Oral evidence: Financial sustainability of local authorities, HC 970

Oral evidence, 9 May 2018.

Witnesses

Mark Lloyd, Chief Executive, Local Government Association, Martin Reeves, Spokesman for Local Government Finance, Society of Local Authority Chief Executives, Rob Whiteman, Chief Executive, CIPFA, and Duncan Whitfield, President, Association of Local Authority Treasurers.

Chair

Good afternoon, and welcome to the Public Accounts Committee. We are here to look at the financial sustainability of local authorities. We are thankful for the National Audit Office’s Report on the issue, which highlights, among many things, the funding reduction to English councils, which has been around 49% in real terms over the past eight years. That is at the same time as we have seen an increasing demand for social care and a third more people homeless and in need, plus other duties such as those under the Homeless Reduction Act being put on local government. We are keen to hear from our first panel what life is like at the coal face. We are then going to have a panel with the permanent secretary and her officials. We are also having a separate little bit at the end to get an update on our report on homelessness, which we published a while ago. We have had a response from the Department and we are keen to ask about that. So, it is going to be a packed session; I say that in advance to encourage witnesses to be brisk and brief. If someone has already said it, you do not need to repeat it to make the point. On our first panel, I am pleased to welcome, from my left to right, Duncan Whitfield, president of the Association of Local Authority Treasurers Societies. He is also the strategic director of finance and governance at the London Borough of Southwark, where I think he has been since 2012. Mark Lloyd is from the Local Government Association, where he has been chief executive since 2015. He was previously chief executive of Cambridgeshire County Council and Durham County Council. We then have Martin Reeves from the Society of Local Authority Chief Executives—known to us mostly as SOLACE—where he is the finance spokesperson and a former president. I will not list them all, but he has also been a chief executive. We have a suite of chief executives who are all men, but we will sort that out for next time. That is a mission of ours. There is then Rob Whiteman, who is known to many of us as now the chief executive of CIPFA, the Chartered Institute of Public Finance and Accountancy. He, too, has been chief executive of local authorities such as Barking and Dagenham, but has also worked in central Government. I welcome you all. We hope to get through this session within 40 minutes. That is not because we are not interested in what you have to say. Some of your organisations have put in evidence. We do need to cover ground. It is your opportunity to tell us a bit about the situation on the ground. I will ask you all to answer an opening question about what the pressures are now that were not there five years ago. What has changed in recent years that has made life more difficult or more interesting in local government? Mr Whitfield.

Duncan Whitfield

There are probably three things that I would focus on. First, we have fewer reserves than seven or eight years ago—that is manifest within the NAO’s Report. That leaves us less room for manoeuvre as we move into some difficult financial planning decisions and choices to be made of one service over another. As we have been through the austerity period for the last seven or eight years, we have taken the fat away and there is only lean left. That means that any local decision we take is more likely to have an impact on direct service delivery on the ground. That could be the protection of children, looking after old people or filling in holes in the roads, for example. We have even greater uncertainty now about our futures. In 2010-11, we started off on a journey of front-loaded, significant funding reductions. That in itself was a shock, but we had a direction of travel that we understood. As we sit here in 2018, knowing what the financial landscape is like beyond 2019-20 is still quite difficult for us because of activity across a whole range of Government services.

Mark Lloyd

The National Audit Office Report provides a great insight into life in local government right now—an insight we recognise. Councils across the country have done an amazing job in responding to what has become perma-austerity. They have seen a £16 billion reduction in their core Government grants and funding between 2010 and now. As we have heard from Mr Whitfield, they have seen increased demands on children’s services and adult social care, and homelessness places very significant pressure on them. They have done the cutting, the efficiency, the sharing and the productivity improvements, but the harsh reality is that, by the end of this decade, councils will be short of funding to the tune of £5.5 billion. That is excluding the money that needs to be injected right now to prop up a very vulnerable care system for the adults we are all concerned about across the country. We need to grow the available funding we have got in local government. Business rate retention offers us one option, but the strong view of local government across the land is that the eventual retention of 100% of business rates should come with no new duties, so we can plug the funding gap of £5.5 billion and prop up the care market.

Martin Reeves

Given your clear steer to be brief and not to duplicate, I will pick something slightly different. In the period from 2009 onwards, there has been a diminution in local government workforce in areas containing the very people who have got the skills, the capacity and the capability to deliver the change and intervene in the right kind of outcomes. For example, my authority of Coventry has said goodbye to almost 1,500 colleagues across all areas, both statutory and non-statutory—particularly those who can understand where investment can best be placed to deliver value, rather than just deliver reactive services. That is a real issue on the ground. The other thing, alongside the massive spikes in demand around homelessness and adult and children’s social care, and particularly the transition point between them and the complexity, is the context we are dealing with in our places up and down England, which is uncertainty in our communities. We are trying to understand exactly how people are living their lives while we deal with, as Mark and Duncan said, significant change in our sector. There are clearly a number of challenges, and because of that there is clearly a need not to have the short-termism that has characterised that period. We need a sense of the medium to long-term and of enduring sustainability so we can tackle some of the issues we have just outlined.

Rob Whiteman

CLG can get assurance from a very robust financial set-up for local government with the legal requirement to balance its books. The last five years show that councils are able to use that robust framework to balance their books and make productivity savings. CIPFA is working with the Department to further strengthen that regime, and I will gladly talk about that later. Although councils can make significant savings because of that framework, compared with other parts of the state, there is a normal distribution curve, and some councils are better than others. Northamptonshire, which is much in the news at the moment, is as much about financial management and management failure as it is about austerity. The NAO Report highlights that 10% of authorities with social service responsibilities could deplete their reserves after 10 years. We need to look at the system to make sure it operates robustly. I highlight to the Committee the very important role external auditors play in local government. We need to be careful that they fully understand their public interest reporting responsibilities, because large amounts of reductions have been made in their fees and we need to ensure that there is not a race to the bottom in terms of the quality of external audit. Finally, while the sector is good at balancing the books compared with many other parts of the public sector, and will make savings, that does not necessarily mean that it affords value for money in the long term or the medium term. There is very little evidence about what effects the savings made will have. Individual organisations have made their savings, but the NAO Report highlights that we do not necessarily understand the consequences of that. For example, individual councils will balance the books by cutting their youth service, but do we understand what the country looks like after 10 years of not having youth services in many places? And in preparation for CSR in areas such as children’s services, it will be very important to establish as good an evidence base as possible in order to understand what resources are needed.

Chair

That is really helpful, and you have set a great tone for brevity—thank you.

Gareth Snell

Briefly, all too often revenue spending power is used to demonstrate that there is an increase in cash going to local authorities. Can I get briefly your opinion on that descriptor as a way of demonstrating how much money councils have available to them?

Rob Whiteman

Spending power is a descriptor which takes into account that councils can put up their council tax or other fees and charges and to some extent can be used to mask the fact that councils are suffering harsher reductions in their bottom-line resources. However, spending power is a legitimate means of assessing councils’ ability to tolerate cuts, because there is an ability for them—within limits—to put their council tax and other sources of income up. I think we would all say, though, that it is important not to look at it in isolation and always to look at spending power as well as hard cash, hard grant and real effects of savings.

Mark Lloyd

Just to supplement, I agree it is a legitimate measure. To get to that positive position that you describe is dependent on councils maxing out their ability to generate council tax, which of course in some cases means councils at a local level increasing tax in this last year by as much as 6%, which allows us to make that track. What the spending power does not do is track the increases in demands that councils are grappling with: a 44% increase in the number of homeless households; the numbers of people living in temporary accommodation; the number of children going into care every day, which has increased by a third since 2010; and the increase in over-85s by 14%. All those factors do not feature in the raw spending power which may look neutral, but the demands councils are having to address are very significant.

Martin Reeves

The truth is, while we can think about the spending power, as we heard in the introductions, the reality on the ground is around a 50% reduction in revenue over the period, with significant challenges not just in the workforce capability and capacity in the way I mentioned in my introduction; it takes us right into the heart of the debate and evidence about the requirement for a sustainable medium to long-term strategy for funding local authorities, which is always about a relationship between taxation base including council tax and business rates—which is very hard earned in the current climate with Brexit and uncertainty in some of the markets—as well as other systems for being able to create income locally in dependency. Unless you understand the round, it is very difficult. We find ourselves almost immersed in a sense of, “Well you could argue there is some spending power improvements.” That is not how communities are feeling it, with the kind of impacts on those high-demand services we have already heard about.

