Councils are overspending on local services and using their savings to fund them, which is damaging their long-term financial sustainability, the watchdog has concluded.
Spending on services has reduced by 32.6% since 2010-11, the NAO found, with a 52.8% drop in spending on planning and development, 37.1% on highways and transport, and 34.9% on cultural and related services.
“Local authorities are struggling to juggle higher demands and cost pressures against significant central government funding cuts of nearly 50% since 2010-11,” the NAO said.
The report showed there was a real-terms reduction in government funding for local authorities from 2010-11 to 2017-18 of 49.1%.
Frontline services were being impacted, the watchdog revealed. It found, for example, a 33.7% reduction in households that have their waste collected weekly and 10.3% decrease in the number of libraries.
Amyas Morse, head of the National Audit Office, said: “Current funding for local authorities is characterised by one off and short-term fixes, many of which come with centrally driven conditions.
“This restricts the capacity of local authorities and yet the weight of responsibility to respond to increased demand and maintain services remains very much on their shoulders.”
He said the government risked “sleep walking into a centralised local authority financial system”, where councils lost their ability to use their own local discretion, which was “being slowly eroded”.
The Ministry of Housing, Communities and Local Government did not have a “single view of how funding cuts are impacting the whole of local authority services”, the NAO concluded.
The report highlighted that from 2010-11 to 2016-17, the estimated number of people aged 65 and over in care had increased by 14.3% and the number of children being looked after had grown by 10.9%.
Social care now accounts for 54.4% of local authorities’ total service spend, up from 45.3% in 2010-11, the NAO said. Meanwhile, spending on social care had fallen by 3%.
Aileen Murphie, the NAO’s director for local government value for money, said she was surprised at “how inventive local authorities have been to cope with financial pressure”.
Murphie noted that “the use of reserves is a matter of concern” but that using reserves is “not always unplanned and unthoughtful”.
Unplanned use of reserves is a characteristic that the NAO has highlighted as one of the potential factors in the demise of Northamptonshire County Council, which issued a section 114 order in February this year.
The report noted that while the precise cause of the county’s financial failings is unclear, Northamptonshire demonstrated overspending on social care and low levels of reserves, of which a great deal were used on an unplanned basis.
These characteristics are becoming “increasingly common across single-tier and county councils”, according to the NAO report and Murphie warned that there were “other authorities out there with the same characteristics as Northamptonshire”.
Comments on the NAO report
Rob Whiteman, CIPFA chief executive, said: “Local government reserves play a crucial role in good public financial management.
“They exist so that a council can invest in service transformation for the future or else allow them to respond to unexpected events or emerging needs.
“But dipping into reserves to cover the costs of day-to-day services is simply not sustainable.”
Meg Hillier, chair of the Public Accounts Committee, said: “Many councils are raiding their rainy day funds to pay for social care, and we have seen Northamptonshire County Council reach the brink of financial failure.
“Councils need to know what their long-term future is, but instead of sorting this out, Whitehall has used a series of short-term fixes to paper over the cracks.”
Lord Porter, chair of the Local Government Association, said: “The government needs to urgently address this cliff-edge and the growing funding gaps facing local services.
“It also needs to provide the financial sustainability and certainty needed to protect the local services our communities rely on into the next decade and beyond by committing to allow local government as a whole to keep every penny of business rates collected.
Paul Carter, chair of the County Councils Network and leader of Kent County Council, said: “Today’s NAO report clearly articulates the stark fact that councils cannot be expected to continue to deliver more for less.
“There is clear evidence that county councils have faced the greatest challenge; they are the lowest funded social care authorities and they collectively face a £2.54bn funding black hole due to demand-led pressures by 2021.
Margaret Wilcox, president of the Association of Directors of Adult Social Services, said: “Adult social care simply cannot continue with short term fixes. There are more than a million people with unmet need, with around a third of these coping with loneliness much or all of the time.”
Martin Reeves, Solace spokesperson for local government finance, said: “Like any other business, councils need certainty, stability and flexibility to plan effectively for the future.
“Instead, we are having to work in a hand-to-mouth fashion, with no clarity on our financial positions in two years’ time.”
Paul Dossett, head of local government, Grant Thornton UK LLP, said: “Social care is driving local authority finances through the floor and as many councils get closer to reaching a financial tipping point, there is an urgent need for central government to intervene and address the widening funding gap by introducing a sustainable solution based on need, rather than a council's tax base”
