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Public Accounts Committee publishes its report on Local government funding: assurance to Parliament. 

• Report: Local government funding: assurance to Parliament
• Report: Local government funding: assurance to Parliament (PDF)
• Inquiry: Local government funding: assurance to Parliament
• Public Accounts Committee

The Rt Hon Margaret Hodge MP, Chair of the Committee of Public Accounts, today said:

"The Government believes that the best way to ensure that councils spend our money wisely is to rely on local residents and councillors to provide scrutiny.

However, there is no convincing evidence that ‘armchair auditor’ members of the public are being empowered to hold local authorities to account for how they spend the £36.1 billion in funding they receive every year. 

Councillors do not always have the skills or time to fulfil this role, which involves scrutinising the delivery of complex services such as adult social care provision. 

If this system of local accountability is to work effectively, residents and councillors must have access to relevant and comprehensible information. 

Yet while local authorities are required to publish data such as expenditure over £500, senior salaries and land holdings and building assets, this data is presented in a way which does not make for easy and effective scrutiny by the public.

We are also concerned that the public might be less engaged with decisions on services that cost a lot, but do not affect them personally, such as vitally important adult care and children’s services.

There is a particular gap in assurance for £2.8 billion of ‘targeted’ grants, where departments expect local authorities to spend funding on a specific activity, but do not then monitor whether they do. This gap includes grants targeted at local welfare provision and transport improvement schemes.

The new arrangements for the audit of local authorities and the potential for political party control of scrutiny arrangements also threaten to weaken accountability.

DCLG seems overly reliant on service user surveys to conclude that local authorities are maintaining services despite funding reductions. These surveys are certainly not intended for that purpose and are unlikely to assess value for money. 

Departments that fund new local bodies such as Local Enterprise Partnerships and Health and Wellbeing Boards need to introduce clear systems and rules around both the transparency and accountability of money spent by these joint bodies.

Whitehall departments must still be able to assure Parliament that they are achieving value for this money – not just that local authorities are financially sustainable. DCLG must tighten up assurances on funding so that we can follow the taxpayers’ pound." 

Margaret Hodge was speaking as the Committee published its 13th Report of this Session which, on the basis of evidence from Sir Bob Kerslake, Permanent Secretary, and Simon Ridley, Director for Local Government Finance, Department for Communities and Local Government, examined local government funding assurance to Parliament.

The Department for Communities and Local Government has increased flexibility for local government spending. Local authorities are now more able to use government funding according to local priorities. However, the Department cannot be sure that the local accountability system is ensuring that local authorities are achieving value for money with their funding. There is a particular gap in assurance for £2.8 billion of ‘targeted’ grants, where departments expect local authorities to spend funding on a specific activity, but do not then monitor whether they do. This gap includes grants targeted at local welfare provision and transport improvement schemes. Additionally, the Department is placing an increasing onus on residents and councillors to scrutinise local authority decisions, but there is a risk that the quality and accessibility of data is insufficient, while councillors may not always have the skills or time to fulfil this role. Where departments now fund local services through cross-border and multi-agency organisations, such as Local Enterprise Partnerships and Health and Wellbeing Boards, they need to introduce clear systems and rules around both the transparency and accountability of money spent by joint bodies.

Conclusions and Recommendations

In 2013-14, the Government gave local authorities £36.1 billion, of which £32.9 billion had no specific conditions (‘ringfences’) attached as to how local authorities could use it, other than that spending was lawful. This reflected Government’s intention to give local authorities maximum flexibility to allocate funds in line with local priorities. Departmental accounting officers retain a responsibility to assure Parliament that the funding is used in line with its intentions and achieves value for money. The Department for Communities and Local Government, as the lead department for local government funding, states that it has put in place assurance arrangements aimed at balancing the tension between giving local authorities greater flexibility whilst providing sufficient assurance to Parliament. However, there are direct reporting arrangements for ringfenced grants that amount to £3.2 billion of the £36.1 billion allocated. The Department relies primarily on the local accountability system of checks and balances to ensure that local authorities achieve value for money with unringfenced funding. The new arrangements for the audit of local authorities and the potential for political party control of scrutiny arrangements also threaten to weaken accountability.

The Department does not know whether the local accountability system ensures local authorities achieve value for money with government funding. Central government grants form around 70% cent of local authorities’ income. While we acknowledge that the direction of policy is to give local authorities greater flexibility over how they use this funding, Whitehall departments must still be able to assure Parliament that they are achieving value for this money. The Department expects that a combination of factors: the ‘best value’ duty, the work of local auditors, scrutiny committees of councillors and the statutory role of local authority section 151 officers, will ensure that local authorities make decisions which constitute value for money locally. However, the Department has not assessed whether the local accountability system operates effectively in practice. Its oversight focuses on the local accountability system’s effectiveness in terms of local authorities’ financial sustainability rather than value for money. There are concerns over whether the new arrangements for the audit of local authorities provide sufficient assurance and whether scrutiny arrangements are independent of partisan politics. The Department’s information sources, such as officials’ personal contacts with local authorities and contacts with regulators, do not give it an insight into whether the local accountability system is effective in achieving value for money and depending on personal relationships is not an adequate system of oversight. Additionally, the assurances that the Department gains from the Audit Commission’s collation of local auditors’ findings will no longer be available after the Commission closes in 2015. We welcome the Department’s agreement to review the mechanisms for the assurances it receives about value for money. 

