighted the case of Barnet Council, which issued a Section 114 notice following unlawful pensions transactions in 2020.
"MHCLG was not aware of the issue before the council declared it," the report said.
The PAC made a series of recommendations to tackle the local audit crisis, which included a call for the Treasury to write to the committee within six months and set out its approach to and progress in reducing the level of missing and unaudited data in future years.
It also recommended that the MHCLG write to the committee, setting out key dates relating to the resolution of the local audit crisis and explaining to the committee how it approaches identifying local authorities that are under financial pressure.
It also asked that the MHCLG submit their latest risk assessment analysis on local authorities and set out the consequences for councils that fail to meet their backstop deadline.
Sir Geoffrey Clifton-Brown, Chair of the Public Accounts Committee, said: "The Whole of Government Accounts should provide an accurate picture of the UK's public finances for Parliament and the wider public.
"But for the first time in the WGA's history, the National Audit Office has been unable to sign them off.
"The unreliability of its data hinders transparency for the taxpayer's pound, and it is currently wide of the mark in its assessment of net debt and income by tens of billions of pounds.
He added: "For accounting purposes, the UK public finances are virtually a closed book when viewed through the WGA.
"In its missing data, however, the WGA does in its way provide a helpful snapshot - of the miserable state of local audit."
He noted that the Government told the inquiry that "it is confident it still has oversight of the local government finance landscape" even without fully audited accounts, from the informal conversations it holds with councils and other sources.
Respondong to the report, an MHCLG spokesperson said: “This government inherited a crumbling local government sector, with no functioning transparent early warning system in place to sound the alarm when a council requires support. That’s why we committed to reforming failing local government audit in our manifesto.
“As part of this overhaul we have already taken decisive action to clear the local audit backlog to fix the system.
“This on its own is not enough and that is why we have published a strategy setting out our commitment to radically overhaul the system over the coming years through our Plan for Change.”
Adam Carey