MPs warn some councils in a ‘precarious financial position’

An influential group of MPs has warned the financial sustainability of some local authorities presents a ‘significant risk’ to government. 

In a report published today (22 January), the public accounts committee warned it expects that more local authorities will soon be unable to balance their books and will be forced to issue section 114 notices in order to suspend non-essential expenditure.

Last year, cash-strapped Croydon Council issued such a notice as it struggled to get its finances under control.

The committee said it expects the Treasury to have oversight of local government finances in the round in order to properly manage the wider risk to the public finances, but the Redmond review highlighted a lack of this oversight, and serious issues in the local government sector, including failures in current local audit arrangements.

It added the government’s response to the Redmond review should be agreed and implemented as soon as possible.

‘As we reported earlier this year, some local authorities have taken on extremely risky levels of debt in recent years in an effort to shore up dwindling finances, much of it in investments in commercial property,’ said committee chair, Meg Hillier.

‘The pandemic has doubly exposed that risk – in the huge extra demands and duties it is placing on local authorities, and in the hit to returns on commercial investments.

‘The Treasury has a worryingly laissez faire attitude to what now presents a significant risk to the whole of government,’ she added.

‘It must step firmly back into the driving seat, demonstrating that it has a clear handle on significant risks in our public finances and is managing them – and that it’s ready to take on the unprecedented additional impact of Covid-19 and EU Exit.’

A spokesperson for the Treasury said: ‘We provided a significant funding uplift for councils at the Spending Review last year, on top of funding to ensure they can continue to deliver essential local services as we tackle the impacts of the pandemic.’

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