England & Wales Finance

Viewpoint: How long can councils sustain the financial juggling act?


Cameron Paton, senior analyst at the National Audit Office, provides his insight into the NAO’s recently published report Financial sustainability of local authorities 2018 and the impact of funding reforms on service users.

False prophets?

Mythically, the fate of Cassandra was always to tell the truth but never to be believed. Since 2010 we have seen a number of anti-Cassandra’s: repeatedly prophesying imminent financial disaster for local government. But to date there has not been the widespread collapse foretold.

The National Audit Office is in the business of facts not prophecy. But we expressed some concerns in our 2014 work on the financial sustainability of local authorities. So when updating that work in 2018 we were keen to understand how councils had confounded the doom-sayers through their response to austerity, and to what extent services have been impacted.

As we dug into the numbers we found that the sector-level response from 2010-11 to 2016-17 could be divided into two periods. In the first three years, until 2013-14, councils overall had reduced service spend by £1.4 billion more than their reductions in funding. This allowed them to build up their reserves and offset growth in other spending. In the second period, the three years to 2016-17, the funding reductions continued at the same rate but the overall approach was quite different. Less than half the required savings were met by reductions in service spend. Councils made up the difference by reducing other spending, growing alternative income, reducing their contribution to reserves or drawing on reserves. These are methods that cannot be repeated indefinitely.

Authorities we spoke to were clear that they have striven to protect frontline services, by reducing management and support costs, improving efficiency or transforming services. But they expressed concern about future service impacts.

Since 2010 overall service spend on non-social-care services has fallen by 32.6% and authorities’ remaining spending is increasingly concentrated on social care. When we explored the impact of spending reductions so far we found that there are severe limitations in the national and local data for many service areas. There are clear statistics about changes in the level of activity for some services beyond the delivery of social care, such as the 48.4% reduction in local authority-supported bus service mileage in England outside London. But even for social care the impact on service users was often unclear and in general scarce resources have not been allocated to assessing this impact. Some authorities we visited thought that former users would have accessed alternative forms of provision; others were not clear how service users had been affected.

Authorities which consistently overspend suggest that they are struggling to deliver services within their planned budget while also meeting savings targets. Our findings have identified a set of trends that call into question the medium term financial sustainability of a significant proportion of authorities with social care responsibilities, which are placing ever greater pressures on local authority finances.

As the saying goes: predictions are difficult, especially about the future. But the importance of this issue for value for money is clear. It is harder to make good decisions about services and assess the potential impact on local people if the financial situation of an authority has become so urgent that there is little time for reflection. Prevention is better than the cure and there must be greater long term planning to protect the financial sustainability of local authorities.