Local government minister Jim McMahon has warned that the parlous state of local authority finances is a barrier to further devolution of power from central government.
Speaking at the Labour Party conference this week, McMahon said that dealing with issues at authorities that have already declared effective bankruptcy – or those on the brink of doing so – had to come first.
Birmingham City Council and Woking Borough Council last year joined the ranks of authorities issuing so-called section 114 notices acknowledging that they are unable to balance their books. A Local Government Association survey in December found that one-in-five council chief executives or leaders in England feared their authority would also have to make such a declaration, as required by the Local Government Act 1988.
Council finances have also been hugely impacted by a crisis in audit that stems from the abolition of the Audit Commission almost a decade ago. Members of parliament's Public Accounts Committee said the build-up of backlogs was "unacceptably high" in a report last year, with the situation hampering scrutiny of local government's £100bn-a-year spend.
In July, McMahon told parliament that the local audit system in England was "broken", with just 1% of councils and other local bodies publishing audited accounts on time. The National Audit Office has also highlighted the impact of local audit backlogs on the usefulness of HM Treasury's Whole of Government Accounts.
This week McMahon admitted that addressing financial issues being faced by the local government sector needed to take priority over devolution.
"We can’t devolve to a system that is falling over," he told Local Government Chronicle at the Labour Party conference.
McMahon told a fringe meeting organised by think tank Demos and the Chartered Institute for Public Finance and Accountancy that local government had been "allowed to deteriorate" over the past 14 years under Conservative-led governments.
"Devolution will not work if councils are going bust left right and centre," he said, according to LGC.
McMahon said that sorting out the backlog in local government audit would be an essential step for the Ministry of Housing, Communities and Local Government in order to give HM Treasury "confidence that we are getting the financial house in order".
McMahon said local government could expect a one-year spending-review settlement for 2025-26 and a three-deal after that, with the multi-year deal including "redistribution" of funding.
He told the session MHCLG aspired to a focus that was "outcomes based rather than output based".
In July, McMahon set out a timeline for clearing the backlog in local-government audit that could see hundreds of audits not being completed on time in the short term, ahead of an anticipated resolution in 2028.