Chair

Can I chip in and pick up the point Mr Lloyd was making? Have you or anyone in the sector done an analysis of whether there has been an effect from the reduction in funding on some of the increases you talked about, like homeless households and so on? That is obviously tied to wider national housing policy—we are not talking about that particularly—but have you done any analysis of the direct impact of these extra costs coming from the cuts?

Duncan Whitfield

We certainly had a go at that at a local level, but it becomes almost a timeless test of trying to get out a figure that is at odds with the spending power calculation. From our point of view, actually trying to do that reconciliation of spending power against funding reductions is a very difficult one for us to manage with our local members. It is a very difficult issue to understand given those omissions from the spending power calculation. On the issue of what is missing, increases in national insurance contributions, which can be very significant for a local authority, and the apprenticeship levy, for example, are costs to the local authority that are not necessarily evident in the spending power calculation. Over and above that, there is the extent of ring-fenced money.

Chair

Under new duties rules, you are supposed to get some money from the Government. I can’t remember whether that covers national insurance contributions.

Duncan Whitfield

It is not evident in the funding we receive.

Gareth Snell

Mr Whiteman, can I ask you about CIPFA’s role in looking at local authorities? I know that your organisation recently took an in-depth look at Worcestershire County Council as part of its councils plan. That report, which was recently debated at the council’s scrutiny committee, suggested that the council had used 47% of its reserves over the last three years, and said that there was no sense of urgency about the real challenge. CIPFA suggested that there should be a “nowhere to run, nowhere to hide” attitude to the budget. It said that if the authority was able to make half of the £60 million of savings it needs in three years, that in itself would be a success. That information was not, it would appear, something the authority itself had picked up on. From your professional experience, how do you think the auditing of local authorities missed that? What is the Department’s role in making sure local authorities in a situation like that of Northamptonshire and possibly Worcestershire are being dealt with?

Rob Whiteman

As I said at the beginning, there is a normal distribution curve. Many, many councils have strong financial management arrangements, which would have picked up the risks to their long-term financial sustainability. What happens in some councils, and what we saw in Northamptonshire, is that they can develop an over-optimism that they will make all their savings, the budget pressures will not be as bad as they fear, and that they have a blueprint for transformation that will work. In the meantime, they deplete their reserves to get them through the transition. Clearly, in some cases, that doesn’t work, and we have to guard against that. CIPFA sets the accounting standards—the reporting standards—for local government. In the light of where we are as a sector, we are now going to develop a financial management and planning code—we did not feel one was needed before—to deal with the application of reserves so we can draw on best practice and set that as a guideline for all councils.

Gareth Snell

Why do you feel that code is needed now when it wasn’t needed previously?

Rob Whiteman

The sector is under greater pressure than it has ever been before, and we have to move with the times. On the whole, we set an accounting code for financial reporting and a prudential code for borrowing and investment decisions for the future. Bearing in mind the 49% real spending loss, we are setting something in the middle to deal with financial planning and financial resilience in order to draw from the best councils and regulate that into the performance of all councils in the way they plan their finances. That hasn’t been needed before, but it is needed now.

Gareth Snell

Mr Whitfield, from your membership base across the country, what sense do you have of the number of local authority treasurers and section 151 officers who are now genuinely at the point at which they do not feel they will be able to balance budgets in the next couple of years?

Duncan Whitfield

I don’t have that data, to be totally honest. All I can report is the growing level of nervousness and uncertainty, moving into the next period. We have lower levels of balances and more ring-fenced money coming into our authorities for social care, in particular, which gives us less confidence and less flexibility about setting a balanced budget year on year. I couldn’t comment on how many are that close to the precipice.

Layla Moran

Mr Whitfield, I want to pick up on a very small comment you made right at the beginning, which was about potholes. The local elections have just happened, and I dare say they were the No. 1 thing that came up on the doorstep, as ever. You made that comment slightly flippantly, but it is perhaps symptomatic of the wider picture. Are we now seeing a managed decline in assets—in road infrastructure, for example—across the country?

Duncan Whitfield

It is bound to be an issue of the normal distribution where you are and what your resources are. If you are in a relatively capital-rich authority, you are more likely to be able to stay in your programmes for any kind of infrastructure arrangements that are in front of you. If you don’t have the capital in place or that level of asset resource to actually address those issues, you will naturally shift towards revenue, and you are then in a revenue competition with all the other statutory services, and indeed the valued discretionary services, that your local authority is providing.

Layla Moran

Is that why we have seen a massive increase in parking services as an income? Is that, in your view, something that has been actively pursued by councils to fill that gap?

Duncan Whitfield

Certainly a lot of parking income is directed straight back into street activity and highway-related activity, so that will certainly be part of the reason for that kind of increase in income to cover those costs. However, I would hesitate to say that it is the absolute reason, because there are many other street services that parking income can be used to help support. It is not only holes in the roads.

Layla Moran

Mr Lloyd, you were nodding at that. Is that something that you recognise?

Mark Lloyd

Mr Whitfield’s point is absolutely right. Councils have, in essence, four ways of generating their resources. First, council tax. Second, business rates. Third, fees and charges, which includes parking, and, as Mr Whitfield made the point, that is reinvested back into transport services. And fourth, commercial income—the way it invests resources to drive revenue streams into councils, which is a very important addition to the mix that we have traditionally had. I know that Mr Reeves would like to add some comments about that later. If I may, I will just pick up on the question about the nervousness among Mr Whitfield’s colleagues across the country. I think it is fair to say that councillors and officers across all councils share a nervousness about the cliff edge that they face in terms of the uncertainty around their financial situation. We have a four-year deal, which is good, but the end of that four-year deal is in sight and we don’t know what will come next. With the move away from 100% business rate retention, we have a shared endeavour with the Ministry to come up with a new approach. We haven’t got one yet. When treasurers, like Mr Whitfield, and professional bodies, like Mr Whiteman’s, are saying we should have a three or five-year plan, we will have no idea about the financial arrangements towards the end of that plan.

Martin Reeves

To answer your question around spend on highways, there is clearly an arithmetic issue when you look at up to 70% of spend within local authority areas now being across those statutory adult and children’s services. However, we should say that, across the sector, we have seen differential responses to the capitalisation of improvements on the assets. That is right, in my view. You can find choices being made locally, within the wriggle room, to be able to deliver that kind of improvement to an asset base. Remember that local authorities are, by and large, doing very well to improve digital access. In many ways, our residents are able to get into much closer contact with us about, for example, the poor asset base that they see. At the end of the day, this is actually about the differential approaches that we are seeing in different parts of the country, which is useful, but it is absolutely a factor. I cannot emphasise enough the arithmetic and where the money is going, in relation Mr Lloyd’s point around needing that certainty and flexibility when thinking about 2020.

Chair

We have got that message. That has been repeated. The permanent secretary is even in the room listening, so we hardly need to repeat it.

Sir Geoffrey Clifton-Brown

Mr Whitfield, are any of your members currently using the Government’s relaxation of capital-to-revenue rules and at the same time going out and borrowing money, from the Public Works Loan Board or wherever, for different capital projects? Do you have any members in that situation?

Duncan Whitfield

Again, it is a mixed bag. There will be different circumstances locally that are actually driving councils down different routes. There is certainly more flexibility around the capital accounting rules and what you can borrow for and what you can use those resources for. Naturally, from a section 151 point of view, we are prudent people, and we would edge against any indication of borrowing to pay for revenue costs. That is not a good place to be. However, that flexibility is there and it exists, and I am sure some have used it. There is also, if you like, the commercial side of the local authority business. Where do you run when times are tough? That may be into commercial portfolios. Local authorities have had commercial portfolios since they first existed. They provide revenue that helps provide services. With interest rates low and other sources of funding restricted, there is bound to be a temptation across local authorities to look at investment opportunities to get a return on property. Over and above the revenue stream that that can create, it can also help you build a place. In terms of regeneration, either large or small-scale, it can be invaluable in giving those local authorities a landscape that they can map out a place on.

