PAC warns of complacency over LA finances

The Public Accounts Committee (PAC) has warned that the government ‘must do more’ to understand local authority finances and their impact on taxpayers.

Following council plans to raise revenue from capital investment in property and other business ventures, the committee expressed concern over central government complacency in the risks associated with the scale of commercial activities that local authorities were undertaking. Risks such as investing less in physical assets, such as libraries, museums and parks, and spending more on commercial investments, often involving investing in property.

The Committee said that the Department for Communities and Local Government (DCLG) expects authorities to become more ‘entrepreneurial’ as it encourages local government to become ‘largely self-financing’. However, it said, at present the DCLG does not have good enough information to understand the scale and nature of authorities’ commercial activities.

It continued to state that unless there was a strengthening in its understanding of the capital issues faced by local authorities, it will not be well placed to anticipate risks to financial and service sustainability.

Meg Hillier MP, chair of the PAC, said: "Funding cuts have led local councils to rethink the way they use public money. In recent years they have increasingly sought to invest capital in projects to generate revenue while reducing spending on assets such as museums and parks.

“Central government wants local authorities to become largely self-financing and against this backdrop councils are exploring new ways to raise cash. It is therefore alarming that the Department for Communities and Local Government does not have a firm grasp of the changes happening locally and their implications for taxpayers.

“Poor investment decisions cost money—money that might otherwise be spent on public services. Local authorities need the skill-set to invest wisely and the Department must bear its share of responsibility for ensuring these skills are in place.

“But more fundamentally, the information central government uses is inadequate for understanding trends and associated risks in local government finance. This is a serious flaw in its ability to plan properly for the future and ensure councils are following a sustainable path, which includes ensuring the local capital finance framework remains fit for purpose. Local authorities must have confidence central government has got their backs."