The failure of Birmingham City Council is just the latest in a series of councils with financial woes. We fear this is the tip of the iceberg for the local government sector.
Our Committees have been raising concerns about the state of local government finances for over a decade. The Public Accounts Committee recently published its latest report on the issue warning that the unacceptably high backlog in local government audit may get worse before improving, while the Levelling Up Committee launched its own inquiry into local audit in March of this year.
There are three main issues: a crisis in public audit; cuts of 50% to the local government sector from 2010; and government pressing councils to become self-funding and encouraging risky commercial investment.
In some cases, including Birmingham and Thurrock, political leaders have been unable to make the hard choices needed to keep the council solvent, but the main problems and challenges are a direct result of government action since 2010.
Since the Government abolished the Audit Commission in 2015, we have seen a startling deterioration in public audit. The big firms seemingly prefer the more lucrative private sector work.
At March 2023, only 26% of audit opinions for the financial year 2021/22 have been issued. As at 30 June this year, according to Public Sector Audit Appointments (PSAA) who appoint auditors to all but nine local public bodies, 342 out of 467 of them hadn’t had their audit opinions for 2021/22, and of those, 125 hadn’t had their opinions for 2020/21 either.
The crisis and delays in public audit mean that many councils have been flying blind to problems while making big financial decisions, and the poor council taxpayer is in the dark until the last minute. Let's not forget that as well as service reductions it's the citizen who also gets stuck with the hike in council tax to help pay off the deficit (in Croydon, for example).
Within councils, finance teams are carrying vacancies and too often the section 151 officer (the senior internal finance chief whose role it is to call out financial risks) is not given a seat at the top table.
In 2010, we both sat on the committee scrutinising the plans for abolition of the Audit Commission. The Communities and Local Government Committee warned in 2011 that the Commission’s abolition raised significant questions around the audit of local authorities, and we asserted that central government maintained the responsibility to construct a system which provided accountability for public money and delivered better value for money.
The excellent Redmond review of local audit laid a pathway to recovery but was sat on by a government paranoid about being seen to recreate the Audit Commission with a strong system leader for local audit.
We will have a local public audit lead in the Audit Reporting and Governance Authority when the Government puts forward the legislation to create it, but it will now take years to get public audit back on track and experienced public auditors are the age bracket of retirement within a decade.
Sir Tony Redmond's recommendation that the full council should have a presentation by the auditor every year will, we hope, help focus elected members on the reality of their budget and the hard choices they face.
With the abolition of the Commission, local authorities’ own audit committees needed to be better resourced. But a combination of squeezed budgets, underweight finance teams and a shortage of qualified councillors and lay members has meant these crucial watchdogs are under strength, something we predicted.
The problems facing local government were predictable. The underlying problem is that local government has had bigger cuts than any other part of the public sector since 2010 and the likelihood is we’re going to see more councils getting into difficulties. The chickens are coming home to roost.
In light of the perilous financial situation of many local government bodies and the recent increase in the number of them issuing Section 114 notices, the Levelling-Up Committee has recently written to the LGA and other local government organisations to invite them to contact the Committee about any issues they are facing to inform the Committee’s monitoring of this growing problem.
We need to see real focus on careers in public audit; an expansion of the sector so it's not reliant on the same few firms; section 151 officers with a seat at the top table; investment in the pipeline for careers in public finance; and mandatory training for councillors and council candidates.
Both main parties have devolution firmly on the agenda. We have both served in local government and believe it is often best placed to deliver services. We need to see a renewed commitment to the sector which will be critical for delivering the manifesto of whichever party is in government at the next election and we need urgent action by the Government now to avoid more councils going bankrupt.
Clive Betts (MP for Sheffield South East, Labour) is chair of the Levelling Up, Housing and Communities Committee
Dame Meg Hillier (MP for Hackney South & Shoreditch, Labour & Co-op) is chair of the Public Accounts Committee
