The Ministry of Housing, Communities and Local Government needs to spearhead a “whole-system, cross government approach” to get English councils on a secure financial footing, the National Audit Office has warned.
It said real-terms funding for key services had not kept pace with population growth, rising demand and the increased cost of provision – with 42 authorities receiving exceptional financial support since 2021-22. Since 2018, seven English councils have issued a Section 114 notice formally acknowledging that they cannot balance their budgets.
The public finance watchdog said the situation was exacerbated by the long-running crisis in local-government audit, which has resulted in hundreds of late reports, creating a “significant assurance gap” over the state of some councils’ finances.
The NAO’s just-published report Local Government Financial Sustainability found funding to local authorities from council tax, central government grants and business rates had increased by 4% between 2015-16 and 2023-24 to £55.7bn. However, funding measured on a per-person basis actually fell by 1% over the same period.
The report said demands for funding related to social care and temporary accommodation had increased over and above population growth and that 58% of the £72.8bn spent by local government in 2023-24 was on adult and children’s social care.
According to the NAO, major pinch points include education, health and care plans for children with special educational needs, the use of bed-and-breakfast accommodation for homeless families, and the availability of adult social care.
It said only half of EHC plans for special educational needs were issued within the Department for Education’s 20-week deadline in 2023. The NAO said that almost 3,800 families are currently being housed in B&B accommodation for longer than the six-week legal limit – a four-fold increase on the figure in 2018-19.
The NAO said that requests to councils for adult social care went up by 15% between 2015-16 and 2023-24, but only 2% more people were able to access support.
It added that public complaints to the local government and social care ombudsman have risen steadily over the last three years, with 80% of investigations into adult social care being upheld.
The report acknowledges a range of short-term measures to address acute funding shortfalls affecting local government. But it says there has been “insufficient action” to address the systemic weaknesses in local government financial sustainability.
It calls on MHCLG to take the lead in building a cross-government approach to local government financial sustainability with a strategy that considers “interdependencies and consequences across services and departmental boundaries”.
The NAO said MHCLG's approach should foster improved understanding among departments of the “wider impact” of their choices on local authorities in England.
It also stressed that MHCLG’s work on the upcoming Spending Review should involve developing a plan for funding and service reform focused on “long-term value for money underpinned by clear priorities across departmental boundaries”.
The report said the financial pressures faced by local authorities were reducing councils’ ability to invest in preventative work that could offset greater future expenses.
It called on MHCLG and HM Treasury to explore ways that the impact of preventative services could be evaluated.
The report also said the Treasury should incentivise government departments to invest in preventative services to deliver better outcomes and improved value for money.
NAO head Gareth Davies said government needs to use the looming Spending Review to take a long-term approach to stabilising council finances.
“There have been repeated delays to local government finance reform and government can no longer resort to short-term solutions to support local authorities,” he said. “Action to address this must resolve the systemic weaknesses in local government financial sustainability through a comprehensive, cross-government approach.”
Sir Geoffrey Clifton-Brown, chair of parliament’s Public Accounts Committee, said English councils were facing “unsustainable financial pressures” that were leaving little headroom for preventative services that could reduce demand.
“Short-term support is a sticking plaster to the underlying pressures facing local authorities. Delays in local audits are further undermining public confidence in local government finances,” he said. “There needs to be a cross-government approach to local government finance reform, which must deliver effective accountability and value for money for taxpayers.”
An MHCLG spokesperson said: “This government is under no illusions about the financial issues facing councils. That’s why we’re reforming the funding system and delivering improved public services across the country.
“We’re determined to make progress on the inheritance we’ve been left and are allocating £69bn to council budgets across England, bringing forward the first multi-year funding settlement in a decade and reforming the local audit system to help drive forward our Plan for Change.”