Councils show financial resilience in face of cuts

Published on Thursday, 28 November 2013 10:33
Written by Daniel Mason

The Audit Commission's latest research, Tough Times 2013: Councils' Responses to Financial Challenges From 2010/11 to 2013/14, shows that England's councils have demonstrated a high degree of financial resilience over the last three years, despite a 20 per cent reduction in funding from government and a number of other financial challenges.

But, the Commission says, with uncertainty ahead, councils must carry on adapting in order to fulfil their statutory duties and meet the needs of local people.

The Audit Commission Chairman, Jeremy Newman said: "Once again our research shows that councils have risen to the challenges presented by reduced funding. Some nine out of ten councils experienced no significant difficulties in delivering their agreed budgets in 2012/13 and the same proportion are well placed to deliver their budgets this year. But the financial challenges for councils are continuing. Councils must share what they have learnt from making savings and keep looking for new ways to deliver public services that rely less on funding from central government."

A survey of auditors appointed by the Commission, found that 89 per cent of councils experienced no significant difficulties in delivering their agreed budget in 2012/13 (compared with 88 per cent in 2011/12). The majority of councils (71 per cent) delivered their budgets without needing to take unplanned actions. Two thirds of councils (63 per cent) added to their reserves, while one third (37 per cent) reduced them. In aggregate, councils increased reserves by £0.9 billion in 2012/13 (7 per cent) – a smaller increase than in 2011/12.

The Commission's research found that the three strategies most widely adopted by councils in response to their financial challenges since 2010/11 were: reducing overall staff numbers; delivering some services more efficiently; and reducing or restructuring the senior management team. From 2010/11 to 2012/13, reduced spending on staff accounted for 48 per cent of councils' total spending reductions.

Auditors reported that some councils have found it harder to cope as funding levels have reduced. Three in ten councils (29 per cent) exhibited some form of financial stress in 2012/13, either experiencing significant difficulties in delivering their budget, taking unplanned actions to keep finances on track, or both.

Auditors were concerned about the ability of one in ten councils to deliver their budget in 2013/14. A few of these have been a cause of concern in successive years. Factors giving auditors cause for concern this year included: the risk of councils not making adequate savings; rising cost pressures; weaknesses in financial controls; and uncertain prospects for income.

About two-thirds of councils (64 per cent) were well placed, in the view of auditors, to deliver their medium-term financial plans. However, auditors have concerns about the medium-term financial prospects of one third of councils (36 per cent).

The Commission also looked at what councils planned to spend on non-education services in 2013/14 compared with 2010/11. The largest average real-terms spending reductions by single tier and county councils were in planning and development services (37.6 per cent), cultural and related services (24.4 per cent) and General Fund housing services (23.4 per cent). Children's social care has been largely protected from spending reductions with councils increasing their spending by 1.2 per cent, on average, in real terms.

Jeremy Newman commented: "The contribution of reductions in spending on adult social care to total spending reductions has increased over time, representing over half (52 per cent) of the total spending reductions from 2012/13 to 2013/14. As social care accounts for an increasing proportion of councils' total service spending, it will be harder to protect this service from spending reductions in the future."

The report did not look at the impact of funding cuts on services, so it is not possible to say whether service levels or standards were affected.

Jeremy Newman continues: "With less income, councils continue to face risks to meet their legal obligations and the needs of their local communities. When the Audit Commission has closed down, it will be for the government and others to find alternative ways to bring together auditors' insights into the finances of English councils and to keep watch for signs of financial stress."

Source: Audit Commission

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