Sir Geoffrey Clifton-Brown

You bring me neatly to my next question. There is surely all the difference in the world between local authorities accumulating land banks for regeneration and local authorities simply investing in such things as shopping centres. Do you have a concern—I might also address this to Mr Whiteman—that local authorities are becoming a little bit like sheep in investing in shopping centres? We hear of four local authorities bidding for one shopping centre in Darlington, therefore bidding up the price and reducing the yield. Is there not a danger that they are investing in a bursting bubble?

Duncan Whitfield

The shape of local authorities is naturally changing. Because of that change, it is inviting some local authorities to look more widely than they would have previously looked. We have a prudential code for borrowing that has recently been enhanced sensibly. It has put an additional challenge back on us to say, “Is this really a good use of local money and investment?” Over and above everything, there is a report at the end of these decisions that says, “This is actually generating a revenue stream for a local authority.” I am sympathetic in many ways to a local authority that is having to go down that route when other resources are limited for them.

Rob Whiteman

There is a risk of poor commercial decisions, so we have just strengthened the prudential code. I think everyone recognises that borrowing for services is a good thing, and everyone recognises that borrowing for regeneration and renewal within the borough’s boundaries is a good thing. Purely commercial decisions to buy retail estates in other parts of the country carry an additional level of risk. CIPFA’s view is that, in the same way there is very strong governance, for example, on pensions investments—having to have a pensions investment committee with independent advice on that decision—there needs to be, through the prudential code and the amendments we have just made to it, rigorous and strong governance around out-of-borough investment, because there is a risk of some poor decisions. You could be borrowing for 40 years, when the covenants on the retail estate are for less than a decade. They are on the market because of the internet, and they may not be a long-term investment proposition. I hope that the strengthening of the prudential code means that we are creating a permissive environment for borrowing under the right circumstances, but we are trying very much to improve governance and decision making.

Martin Reeves

I will be brief, Chair. This is a really important debate, and I welcome that question, because there is probably a slight difference of opinion across some of the bodies. It is not a surprise that the fiscal economic funding climate that we have referred to means that there is a different risk portfolio happening in other places. It is equally evidential that there is abnormal distribution, as Mr Whiteman said. There is no doubt at all that some local authorities have made unwise decisions about investment, potentially out of their place. However, evidentially there are also a number of examples where very prudent risk profiles have been made on investments that have returned the kind of revenue yield that we are referring to, which can frankly deliver strong responsive services in our places. Evidentially, we need to move beyond a polarised view where, on the one hand, we have local authorities being seen as engaging in casino finance, which is palpably untrue and non-evidential, and, on the other, they are being seen as not doing anything commercial at all to try to find headroom in the current climate, because that is not true either. There is a real need to understand things through the code and through local audit, advice, the risk portfolio and, perhaps most importantly of all, local political decision making. Throughout this country, different organisations and different political administrations of different sizes and different geographies are making, in my view and in SOLACE’s view some very shrewd decisions. Those decisions are not distorting the economic market; they are making markets, and they are making their places.

Gillian Keegan

I have a technical point for Mr Whiteman. I have heard some concerns around local authorities and pooled investments, where instead of investing in a single property, there is an overall property portfolio. Some of the latest changes are going to require them to realise losses and gains within year, instead of when they disinvest from the portfolio. That will effectively make their budgeting complete stochastic. They will have very little control if this starts to become a large part of the budget. How on earth are they going to do this? If this is a way to get genuine income for services, how on earth are they going to guarantee those services, with that accounting change?

Rob Whiteman

The short answer is we are asking the Department to make a statutory override on behalf of the sector. International accounting rules—this is IFRS 9—are, as you have just said, that one realises changes to these portfolios into one’s revenue account. UK law is that international standards have to be built into public sector accounting, so it is right that CIPFA has set these standards into local authority accounting. However, there is a concern in the sector that they have used these property instruments for a long time in order to invest cash and other reserves, and that there could be a real revenue hit from the ups and downs. Therefore, the LGA, CIPFA and others are inviting MHCLG to consider whether it wishes to make a statutory override, so that those accounting changes do not apply to local authorities. But it is right that we made the changes, because, as I said, UK law is that we have to follow international accounting standards.

Chair

So, it is possible for the Department—the Government—to make that statutory override.

Rob Whiteman

Yes. It can say, “These are the accounting standards that have been set, but we can make an override on that provision.”

Lee Rowley

I would also like some detail on the statements that were made. Mr Whitfield, can you tell me the purpose of reserves, in one sentence?

Duncan Whitfield

It is twofold. I think we would all have a slightly different definition. For example, I carry earmarked reserves, which are for specific purposes. They are for transformation projects, capital projects and regeneration. They are sometimes ring-fenced money that has simply not been spent yet but will be spent at some point in the future on a project. I also have unearmarked reserves. In Southwark that is £80 million, which is effectively “rainy day” money. That is for when all other resources are exhausted, and that is what is in the back pocket, as it were, to run to.

Lee Rowley

Why are lower reserves inherently bad, as you said in your initial statement?

Duncan Whitfield

Lower reserves mean you are running on an annual budget that is unpredictable, as I set out, year on year. We are just setting the budget for 2019-20 at the moment. It is very difficult, given what we understand about key funding places, over and above the 2019-20 settlement, which is fixed. We have uncertainty about devolution pools; we have—

Lee Rowley

Those are just a load of statements about potential uncertainty and risk that happens in all industries and sectors. Why are lower reserves inherently bad?

Duncan Whitfield

We are required to set a balanced budget. If we are required to set a balanced budget without risk, then we need reserves to cover off that risk. We also need those reserves to fulfil the capital programme projects and other transformation activities.

Lee Rowley

I really want to drill down on this point, which I inferred from your first statement, that lower reserves are inherently bad. If I take you to figure 21 in the NAO Report, that demonstrates that single tier and country councils built up an additional set of reserves from 2010-11 of £4.5 billion, of which less than £1 billion has been released in the subsequent period. Why is that a bad thing?

Duncan Whitfield

Why is that a bad thing?

Lee Rowley

Yes. Why should I have concerns about the fact that a build-up of £4.5 billion, of which only £1 billion has been released, is a bad thing, which is what I infer from your initial statement?

Duncan Whitfield

I guess that in a business where your revenue stream is so uncertain moving forward, what you would naturally do in periods leading into that period is build a reserve that you can call upon to get you through that unstable period. As we have moved from 2010-11 through to 2018-19, it would be my claim that uncertainty has far from gone away. In fact, it is probably greater now than it was then. In terms of holding back reserves to mitigate those risks, it is very important for a section 151 officer to be mindful of that. I would add that I do not know what proportion of those reserves are earmarked.

Lee Rowley

But £3.5 billion was retained at the end of the last financial year just gone. Both you and I were at Westminster Council years ago. We know we inherited, in that example, a high level of reserves at Westminster Council pre-2010, so I do not understand your point about how less reserves are inherently bad. I think we should be spending down some of these reserves. They seem very high.

Duncan Whitfield

We take a normal distribution view again about reserves and the prosperity or health of individual authorities. What may apply in Westminster certainly would not apply in a northern inner-city area. The level of balances from reserves would be very different.

Lee Rowley

Moving on, you stated a moment ago in answer to a colleague’s question, “I don’t have any data. I have a growing level of nervousness.” As a Member of Parliament and a member of the Public Accounts Committee, am I supposed to accept your level of nervousness as meaning it is something we should deal with? Where is your data?

Duncan Whitfield

Our data could improve. We certainly have evidence of cost across areas from homelessness, through to no recourse to public funds, through to education, as high needs block spend increases. Sometimes we could be a lot better, articulating the numbers that underpin the volumes—

Lee Rowley

I’m glad you are self-aware enough to know that you need better data, but how can I take your statements on the basis of that if you do not have that data?

Duncan Whitfield

I would like to say trust and the track record of local government finance over the last years.

