Central government ‘must do more' to understand local authority finances and their impact on taxpayers, the powerful Public Accounts Committee (PAC) has claimed.
The committee warned the Department for Communities and Local Government (DCLG) was complacent in the risks associated with the scale of commercial activities that local authorities were undertaking.
It questioned whether councils had the skills and experience and warned taxpayers would ‘end up footing the bill' if things went wrong.
Meg Hillier MP, chair of the PAC, said: ‘It is alarming that DCLG does not have a firm grasp of the changes happening locally and their implications for taxpayers.
‘Poor investment decisions cost money - money that might otherwise be spent on public services.
‘Local authorities need the skill-set to invest wisely and the department must bear its share of responsibility for ensuring these skills are in place.'
Cllr Claire Kober, chair of the Local Government Association's resources board, said: ‘Against this continued backdrop of financial austerity, councils have to continuously look for new ways to generate revenue.
‘Across the country, council officers and members are developing the skills and expertise to take a more commercial approach to investment decisions.
‘All commercial activity involves risk and potential losses as well as the potential to make profits.
‘Local authorities have to adhere to strict rules and assessments before making a decision to ensure it is affordable and provides value for money.
‘More self-sufficiency for local government cannot be accompanied by central government reviews and monitoring.
‘Councils are open, transparent and democratically accountable, and their spending is already subject to public scrutiny.'
