Councils struggle after funding cut by 49% over eight-year period

Local councils have had their government funding almost halved and are now under immense financial pressure, according to a report by the National Audit Office (NAO) which warns that one in 10 councils with social care obligations are at risk of exhausting their reserves in the next three years

A report by the NAO found that local authorities in England are having to regularly dive into their reserve funds to cope with an increase demand for services.

The report states: ‘Local authorities face a range of new demand and cost pressures while their statutory obligations have not been reduced. Non-social-care budgets have already been reduced substantially, so many authorities have less room for manoeuvre in finding further savings.’

One in ten local authorities who have social care responsibilities will have the equivalent of less than three years’ worth of reserves left if they continue to use their reserves at the rate they did in 2016-17. Two thirds of councils providing social care drew down their reserves in 2016-17.

Alongside reductions in funding, local authorities have had to deal with growth in demand for key services, as well as absorbing other cost pressures, such as higher national insurance contributions, the apprenticeship levy and the National Living Wage.

In 2016-17 local authorities overspent by £901m on service budgets.

In February 2018, the statutory financial officer for Northamptonshire County Council issued a section 114 notice, indicating that it was at risk of spending more in the financial year than the resources it has available.

The council has effectively placed itself in special financial measures to ensure that it avoids unlawful expenditure and an inspector was appointed in January 2018 to look into financial management and governance.

The NAO states that more councils are at risk of bankruptcy if spending continues at rate it is currently.

Amyas Morse, head of the NAO, 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.

‘The government risks sleep walking into a centralised local authority financial system where the scope for local discretion is being slowly eroded.’

NAO report: Financial sustainabilty of local authorites 2018 

Report by Amy Austin

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