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Government 'complacent about risks councils taking to raise funds after cuts'

Published 18/11/2016

Councils must have confidence central government has got their backs, said Meg Hillier, who chairs the Public Accounts Committee
Councils must have confidence central government has got their backs, said Meg Hillier, who chairs the Public Accounts Committee

The Government appears complacent about the potentially risky ventures councils are becoming involved in to raise funds following years of cuts, the Commons spending watchdog warned.

MPs said it was alarming that the Department for Communities and Local Government (DCLG) does not have a "firm grasp" of the changes.

Taxpayers will end up footing the bill if commercial decisions go wrong and services will be under threat, according to the Public Accounts Committee (PAC).

The impact Brexit will have on local government finances is also causing uncertainty, it found.

PAC chairwoman Meg Hillier said: "Central government wants local authorities to become largely self-financing and against this backdrop councils are exploring new ways to raise cash.

"It is therefore alarming that the Department for Communities and Local Government does not have a firm grasp of the changes happening locally and their implications for taxpayers.

"Our committee has previously highlighted gaps in the commercial skill of the civil service as a factor in the failure of some projects and we have similar concerns about local government.

"Poor investment decisions cost money - money that might otherwise be spent on public services."

"Add in the uncertainty around Brexit, as well as the new roles and responsibilities being created through elected mayors and further devolution, and it is clear the landscape is changing significantly," she added.

"Local authorities must have confidence central government has got their backs."

The PAC found there has been an increase in schemes to generate revenue from capital investment, such as developing houses and commercial units for rent or sale at market rates, among the 353 local authorities in England.

It raised concerns about the risks that the deals can pose and warned that councils might lack the commercial skills needed to make them work.

Councils can borrow to fund the schemes and the investments can be made outside their local area.

But DCLG "does not have a good understanding of the scale and nature of these activities", according to the report.

Claire Kober, who chairs the Local Government Association's Resources Board, said councils were having to look for new ways to generate revenue after a 40% cut in core central government funding over the last Parliament.

She said: "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.

"The LGA is supporting councils to develop understanding of these risks and opportunities.

"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."

A DCLG spokesman said: " It is right that local authorities take a key role in promoting economic growth. They understand their local areas and are best-placed to make decisions that deliver value for money and better services for residents.

"Local authorities are required to ensure they have the right skills and commercial expertise to make investment decisions, and there strong checks and balances in place to protect taxpayers' money."

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