Lee Rowley

Would you accept there is an omission of data in this discussion? I have heard a lot of statements from three out of the four of you, but there is very little data underneath it.

Duncan Whitfield

I concede that point. We need to put more effort into data provision so that we can put forward cases to the Treasury, the Cabinet Office and across all Government Departments of the stresses that we bear.

Rob Whiteman

Reserves are a proxy for risk sometimes. I know it seems counterintuitive, but at a time of making savings one should push up reserves. Otherwise you run the risk that you do not make all your savings, and you don’t understand your budget pressures. Very often reserves are said to be the reverse. There is a description of local authorities not having to make these cuts because they hold reserves, as if they are deliberately squirrelling away money in order to inflict savings on their communities. And the reverse is true. Had councils not built up reserves in anticipation of the savings that were going to be made now, more councils would have been in the position of Northamptonshire. Please remember that about a third of reserves are what you would think of as what Mr Whitfield called “unearmarked”. The majority of them are for capital purposes or against specific projects.

Lee Rowley

I understand your point. The underlying point with this is not the level of reserves, but the level of risk that you are willing to accept, and the political strategy that you are willing to apply to it. Mr Lloyd, you made a comment about perma-austerity. Could you explain to me why central and core services in councils have seen a dramatically smaller reduction in spend than potentially some of the frontline services in the last six years?

Mark Lloyd

There is a core operating cost in all organisations. Pre-2010, councils were already in a period of reviewing for best value and driving out costs from their core operations. As we have moved into austerity since 2010 onwards, councils have had to focus on the big-number savings—around where the big numbers are—which are in the frontline services. With some 54% of council spend being in social care, for example, inevitably a big proportion of the reductions will come out of that area.

Lee Rowley

I am asking about proportions, not absolutes. The proportion of reductions in frontline services has been up to 50%, and beyond 50% in some locations. The proportion of reduction in core services has been 14.6%, to my recollection. That seems to be a very large job loss; would you not agree?

Mark Lloyd

No, I wouldn’t. Councils have done their utmost to drive efficiency into what you might think of as centralised services in their organisations. They then have to ensure that they are able to service their members, keep the organisation running, and all the things you would expect. They have done that through shared services, with more than 500 examples of shared services in operation, to ensure that those core costs are as low as possible. The reality is that with the level of cuts that councils have needed to make, it has had to come out of frontline services.

Lee Rowley

On that very point—the level of cuts that councils have had to make, and the permanent austerity that has been identified—why do you think we have not seen a reduction in the ratings of councils over the past four or five years, in terms of satisfaction?

Mark Lloyd

That is a huge round of applause for councillors and the staff in councils, frankly. During the period from 2010 to now, the level of public satisfaction has seen only a very small percentage-point decay, but there has been a decay. The public remain most satisfied with councils’ waste services, and least satisfied with councils’ road maintenance services, but it is all on a very slight trajectory downwards across the piece, as councils have had to do the rationing and reduction of services.

Lee Rowley

It’s within the margin of error, though. Do you not accept that there is a causal link between councils becoming more efficient and retaining high service satisfaction levels?

Mark Lloyd

Undoubtedly councils have driven incredible levels of efficiency. Look at the improvement that they have had in their planning services, with increases in the numbers of planning applications that they process, and a halving in the cost of the planning service. I could go through a whole range of such examples where councils have absolutely shot for productivity and efficiency, and maintained or delivered improvements in public satisfaction. The point is that the pips are squeaking right now, and we have to plug that £5.5 billion funding gap by the end of the decade.

Lee Rowley

If I cannot see from data how the pips are squeaking, how can we make a difference to that for you?

Mark Lloyd

To give you an example, if I may, I was talking just last Wednesday to the local government ombudsman. He was setting out to me his work dealing with complaints about local government. The ombudsman was saying that they have seen a 140% increase in complaints about social care between 2010 to 2017-18. In itself, that is not an indication, but are those complaints being upheld? The upheld complaints have increased significantly in that time, to a 64% uphold rate now, from 44%, from memory. We are seeing public dissatisfaction increasing, and justifiably so, if you take the local government ombudsman’s evidence for that.

Chair

I will bring in very briefly Mr Reeves and Mr Whitfield, and then Caroline Flint. Please do not repeat what has been said.

Martin Reeves

No, I will be very brief. There is a structural question to Mr Rowley’s point around whether we have seen a similar proportion of reduction in core, central services. If you look at the trends, certainly in local authorities now in England, what was once an outsource model for central, core support services—IT, HR, and others that sit within a core centre of those figures—has been increasingly insourced into local authorities. That creates greater value, but higher costs to serve for the organisation. They are clear patterns of change over the past five years.

Duncan Whitfield

I do not think we should underestimate the effort from offices and local, elected members to explain to the public what is going on. This is one-on-one dialogue with groups and individuals in local authorities. I think that has helped to manage the performance assessments from the public.

Caroline Flint

I want to ask a question about councillors and the scrutiny function. My husband is a councillor, and he is the chair of a committee in Doncaster—I am declaring my interests. It seems to me that when it comes to local authorities, on pretty much every scrutiny committee, including finance, the very people advising those back-bench councillors are the people who are also recommending to the cabinet, Mayor or leader what they should do. Do you think that the scrutiny function should be improved at local authority level, to ensure that those councillors have some more independent advice given to them, rather like the Select Committees in the House of Commons?

Chair

Ms Flint, who are you directing that to?

Caroline Flint

It could be Mark Lloyd or Martin Reeves.

Chair

Quick-fire round; we’ll start with Mr Reeves, and work along.

Martin Reeves

I will be very quick. I absolutely think the efficacy of scrutiny—certainly we have seen this with devolution areas—is a challenge. The Committee was up in the west midlands not that many cycles ago. There is no doubt that the most effective scrutiny that I have seen as a chief executive has been when there is significant, rounded evidence—this comes back to Mr Rowley’s point—based on independent expertise that holds to account in that area not just the local authority, but the health chief executives, the police commander and the voluntary and community sector, which provides significant services, and that creates a task and finish group that creates a proper rounded evidence base. You feel the heat when you are in that scrutiny environment, rather than, quite frankly, feeling like it is a platitude.

Caroline Flint

But why are so many local authorities not doing that? You are the Society of Local Authority Chief Executives. I do not think many local authorities have a distinct budget to enable those scrutiny committees to do that work.

Martin Reeves

Again, evidentially, if you look at the spends on scrutiny, on supporting that and properly resourcing it—we had this conversation around the setting up of the combined authority in the West Midlands—our society and I are certainly seeing a waking-up to the importance of that scrutiny function, and to an early understanding of policy impact, for the many reasons that we have already discussed.

Caroline Flint

Would you agree that at the moment there is not a focus on trying to find the money for independent resourcing of that scrutiny function?

Martin Reeves

The scrutiny function in local authorities is variable, and it is not, in my view as a chief executive—the society would say this, too—getting to the heart of that pre-policy scrutiny with the kind of expert, independent advice and evidence, or holding—

Caroline Flint

Or even when you do a scheme and you say it is going to be cost-effective and it turns out not to be.

Martin Reeves

I agree with that.

Rob Whiteman

I think we should move on and review how much we do in scrutiny. Traditionally, remember that local authority chief executives serve all members, so it is different from the model here. When I was an accounting officer to Parliament, I served the Administration of the day. When you are a local authority chief executive, you serve all members. Perhaps we should move on from that, because actually, scrutiny members need some advice independent from our own, even though that is the traditional constitutional settlement. A risk of management, of us, is that we can look at our own silos. The more that scrutiny can look, at a broader level, at questions about why our overheads are not changing, and whether there should be reorganisation or asset rationalisation—some of those things could really be challenged by more effective scrutiny on behalf of the public—the better. We need to move on and do more.

Chair

Mr Whitfield, how many of your members are advising scrutiny committees?

Duncan Whitfield

Scrutiny advice comes from officers, not from elected members, but I think it is a mixed bag.

Chair

I know, but you represent the treasurers of local authorities, so you are pretty key in providing scrutiny.

Duncan Whitfield

Within our own councils?

Chair

Yes.

