NAO warns of fresh council cash crisis


A National Audit Office (NAO) report into the financial sustainability of England’s local authorities has revealed that around 30 county and unitary councils are now facing such severe financial pressures that they will have no reserves left by 2022 at current spending rates.

The report warned: ‘The financial health of local authorities across England is getting worse.’


More than 10% of councils with care responsibilities – at least 15 authorities – could use up their reserves within three years, the auditors claimed.

Privately, NAO sources have suggested this group of councils are among those ‘most exposed’ to the financial risks that faced Northamptonshire CC before it imposed the sector’s first Section 114 notice for almost 20 years.

In addition, the auditors’ report raises concerns about the financial future of around 14 district councils, which could also run out of reserves by 2021/22.

NAO sources have been impressed by councils’ ability to cope with eight years of austerity, but the scope and depth of financial problems are now such that auditors are warning Whitehall to improve its co-ordination of local spending cuts or risk making matters worse.

The NAO study warned: ‘The Ministry of Housing, Communities and Local Government (MHCLG) has made improvements in understanding the sector’s financial position since the NAO’s last report in 2014 but because the responsibility for services is spread across departments there is no single view of how funding cuts are impacting the whole of local authority services.’

Aileen Murphie, the NAO’s value for money director for MHCLG, said: ‘Better Whitehall co-ordination is required. Maybe some combination of MHCLG, Treasury and Cabinet Office could be used to achieve this.’

The study also highlights the extent that care-providing authorities are increasingly skewed towards a ‘narrow remit’ of adult and children’s services.

Head of the NAO, Amyas Morse, said: ‘Current funding for local authorities is characterised by one-off and short-term fixes, many of which come with centrally-driven conditions. The Government risks sleepwalking into a centralised local authority financial system, where the scope for local discretion is being slowly eroded.’

Chairman of the County Councils' Network, Cllr Paul Carter, said: 'We have done what ministers have asked in using our reserves, but this is a slippery slope to insolvency.

'It is unfair to use yearly council tax rises to mask budget cuts and historical underfunding in rural areas.

'Failure to recognise the growing plight of many councils, as outlined in today’s report, could mean that Northamptonshire will not be the last local authority to face financial crisis.'

Shadow local government secretary Andrew Gwynne said: 'From bin collections to libraries, local services are suffering death by a thousand cuts.

'Working people and ordinary families are paying the price of councils being forced to cut back and close essential services.'

Shadow minister for local government Jim McMahon, added: '[Local government secretary] Sajid Javid has overseen the civic destruction of local public services and facilities with little care or understanding of the consequences.

'His legacy will be a system not just at breaking point, but broken completely unless urgent action is taken.'

A Government spokeswoman said: ‘We are currently working with councils to undertake a review of their needs and resources. Our consultation on this closes on Monday and all responses will be considered as we look to devise a new funding system.’

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