On 25 June 2014, the National Audit Office (NAO) published its report, Local Government Funding: Assurance to Parliament, which examines how the Department for Communities and Local Government (DCLG) has implemented and oversees the assurance framework that enables government departments to assure Parliament on funding for local authorities.
The report, which is divided into three parts:
- Examines how other government departments funded local authorities in 2013-14, how that funding has changed since 2010-11 and how the DCLG made the changes (part 1).
- Considers whether other government departments’ monitoring of local authorities gives them enough assurance on whether local authority grants are used in line with Parliament’s intentions and sufficient information on the impact of the grants on policy objectives (part 2).
- Evaluates whether the DCLG ensures the local accountability system is effective for providing assurance on value for money and considers emerging issues and risks (part 3).
The government’s changes in the 2010 spending review gave local authorities more control over their spending by allowing them to allocate resources to meet local priorities and also by reducing their reporting burdens. The government’s intention was to give local authorities the flexibility to fulfil their statutory duties despite funding restrictions. These changes accelerated the trend of previous governments to increase local authorities’ financial flexibility by reducing the number of ringfenced grants. However, the increased flexibility for local authorities means government departments have less direct information on how the funds are being spent and whether they achieve their outcomes.
According to the report, eight departments gave local authorities a total of £36.1 billion in funding (excluding funding passed directly to schools and individuals) to support the delivery of their statutory duties and core functions. Of this, £25 billion (69%) was paid through unringfenced general grants where the only expectation is that the authorities spend the funding lawfully. A further £7.8 billion (22%) was paid through unringfenced targeted grants; in relation to these grants, the expectation of government departments is that local authorities spend the funding on a specific activity (although they cannot require them to do so).
So what assurances are there that relevant local spending meets with Parliament’s intentions and provides value for money locally?
The new arrangements inevitably mean that central government departments receive less direct information on how the local authorities spend government funding. Therefore, they have to rely more on the system of local accountability for assurance over the value for money of funding that it gives to local authorities. The system includes local checks and balances, and includes the activities of external auditors, democratically accountable local councillors and the legal duties that are imposed on local authority officers.
The DCLG is clear that its role is to assure itself that the local accountability system is effective (rather than monitoring whether spending is value for money) and that it is local authority councillors, whose prime accountability is to their electorate, who are best placed to decide what is value for money locally. The DCLG’s belief is that the system creates the conditions for local authorities to achieve value for money (through pressure to improve outcomes, reduced incomes and greater transparency of their spending decisions). However, the NAO found the DCLG’s monitoring of information gives limited insight into whether this is happening in practice given that the DCLG’s focus is on financial and service sustainability.
The NAO’s report also states that there is a tension between government departments using unringfenced targeted grants and relying on the local accountability system. Whilst these grants lack formal conditions, government departments seek to exert influence over local authorities’ use of the funding by establishing spending expectations for the grant, rather than leaving the decision solely for local consideration. The DCLG’s view is that these types of grants allow national priorities to be pursued locally while also providing a degree of flexibility. For example, a local authority can re-allocate unspent grant funding to other activities, rather than repaying it to government departments. Although this approach may increase local financial flexibility, the NAO’s report comments that the primacy of local priorities within the accountability system could mean that government departments’ expectations of achieving a specific objective through payment of these grants are overridden locally.
In addition, public funding comes increasingly through multi-agency, cross-border organisations, which do not fit easily with the government relying on a system of local accountability. By way of example, the NAO report refers to local enterprise partnerships (LEPs), which are run by local businesses and local councillors and can have members from many local authorities with one authority overseeing how funding is distributed and used. This means that one authority could therefore allocate funds on behalf of other local authorities, subject to the parameters of a partnership agreement. The arrangement therefore blurs the lines of accountability between local authorities and their electorates, on which the local accountability system depends. Further, the statutory duties of local authority officers become more complex as they apply only to a single local authority; though they retain responsibility for allocating funds to the LEP, they may not be involved ultimately in decisions over how the money is spent. The growth of these sorts of arrangements will place increasing pressure on the principles of the DCLG’s local accountability system.
Actions to be considered by government departments
The NAO report sets out a number of actions that government departments should consider concerning their assurance over funding granted to local authorities. These include:
- Assessing the appropriateness of continuing to fund local authorities through targeted grants in the context of an approach to value for money based on local priorities.
- Considering value for money as well as financial and service sustainability when assessing whether the local accountability system is effective.
- Reviewing their accountability system statements against on-going changes to public services that involve partnerships and cross-border working.
The report highlights the obvious conflict in giving local authorities more freedom to use their resources as they see fit, while seeking assurances that the funds are spent in accordance with Parliament’s intentions. Ultimately, the reality is that these two objectives cannot always both be achieved, and there must be an appreciation that scrutinising every last penny may in itself not represent value for money.