Duncan Whitfield

ALAT’s view would absolutely be that scrutiny has a critical part to play, certainly in the finances of the organisation. The extent to which external, independent advice requires scrutiny is a matter for that individual scrutiny committee. I would hope that none of us would have any barriers or obstructions to finding resources to try to provide that advice.

Mark Lloyd

A very quick footnote: the Local Government Association is the country’s largest provider of political training. It trains politicians. We ensure that we invest in training of not just frontline cabinet members and leaders of councils, but those who have a scrutiny function. Through the LGA, we still sponsor the Centre for Public Scrutiny, which is about trying to build a strong scrutiny function.

Caroline Flint

To be honest, Mr Lloyd, I know the LGA does a lot of work in that area, and that is commendable, but that is not quite the same as providing to councillors who are on the back benches the ballast they need to challenge, when basically, they are approving reports by officers and they are having to scrutinise those very officers as well. It does not really work.

Mark Lloyd

I am not countering your point. I am simply trying to shine a light on the fact that we are also trying to strengthen the ability of councillors to provide that scrutiny function, and to provide—to use your term—the ballast.

Chair

Ms Flint is making the point—but I will reiterate it, although she can speak for herself—that without the data or the information that you get from within the council, you can be a brilliant councillor, but you are going to have to dig through the records yourself. It is not quite the same thing. What is the LGA doing to stand up for resources for good scrutiny? Is that the position you take?

Mark Lloyd

We have a wide range of training offers to councillors. We have not focused on the officer role in providing advice to members, and maybe that is a conversation that SOLACE and the LGA can pick up after today’s Committee.

Chair

Do you believe in investing in scrutiny?

Mark Lloyd

Absolutely. That is why we invest in supporting scrutiny members through our work: because it matters a lot.

Rob Whiteman

There was a report, Chair, that the Committee might like to look at. The Centre for Public Scrutiny had an idea: should authorities let their audit contracts together, in order to ask their external auditor, rather like the way that the NAO advises this Committee, whether those audit contracts had the capacity to advise scrutiny members? You might like to look at that report.

Chair

Just a couple of quick questions from me before we have to move on. I want to ask each of you if you think more local authorities are going to go bust, like Northamptonshire, and, if so, in what time frame. Then, particularly to Mr Whiteman, picking up Mr Snell’s point about audit warnings: are local government auditors up to the job? On the first question, one by one, will more go bust? Mr Whitfield?

Duncan Whitfield

More will be at risk, and the outcome of the comprehensive spending review and the fair funding review next year will be critical, I think, to the numbers and the timing.

Mark Lloyd

The cliff edge that we have talked about at the end of the decade is key to this, in making sure that there is a sustainable financial arrangement for local government.

Chair

So basically you are saying it is preventable if the Government make certain decisions.

Martin Reeves

There is no doubt that risk profile will mean there will be more financial failure, unless we act with Government across all Departments, not just MHCLG. We need that certainty, stability and flexibility in our financing to be able to deliver the services that we need for our people.

Rob Whiteman

Northamptonshire wasn’t Northamptonshire three years ago, if that is not a silly thing to say. It didn’t make the decisions that it should have made three years ago to avoid getting where it has got to. There are other councils in that position now, and we need to work with them in order to help them not go down the same route. In answer to your point about external audit, Chair, I think there is a risk. When I entered local government, the external auditor was quite an important player in the good governance of the local authority, and the DA would comment on individual decisions as well as the financial standing of the authority. There is a risk that they become reduced to signing off the accounts and meeting the regulatory requirements, but, remember, their public interest requirements are still on the statute book.

Chair

Do you think they are using them enough, then?

Rob Whiteman

No, and I think that NAO, CIPFA and other people need to encourage the firms to remember, “I know you have taken fee cuts here, but actually you are still the external”—

Chair

But—this is interesting—you are emphatic that they are not using the public interest requirement enough.

Gareth Snell

Unless I am wrong, most of the Audit Commission work was picked up by a couple of big companies that actually could, if they wanted to, do that piece of work anyway. I was going to ask, though: you said Northamptonshire was not Northamptonshire three years ago, so in your professional opinion, who is responsible for not flagging this up at the right time? Is it the Audit Commission, or the auditors of the council—the council auditor—or was there a role for the Department to be watching these councils?

Rob Whiteman

That is a really good question. Other councils have faced as difficult a position as Northamptonshire and got through it, but, very briefly, if you look at the figures, they are in the middle of the pack for grant reduction—about 15th out of 27 counties; they are in the middle of the pack for making savings; they were top of the pack for applying reserves and spending reserves; and they were top of the pack of the 27 counties for increasing their council tax requirement, but that gave them very little yield, because they had had many years of freezing the council tax. In my view, they failed to address financial reality—that their model of making savings and transforming the council wasn’t working. I think, on CIPFA’s part, we intend to produce some form of resilience index in order to advise councils if we think they have an alarming rate of spending reserves. I think we should work with external auditors to ensure that they understand their public interest reporting requirements, and I think we would all wish to work with the LGA around the training that is put in place for corporate planning.

Sir Amyas Morse

When you look at the report of Northamptonshire, what you see is that in the inspector’s report, the auditors had raised red flags years before, and they were casually ignored—or they were treated casually. I have to say—I don’t hold a brief—in favour of the existing auditors, that there are numerous qualifications and warnings out there. My question is: are they being paid attention to? In the view of many auditors, the answer to that is no. It needs fixing.

Duncan Whitfield

From the external audit point of view, I think they are more than well equipped to carry out a full and thorough financial audit, but I personally miss the additional scrutiny, for example around data, that the Audit Commission used to give us. They are not equipped to provide that at the moment, and I think it would be helpful to build that back into the mechanism to give us all the information that we need.

Chair

I remember years ago, on this Committee, sitting on the body that looked at the change to the audit landscape. Some of these things are warnings that were made then, including from the National Audit Office. Thank you very much for your time. You are welcome to stay for the next session. The transcript of this part of the hearing and the rest of the hearing will be up on the website uncorrected in the next couple of days, so have a look out for that. Our report on this will come out in due course; I cannot give you a date. I call forward our witnesses from the Department. Examination of witnesses

Witnesses

Melanie Dawes, Permanent Secretary, Ministry of Housing, Communities and Local Government, and Jo Farrar, Director General, Local Government, Ministry of Housing, Communities and Local Government.

Chair

I welcome you back to the Public Accounts Committee on Wednesday 9 May 2018. We are continuing with our session on the sustainability of local government financing. We have Melanie Dawes, the permanent secretary at the Ministry for Housing, Communities and Local Government—I have to get your new title correct—and Jo Farrar, who is the director general for local government at the Ministry. Welcome back, both of you. Ms Dawes, I let you know that I wanted to ask you a little about the ministerial direction that you sought about the local government overpayment to certain councils for business rate retention. You felt that you needed to ask the Minister under managing public money to decide whether he wanted that overpayment not to be clawed back in March this year. Do you want to give us a little bit of background on that, and an update on what the situation is? A significant amount of public money has been given out in error.

Melanie Dawes

Yes. Thank you very much for inviting us to give evidence today. On the direction, I exchanged letters with my former Secretary of State on 20 March, as you know, and those are in the public domain. What happened was that there was a mistake in some figures that the Department used to indicate to local authorities and to pay on account to local authorities that were part of the 2017-18 100% business rate retention pilots. We effectively overpaid on account to the tune of £36 million overall. We discovered that that mistake had been made as we did the end-of-year reconciliation back in March this year. We do have a process by which any overpayments can be corrected or underpayments made good. The rules of managing public money, which as you can imagine we scrutinised very carefully in the circumstances, were clear that we needed to recover the overpayment in order to be in accordance with those rules. Equally, there were wider public policy concerns that my letter set out. Our Secretary of State decided that he did not wish to seek the repayments, so in accordance with the normal procedures, he issued a direction for us to be able to do that. Of course, we made a mistake. My letter acknowledges that and apologises on behalf of the Department to the Secretary of State for that. We have a review going on at the moment into our procedures and processes inside the Department to ensure that they are good enough to be able to withstand a complex system going into the future. That is going on now and it is being led by—

Chair

So was the mistake that you made the overpayment or that you discovered it too late?

