Councils are coping with cuts but face 'rocky' future, say auditors

17 Nov 11
Nine out of ten councils are on track to stay within their budgets this year, despite 'unprecedented' cuts to their income, the Audit Commission said today.

By Nick Mann | 17 November 2011

Nine out of ten councils are on track to stay within their budgets this year, despite ‘unprecedented’ cuts to their income, the Audit Commission said today.

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But local government still faces a ‘rocky road ahead’, according to the commission’s report, Tough times. Councils’ real-term income is expected to fall by £4.7bn this year, through a combination of a 7.5% cut in government funding and the loss of £1.2bn of income usually generated locally through fees and charges.

The report, based on council data and a survey of auditors, found that many councils were coping by making cuts in ‘smaller’ services such as planning and cultural services, protecting priority areas such as adult social care, and increasing charges.

It warned, however, that with three more years of government funding cuts to come – amounting to almost 60% of the total reduction planned – councils would have to change elements of their cost-reducing strategies.

In particular, the commission highlighted the potential for greater use of reserves but added that ‘reserves alone cannot be used to balance budgets in the longer term’. Authorities would face ‘difficult decisions’ about how to meet their funding shortfall by looking for savings in other service areas.

Commission chair Michael O’Higgins praised councils’ efforts to date in meeting the funding cuts, based on the assessments included in the report, but warned of the challenges ahead.

‘Many have also protected the most vulnerable people in their area. But with more reductions to come, and wider economic problems intensifying the pressure, councils need to prepare for a potentially rocky road ahead,’ he said.

‘Good financial management and the continued search for efficiency savings will help councils navigate their way through this period, but they will also need to make some tough decisions about how to bridge the funding gap in the coming years.’  

Of the one in ten councils identified as being ‘at risk’ of not meeting their budgets for 2011/12, auditors found common evidence of weak financial management, combined with large funding reductions.

These councils were also less likely to have thoroughly evaluated their savings proposals and been more likely to use short-term financial fixes, the report added.

As a result, the commission recommended councils use its Value for Money profiles to see how they compare with the national picture outlined in the report, to identify other local authorities facing similar challenges and to learn from others’ approaches.

Commenting on the report’s findings, local government minister Grant Shapps warned councils against cutting frontline services in a bid to reduce costs.

‘This report shows that well-managed councils do not need to compromise frontline services to make savings,’ he said.

‘Councils can do more for less through better procurement, embracing transparency and more joint working. Councils which just cut the front line or hike charges are guilty of poor leadership and poor management.’

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