Councils are coping with reduced funding, at least for now

Published on Thursday, 17 November 2011 10:01
Posted by Scott Buckler

Most councils are managing well in the face of unprecedented reductions to their income, but services have been affected and a small number of councils may struggle to balance their books, an Audit Commission report has found

Tough times draws on a survey of auditors and new analysis of councils' budget data. It finds that although councils face a real terms loss of total income of £4.7 billion (7.5 per cent) this financial year (2011/12), auditors felt nine out of ten councils are well prepared for this and will deliver their budgets.

Audit Commission Chairman, Michael O'Higgins, said:

'We all know that councils, like the rest of the country, are experiencing tough times. They have seen their funding from government fall and their local income reduce. So far, councils have responded well to these challenges, and auditors believe that most will balance their books this year. Many have also protected the most vulnerable people in their area. But with more reductions to come, and wider economic problems intensifying the pressure, councils need to prepare for a potentially rocky road ahead.

'Good financial management and the continued search for efficiency savings will help councils navigate their way through this period, but they will also need to make some tough decisions about how to bridge the funding gap in the coming years.'

Councils have seen their funding from central government fall by £3.5 billion this year, and expect to lose a further £1.2 billion, in real terms, from locally generated income. For example, income from fees and charges is falling due to the economic downturn. In response, the majority of councils are protecting priority areas such as adult social care. Service cuts focus on smaller services such as planning and cultural services.

Local government faces three more years of cuts in government funding with almost 60 per cent of the total reductions yet to come. To meet this future challenge the report finds that some elements of councils' cost-reducing strategies will have to change. In single tier and county councils (STCCs) almost half of this year's savings will come from planning, housing and cultural services, but these only cover 16 per cent of service spending. These services cannot deliver similar savings every year. Many councils will face difficult decisions about how to meet their funding shortfall in the next few years.

Strong leadership and financial management mean that most councils should balance the books this year. However, many have had to cut back on services to secure their financial stability. Most local authorities are taking the right steps to make efficiency savings but have also had to reduce the quality and quantity of services. Charges are going up in many councils. The report highlights many of these planned changes within STCCs, including:

5 out of 6 councils planning to reduce the quantity or frequency of some services within cultural services;
3 out of 4 councils planning to increase charges within environmental services;
4 out of every ten councils planning to tighten eligibility criteria in adult social care; and
almost half of councils planning to reduce service standards in highways and transport.

Councils are not planning to make significant withdrawals from their reserves this year - some even plan to increase them. Reserves alone cannot be used to balance budgets in the longer term, but there may be scope to use them more than currently planned - to give councils time to achieve sustainable efficiencies.

Although most councils are coping, the report finds that a minority (1 in 10) of councils were considered by auditors to be 'at risk' of not meeting their budget for 2011/12. The common characteristic of these councils is a combination of financial and managerial issues. Facing large funding reductions is not, on its own, enough to cause auditors to worry about a council's financial resilience. It is councils with both big funding reductions and weak financial management that are at most risk of not achieving their budget. 'At risk' councils were less likely to have thoroughly evaluated their savings proposals and were more likely to use short-term financial fixes.

The report recommends that councils use the Audit Commission's Value for Money profiles to see how their council compares to the national picture set out in this report, identify councils facing similar challenges, and learn from others' approaches.


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