Melanie Dawes

The mistake was made by the teams in good conscience in the first months of 2017. We would not normally expect to be constantly reviewing all our procedures. I do take some comfort from the fact that we have the end-of-year reconciliation, so we discovered it a year later. It was not that we should have done that work earlier; the mistake was simply made at that time.

Chair

So what is happening now? Is that now written off completely?

Melanie Dawes

Yes, that money was not recovered. Local authorities—

Chair

You’re not planning to do any clawback in future years. It is actually written off.

Melanie Dawes

No. It has been written off in that sense, but we have not adjusted upwards the benefit to business rate retention pilots for future years, so the local authorities concerned have had to revise down by that amount. They are figures for the future; it was one year only.

Chair

So you’re not clawing it back, but you are reducing their payments for future years.

Melanie Dawes

Yes.

Chair

You’re balancing it in that way.

Melanie Dawes

No, not to balance out the £36 million. The £36 million was not recovered and will not be recovered. But what we are not doing is baking that into the numbers every year for the future.

Chair

So you have corrected the mistake for future pilots.

Melanie Dawes

We have corrected the mistake for the future.

Chair

So when the scheme rolls out and is no longer a pilot, this mistake will have been ironed out.

Melanie Dawes

This mistake will be corrected, yes.

Chair

Thank you very much for that. It is useful to get an update.

Sir Geoffrey Clifton-Brown

Good afternoon, Ms Dawes. Could you give the Committee an update on any particular problems that Carillion has caused to any local authority contracts?

Melanie Dawes

I’m going to ask my colleague, Jo Farrar, to answer that, because she has been actively dealing with the sector on those issues. It’s something that we have definitely been looking at.

Jo Farrar

We have worked closely with the sector. There were issues related to Carillion, but the individual local authorities were managing that. It didn’t have the impact on the sector that it might have done in other areas. We are confident that the local authorities concerned have managed the impacts that Carillion has had and have been able to replace the services, either by re-contracting or by taking services in-house. We have helped local authorities to do that.

Sir Geoffrey Clifton-Brown

The Local Government Chronicle reports that there was a particular problem with Somerset County Council, relating to the finishing of its bypass. Has that been resolved?

Jo Farrar

Where there have been particular issues, we have been working with the local councils to help them to resolve them. We would expect things like the issue in Somerset to be resolved through their future budgets and future planning, so that they could finish the work by re-contracting or by bringing the services in-house.

Chair

Has the Department provided any support financially, to cover over the gaps, or provided any loans to make sure that certain services are delivered on time? I ask because the hit to some local authorities could be substantial.

Jo Farrar

That’s something we are considering.

Chair

You’re considering. At what stage is that consideration? When will you—

Melanie Dawes

Generally speaking, not very many local authorities had contracts with Carillion. The exposure was not great across the sector as a whole. The Somerset project is one example, but there are not very many, so we have not found that councils have come forward and particularly asked for a great deal of support.

Chair

That’s interesting. You say you didn’t know. So if another strategic supplier went belly-up tomorrow, would you have sight, in the Department, of how many councils up and down the country might be exposed to a risk as a result?

Melanie Dawes

We don’t keep a list of all the contracts. As you can imagine, that would be a huge—

Chair

No, I’m not suggesting that, but do you have some oversight, some way of finding that out quickly?

Melanie Dawes

What we did in this circumstance was this. Obviously, the Cabinet Office were co-ordinating the overall Government response. We worked very quickly with the Local Government Association; they were extremely helpful, and we very quickly got a picture across the sector as a whole. Those councils that knew they had a contract with Carillion came forward very quickly.

Chair

But I don’t suppose they keep a database of the information, do they? So how did you get that information?

Melanie Dawes

The Local Government Association asked councils very quickly, and councils did come forward.

Chair

There was a ring-round. So that’s the buffer: a ring-round is what happens if there is a problem.

Jo Farrar

We have teams in each area that deal with resilience, and we worked through our local resilience co-ordinators and the LGA to make sure that we had a full picture. In fact, that information came through very quickly, as quickly as it did in any other sector, and we would expect the same. Local authorities monitor their contracts all the time, so they have very good data on that.

Chair

Of course we would all be worried if another strategic supplier collapsed, but you are not overly worried about how quickly you could find out information and support councils if you needed to.

Melanie Dawes

No.

Gareth Snell

Ms Dawes and Ms Farrar, a £5.5 billion deficit in council spending is projected by the end of the decade. There has been an almost £1 billion overspend in the last financial year. And £858 million-worth of reserves are being drawn down and two out of three councils are having to use reserves to balance their budgets. Are you worried about those figures?

Melanie Dawes

The figure of £5.5 billion is the Local Government Association’s estimate, but—

Gareth Snell

Do you have a different estimate?

Melanie Dawes

We don’t have a single figure here. At the moment we are starting our work towards next year’s spending review, so that we absolutely can give our Ministers in the Treasury and in our Department, but also across the rest of Whitehall, a clear picture of the pressures and opportunities for local government. We are very aware of the fact that local government has experienced reductions in budgets overall. That is set out very clearly in the NAO Report, which is very comprehensive. It is a very good report. We are very aware of that, and we monitor a lot of these trends.

Gareth Snell

But do those figures worry you, in terms of financial sustainability? If we are seeing two in three councils having to draw down reserves to balance their budgets, an almost £1 billion overspend in the last financial year and, as you pointed out, £858 million taken out of reserves, does that worry you?

Melanie Dawes

On the question of reserves, the context is that reserves were built up quite significantly in previous years. Two thirds of social care authorities reduced their reserves in 2016-17, but in the previous year it was 50:50, and prior to that more were increasing their reserves than were drawing them down.

Gareth Snell

Okay, but the latest figures show that two thirds are drawing down. Does that worry you?

Melanie Dawes

They are, but that needs to be seen in the context of reserves having been built up.

Gareth Snell

So you are not worried.

Melanie Dawes

Were that to continue indefinitely, and were we to build the next spending review settlement on an assumption of reducing reserves to balance the books, I don’t think that would be sustainable, but we are not in that situation right now. Certainly, our view is that for this spending review period, we are not in an unsustainable situation. Of course, it is hard for councils, but they are managing those budgets well. Where we see pressures, as we have on social care, the Government have responded and put money into the system.

Gareth Snell

So your expectations are that the use of reserves to balance budgets going forward should start to decline.

Melanie Dawes

Well, the Office for Budget Responsibility forecasts that they will decline their draw-down of reserves. We don’t have a forecast for that inside the Department, but we keep it under close review. Looking at the reserves situation is an important part of our preparation for the spending review.

Gareth Snell

If it’s an important part, why don’t you have a forecast?

Melanie Dawes

We are halfway through a four-year financial settlement set out in the spending review. We gave that certainty to local government. We don’t try to forecast every area of local government finance. What we try to do to the best of our ability is to track the key data, much of which is set out in the NAO Report, so we can keep an eye on trends, risks and patterns across the sector.

Gareth Snell

Is the use of reserves key data?

Melanie Dawes

Yes, it is.

Gareth Snell

So how come the Department hasn’t been forecasting that? Given that you have a four-year spending review programme and a four-year settlement, what was the estimate at the beginning of that settlement period about what the reserve use would be over the four-year period? Is the current use matching that prediction?

Melanie Dawes

We don’t make predictions for all of these aspects; what we do is monitor it. We have seen in recent years that, overall, councils have built up their reserves, and that they are now in fact nearly 50% higher—that is total non-ring-fenced reserves—than they were in 2010.

Gareth Snell

But would you accept that there are lots of big regional variations, and that the global figure does not accurately represent what is happening in individual authorities?

Melanie Dawes

It is very important to look at individual authorities and groups of authorities, as well as the total, but the total figures are as I have just stated.

Gareth Snell

In your monitoring, what trend would make you worried about the use of reserves as part of the day-to-day funding of local authorities? We heard in the previous evidence session that some of the large unitary authorities and county authorities are using their reserves at an alarming rate and are drawing down considerable sums of money. If that is to continue over the next two years, they will simply run out of reserves. Is that something that worries you?

