In an examination of the impact of the coalition’s deficit reduction programme on local government funding, the MPs said councils were halfway through a period of ‘significant’ cuts. Funding is being reduced by a quarter in real terms, or £7.6bn, in the current Spending Review period, which covers 2011/12 to 2014/15.
Although councils had coped with the reductions so far, pressures were set to increase, the MPs said, and the government ‘did not properly understand’ how this would hit services.
The PAC report, Financial sustainability of local authorities, highlighted that, at the time of the last Spending Review, in October 2010, the Department for Communities and Local Government did not do enough to estimate the impact of funding cuts. For example, it did not consider whether reductions in adult social care spending would lead to an increase in hospital admissions.
In addition, none of the Spending Review submissions from departments scrutinised in the National Audit Office's January report considered how different types of councils would be affected.
The MPs warned that continuing to cut council funding without reducing the statutory duties imposed on local government meant some could become unable to meet these obligations. There are estimated to be around 1,335 duties on councils, which include child protection and adult social care.
A failure in one of the areas would lead to ‘serious questions’ about the viability of authorities. The Local Government Association has already said one district council – West Somerset – is not viable in the longer term. The PAC urged the DCLG to develop a clear strategy to deal with councils becoming unsustainable.
Committee chair Margaret Hodge said the cuts raised ‘the spectre of the worst-affected councils being unable to meet their statutory obligations’, and a number of ‘unviable’ local authorities.
She added: ‘Central government is cutting funding to local authorities by more than a quarter over four years but does not properly understand what the overall impact will be on local services.
‘The more grant-dependent local authorities are suffering the highest reductions in spending power. But these are the very councils which serve poorer and more vulnerable communities whose need for services is the greatest. The department must understand better the impact of its cuts on vulnerable groups. We also want to know what actions it would take in the event of multiple financial failures of local authorities.’
Local Government Association chair Sir Merrick Cockell said the MPs had issued a ‘stark warning’.
The PAC’s report demonstrated that the funding system for local authorities was failing and required a complete overhaul in the next Parliament, he added.
‘The sustainability of local government is on a knife edge in many areas and, as the committee rightly points out, some councils are already in danger of failing to meet their statutory obligations.
‘The inevitable impact of new cuts is a tightening of eligibility criteria for care and reductions in spending on services such as road maintenance, leisure facilities and economic regeneration. In some areas, local authorities will have to cease providing some services entirely and scale back spending on areas such as social care which have so far been largely protected from cuts.’
CIPFA chief executive Steve Freer said: 'CIPFA’s own surveys of local authority chief finance officers have shown that, whilst to date the impact of expenditure cuts on frontline services has been minimised wherever possible, chief finance officers are increasingly concerned about future years and the longer-term prospects for critically important services.
'With the next Spending Review rapidly approaching, it is essential that the government understands and models carefully the likely effect on key services and the resulting potential impact on families and communities across the country.'