Recommendation: The Department should:

• - ensure the Department’s information sources provide it with sufficient assurance over the effectiveness of the system in relation to value for money, including having plans in place to preserve the assurance currently provided through the Audit Commission’s annual report Auditing the Accounts; 
• - focus on the effectiveness of mechanisms that have a specific value for money role, such as the Best Value duty, scrutiny committees, local auditor roles, transparency of data and the role of section 151 officers.

The Department could do more to help local authorities achieve better value for money now that they have greater flexibility over funding. The Department intended that removing ringfences on grants would allow local authorities to allocate resources according to local priorities, and enable them to use funding innovatively to protect services in a climate of funding reductions. It told us that Local Government Association peer reviews indicate that the sector is getting better at sharing good practice between local authorities to achieve value for money and it is aware of some individual examples of where local authorities are achieving efficiencies. However, the Department itself seems overly reliant on service user surveys to conclude that local authorities are maintaining services despite funding reductions. Whilst relevant, these surveys are certainly not intended for that purpose and are unlikely to assess value for money.

Recommendation: The Department should identify and share best practice examples that demonstrate where local authorities have used greater funding flexibility to introduce innovative practices that save money and protect frontline services. 

Departments do not monitor some unringfenced grants, which means they do not know whether they are achieving their stated strategic objectives. Despite the Department’s position that local authorities should be able to achieve better outcomes with maximum flexibility over funding, some departments continue to specify intentions for how local authorities spend unringfenced grants. In 2013-14, departments expected, but did not require, local authorities to spend £7.8 billion of unringfenced grants on particular activities; but the departments then did not monitor how local authorities had actually used £2.8 billion of these grants. Grants within the unmonitored £2.8 billion include, for example, the Department for Work & Pensions’ Local Welfare Provision Grant (£178 million in 2013-14) and the Department for Transport’s Integrated Transport Block (£320 million in 2013-14). In these cases, departments cannot assess whether they are achieving intended outcomes or getting value for money. We recognise the policy to reduce reporting burdens means that departments’ monitoring is at the minimum possible level. However, where departments have specific intentions for funding, they should be doing more to understand whether they are achieving their objectives.

Recommendation: Where departments judge that unringfenced targeted grants are appropriate, they should ensure they have sufficient information to understand the impact of these grants, to assure Parliament on the expenditure and to inform their decision-making on future funding arrangements.

The Department’s reliance on local accountability places a greater onus on value for money judgments made at a local level, but local authorities’ capability to perform this role varies. The Department is clear that local councillors are best placed to make decisions on value for money locally. It therefore relies on the effectiveness of local accountability mechanisms, such as councillors’ scrutiny committees. However, councillors may not have sufficient capacity to fulfil this challenging role. Councillors are required to scrutinise the delivery of complex services, such as adult social care provision, requiring appropriate skills and expertise. In addition, particular local circumstances could lessen the effectiveness of local accountability mechanisms; for example, local councils dominated by one political party may not be subject to sufficient scrutiny from opposition members.  

Recommendation: The Department should recommend to the Local Government Association that it identifies and shares best practice in scrutiny committees for authorities where there is little or no opposition representation.

The quality and accessibility of information to enable residents and councillors to scrutinise local authorities’ decisions varies. If the local accountability system is to work effectively it is fundamentally important that residents can hold local authorities to account for their decisions. It is therefore vital that residents can access relevant and understandable financial and performance information. The Department’s Local Government Transparency Code requires local authorities to publish data, including details of all expenditure over £500, information on senior salaries and details on local authorities’ land holdings and building assets. However, often this data is presented in a way which makes easy and effective scrutiny by the public very difficult. We are also concerned that the public might be less engaged with decisions on services that are significant in terms of expenditure, but do not affect them directly, such as adult care and children’s services. The Department expects that greater transparency of information will empower “armchair auditors” to hold local authorities to account, but there is no evidence that this has actually happened.  

Recommendation: The Department should ensure that local authorities conform to the new mandatory Transparency Code on the publication of data, and work with local authorities to improve performance where shortcomings are identified.

Recommendation: The Department should assess whether the data published under the Transparency Code helps residents to scrutinise the performance of local authorities, and if alternative data would be of more value. 

The accountability system is not aligned with funding for new local bodies such as Local Enterprise Partnerships (LEPs) and Health and Wellbeing Boards. Government increasingly funds local service delivery through new partnerships, where accountability arrangements remain unclear. Where more than one local authority is involved, such as with LEPs, democratic accountability is complicated if one local authority makes decisions on behalf of others. For multi-agency partnerships like Health and Wellbeing Boards, Government is encouraging local authorities to work with other local public bodies, in sectors such as health, policing and welfare, to tackle complex local issues. However, lines of accountability run from these bodies to different government departments, which can obscure who is accountable overall for the use of the funds and potentially undermine the drive for local integration and joint working. New partnerships need to be subject to the safeguards of local accountability so they derive value for money from taxpayers’ money.    

Recommendation: The Department should ensure that they develop a separate accountability system statement, which makes it clear how new bodies, such as Local Enterprise Partnerships and Health and Wellbeing Boards, will be transparent and accountable for their use of public money. Responsibilities should be defined at both central and local levels.