Melanie Dawes

There are illustrative projections that the NAO have used in their Report to indicate what would happen were reserves to be drawn down at the rate we saw in 2016-17. While useful, they are illustrative projections.

Gareth Snell

But they are the only projections, because by your own admission, Ms Dawes, there are no projections from the Department.

Melanie Dawes

I don’t think it is a forecast by the NAO, as I understand it. The point I would make is that, as I have already said, the context for this is that the reduction in reserves comes after many years of those reserves being built up. We are not complacent about the overall risks for local government here. They are in a challenging situation and budgets have been reduced overall, but it is important to get that change in reserves in context. As I said—I will say it one more time—if we were to see a trend of reserves continuing indefinitely into the future, whereby the only way for local authorities to manage their current budgets was constantly to deplete their reserves, I don’t think that would be a sustainable settlement. We are very clear about that, going forward into the next spending review.

Chair

Can I just chip in? In response to Mr Snell, you said that where you have seen pressures in the system, as in social care, you have “put money into the system”. Can we just be clear that you are talking about the council tax precept rise for social care?

Melanie Dawes

And also the increases in the better care fund.

Chair

The point is that these are one-off shots of money. It’s all taxpayers’ money, but this money comes in particular from local council tax payers. It is not long-term sustainable funding. You would agree with that.

Jo Farrar

It will take us to the next spending review, which is where we will look at all of this in the round.

Gareth Snell

To return to my previous point, were you to see local authorities having overspent by a billion pounds at the end of the next financial year, would that worry you—if it was a continuing trend of needs and demands not being met through the available resources from their allocated revenue incomes?

Melanie Dawes

We try to look across the whole system. We look at a variety of financial measures. We look at the service outcomes. We look at the data and information that other Departments have on services such as children’s social care and adult social care. We look in the round at what is going on in the system. I cannot say how we would respond to any individual item, because it would depend on the overview. That is what we try to make as comprehensive as possible.

Gareth Snell

Could I ask something though, because our Chair referenced the 2% precept that is now available for local authorities? You interestingly said that the Department has made that funding available. What authority does the Department have to instruct councils to raise their council tax?

Melanie Dawes

We haven’t instructed anybody to raise their council tax, but the Government made available the possibility of going above the normal referendum principle for social care authorities. That was making more money available in the system.

Gareth Snell

Well, no, it’s not, is it? It is creating the opportunity for more money to be made available in the system, because the Government have not contributed any more cash than they have already contributed, and there was no additional income from the Department going directly to local authorities.

Melanie Dawes

Overall, half of the total spending power for the sector is from council tax. There is broadly the same pattern for the increases that have been facilitated or put in by the Government—whatever word you want to use—to support social care pressures. It is a reasonably balanced package in that respect.

Gareth Snell

But there is no ability for the Department to say it has made more money available. That is not actually the case, is it? What it has offered is the opportunity for local authorities to put a 2% increase on their base. Would you also therefore accept that the differences between local authority bases actually means that the amount of money that is raised by a 2% increase does not necessarily mirror demand or need in those areas? It is simply 2% on an arbitrary figure that was calculated many, many years ago. What is the Department doing to ensure that the money that could be available for local authorities is going where there is a need and not just where there is already a large base for council tax?

Melanie Dawes

You raise a very good point, which is that patterns of council tax vary across the country and levels of council tax vary, even amongst quite similar local economies. That is why some of the money that we put in—the direct Government grant that was put in—took that into account. That was precisely in order to reflect the points you are making.

Chair

Is that the direct grant or the better care fund money, or both of those?

Jo Farrar

It was the improved better care fund money. It takes into account that variation. I should add that local government has asked us for more flexibility in terms of council tax and the ability to raise council tax revenue.

Gareth Snell

I don’t doubt that they have, but it is not a useful indicator of whether that funding going into an authority is meeting need or demand, because of the way that council tax funding has been set up. The NAO Report points out that there has been a 9% increase in the amount of money that is used by local authorities to fund social care. It has risen from 45% to 54%. At what threshold would the Department start to be worried that too much money is being used for social care, putting greater pressure on non-social care services?

Jo Farrar

Actually, this is a pressure that local government has flagged with us. It is not only adult social care, but children’s social care. We work really closely with DHSC to understand the adult social care pressures, and that is why we have given access to extra money through the budgets. We are doing the same now with DFE in terms of children’s social care. We want to bring all this data together for the next spending review so that we ensure that we look at funding in the round. At the moment, councils have their four-year budgets and they are comfortable with those. We are looking at pressures as they emerge. Once we get to the spending review, we will need to look at the totality.

Gareth Snell

From the Department’s perspective, what proportion of a council’s overall budget do you consider to be sustainable, in terms of funding just social care alone? Do you think that 54% is a long-term, sustainable amount that councils should be committing to their social care? And as direct Government grant continues to decrease, that percentage is only going to go up.

Melanie Dawes

I don’t think we have a figure for what that proportion should be. The important thing is that overall the Government have a proper understanding of all the responsibilities that local government needs to carry out, and not just care services. I think you’re hinting at other services being squeezed out and that is an important consideration for us, but councils will vary. County councils, for example, will be dominated by those upper-tier care services. The important thing is that there is enough money in the system to allow councils realistically to be able to carry out their responsibilities. In some cases, you have got income increasing, which means that those services where income is not part of the picture—often, those are the care services—will be disproportionately greater. I don’t want to overplay that, but it is one of the factors in affecting the numbers.

Gareth Snell

So, if hypothetically that figure was to rise and tier 1 local authorities were spending 60% of all their budget just on social care, that is the sort of figure that the Department would not be worried about?

Melanie Dawes

We don’t have a threshold that would particularly—

Chair

What worries you? We were quite worried when we looked at this and saw the percentage increment. Mr Snell has explained it all; that is our concern. Do you worry about this when you go home at night?

Gareth Snell

If a council was spending 90% of its budget on social care, would you be worried about that?

Melanie Dawes

I don’t really think I can say that there are numbers that worry us per se and I wouldn’t use the word “worry”; sorry to be pedantic, but we’re responsible here for overseeing a system and understanding risk. Clearly, what those rising percentages show is that increasingly councils are having to spend their money on demand-led services, where they can’t always control the costs that they will have to cope with, and that shows that risk is increasing in the system. So it is an indicator of risk and it is therefore one of the things that causes us to look harder, particularly at upper-tier authorities, which is what we’ve done. So it is an area of concern.

Shabana Mahmood

Ms Dawes, just directly—following on from that exchange—if you ask our constituents what their understanding of councils is, it relates to council tax. If that is becoming a de facto adult social care tax—say, a “living longer” levy—that must be a matter of some concern to you. It must make you realise that the current situation is unsustainable, does it not?

Melanie Dawes

You get into, in a sense, the democratic sustainability of local government, which is an important consideration. I do think that you do get into quite important policy questions here about how we fund those services—

Shabana Mahmood

And therefore the percentage—the threshold, the amount of money—that is being spent on adult social care is a key thing for your Department and you personally to have a view on, is it not?

Melanie Dawes

Well, it is something that we do look at. As I said, an increasing percentage there is, for me, an indicator of more risk in the system, but we are—

Shabana Mahmood

But you have no idea of what risk is bearable and sustainable, and what is not. What is the point, therefore, of having a sense of what the risk in the system is, if you don’t grade that risk?

Melanie Dawes

What I’m saying is that we don’t have point estimates here, where suddenly we take the view that the system has become unsustainable. I think that if, overall, the system had reached 90%, what that would show was that local authorities had no capacity for the other important services that they carry out, and that would be—clearly—a real concern. And it’s possible that that could be a sustainable financial situation, but it’s not very likely that it would be a sustainable financial situation. It would depend on a number of variables, but it would clearly be something that would flag more risk.

Gareth Snell

What I want to understand is this. If the Department is not recording and does not have any particular forecast or predictions, depending on your terminology, for future user reserves, and it does not have the levers available to direct councils to raise council tax and it does not have a monitoring programme where it says, “Actually, going over a particular threshold for spend on one particular service will put you on a risk register”, and it doesn’t necessarily have an overview of individual authorities, how on earth can it be working to stop Northamptonshire cases happening again, because that is the danger set, which, according to the first panel and the NAO, was the red flag that indicated that Northamptonshire was failing? And by the sounds of it, the Department does not monitor any of those issues.

Melanie Dawes

I just don’t recognise that we don’t monitor those issues.

Chair

Do you want to tell us precisely how, then, you do?

Melanie Dawes

Yes. The NAO has described in their fourth chapter the risk framework that we have put in place over the last few years, which includes comprehensive data on all the financial measures you would expect, including on commercialisation—particularly following this Committee’s and the NAO’s Report on that a year or so ago. We also look at service outcomes. We liaise very closely with other Departments—particularly the Department for Education and the Department of Health and Social Care, recognising the importance of those services and their dominance in the numbers. We look at leadership capability, and we work very closely, particularly with the Local Government Association, who carry out on our behalf activities of peer support with councils, which you have heard about earlier. We look at that across the sector as a whole. We look at patterns, different types of authorities, and we also look at individual authorities that we are concerned about. Northamptonshire was on our risk register, for all the reasons that you would expect.

Chair

How many other authorities are on your risk register at the moment?

Melanie Dawes

I can’t give you a number, I am afraid. I am reluctant to do that. What I can say, and I think it is important to say, is that there is no council, we believe, that is in the same situation as Northamptonshire.

Gareth Snell

I’m sorry, Ms Dawes; what we heard from the panel before was that, in terms of its funding, Northamptonshire was sort of in the middle of the table. In terms of its use of reserves, it was in the middle of the table. In terms of its council tax, it was in one of the better positions. In terms of its direct grant from Government, it was in one of the better positions of all the councils that you may be monitoring. So if you had flagged up that council, even though the indicators that you just described were all looking quite favourable, and you can’t tell us how many councils you are currently worried about, what are the indicators that you are looking at that would be worse than Northamptonshire’s indicators, that would give you that list of authorities that you have concerns about?

Melanie Dawes

But it is precisely because Northamptonshire were in the middle of many of those league tables that the decline in their reserves and the fact that they had adverse auditors’ warnings were of such concern—and the fact, also, that their children’s services were not in a very strong position either. So there were a number of other things which were flagged on our risk register. The fact that their underlying financial situation, while challenging—we all acknowledge that—was not out of line with other similar authorities’ made those other indicators look particularly concerning. The inspector’s report has drawn out precisely concerns about the basic financial management in that council, which have led to the steps that we are now taking.

Gareth Snell

But Northamptonshire had three years’ worth of questionable audit reports. Why did it take two and a half years for the Department to look into that, and what lessons have you learned from that, that mean you take greater intervention steps quicker in other authorities to prevent Northamptonshire? What we don’t want is councils failing and the Department going in afterwards. In terms of the cost to taxpayers that is much greater than sorting it out to start with, surely.

Melanie Dawes

I agree with you that we don’t want to see more councils in that situation. The step of a statutory inspection and of putting in commissioners, which our former Secretary of State said he was minded to do, and, indeed, of inviting proposals for restructuring, are serious steps to take and they are not ones that our Ministers take lightly. We need consistent and sustained evidence of failure before we do so. In those preceding years there was a lot of work done with Northamptonshire, including peer support—a quite hard-hitting peer review that took place straight after the local elections last summer, where the chief executive did resign after that report; but the council didn’t put in place the measures very quickly in response to that report, and it was that and the further auditors’ warning that triggered our Secretary of State’s best value inspection earlier this year.

Jo Farrar

This level of systematic failure, when we look across local government, is very rare; and if you look at the inspector’s report it highlights the failure of governance of the management of the council, and financial management.

Chair

The Northamptonshire picture has been well rehearsed. We are seeing if that is the canary in the mine, for other authorities. I am going to bring in, briefly, Anne Marie Morris and Sir Geoffrey Clifton-Brown, if we have got time, before the vote, on a couple of quick points, and then move on, and we will come back to Mr Snell later.

Anne Marie Morris

Ms Dawes, one of the challenges you have is unforeseen change. At the moment we have a system of unitaries, county etc., but there has always been debate about what might be better. In Somerset we got to a point where they have been squeezed so hard on finances that they now are going to try and put it all together and take out the layers of local government. How can you look at how you are going to provide financial support and advice—how much Government money goes to authorities—when you have absolutely no idea what the local government structure is going to be next year, never mind in three years’ time?

Melanie Dawes

Jo might want to add more on this, having run two councils herself. In some areas, councils are coming together to see whether a unitary structure would serve them better for the future.

Chair

Yes, that bit we know. What are you going to do about it?

Melanie Dawes

They are doing that. We are not forcing that on any council. It could save money. What we are not doing is saying that we are assuming that all counties should—

Chair

Sorry, can we just be clear? Ms Morris was actually asking: when they are doing that, how can you judge what funding you need to give an authority as it is going through the transition? How are you judging what money to provide?

Melanie Dawes

My apologies if I was not answering the question quickly enough. I was trying to say that we are not assuming that all counties should unitarise and we are not building a spending review settlement on that basis.

Anne Marie Morris

Exactly, and therefore it is very hard for any council to manage its future funding and plan properly.

Melanie Dawes

But if a council or a group of councils then chooses to go down the unitary path, they will probably be able to make efficiencies that they can put towards their local services. They would need to put that to their local communities, of course.

Anne Marie Morris

Let me put this to you, Ms Dawes. I know you say that it is not a prescription of the Government that they should look at becoming unitary—you want it to be voluntary—but doesn’t the very fact that you are squeezing them so hard for funds, that you do not have the tools to work out what they need and that this whole issue of restructuring is not taken into account effectively mean that the Government are forcing councils to evolve and unitarise because they are completely strapped for cash?

Melanie Dawes

I do not think the Government is forcing unitarisation. Our new Secretary of State has said that he believes there is space and scope for unitary local government. There is quite a lot to recommend it, but it is not something that we are forcing on any individual group of councils. But if they choose to go down that route and make efficiencies, they will be able to keep those.

Anne Marie Morris

But why do most authorities make that decision? Is it not because they are strapped for cash?

Jo Farrar

There are a number of reasons why local authorities choose to move down a unitary route. Having managed two unitary authorities, I would say that some counties would find several benefits, not just in terms of efficiencies but in terms of being able to manage the whole of a range of services for their—

Anne Marie Morris

That sounds to me like efficiency and economy.

Jo Farrar

No, it gives a more streamlined service to the public.

Anne Marie Morris

That is efficiency and economy, Ms Farrar.

Melanie Dawes

It is also effectiveness. It is about being able to bring together functions like planning alongside strategic economic functions such as transport. There is quite a lot that can be gained through a unitary structure.

Chair

We will park that there. There is an issue, which Ms Morris was trying to get to, about how you then work out the funding model, but we will park that for now.

Sir Geoffrey Clifton-Brown

We will have a vote any second, Ms Dawes, so I will ask a very short question. You may have been in the room when I asked the previous witnesses about investing in commercial shopping centres. Given that local authorities are like sheep, is there a danger that they are investing in a bubble that is about to burst?

Melanie Dawes

This is a topic that we had a very long and useful discussion of a little while ago. On the back of that and the NAO’s Report, we have, as Rob Whiteman was explaining earlier, done some work to tighten up the codes. The important thing—Ms Farrar may want to say a bit more about this—is that when local government goes into those commercial activities, it does so with an eye to the medium-term impacts and the necessary sustainability of its finances. That is what we have particularly tightened up on.

Jo Farrar

Yes. It is really important that local government understands the risks and makes sure that any investments are sustainable. That is one of the things that we have been concerned to make sure happens when we have updated our codes and worked with CIPFA on their prudential code. In terms of commercialisation, though, you heard quite passionately from Martin Reeves, and I am sure other local government chief executives would tell you about the investments that they have been able to make that have really led to great regeneration in their areas. They have been able to bring forward sites that the private sector normally would not bring forward and bring life to areas of their towns and cities, which would not otherwise have happened. It is important in terms of the way local authorities manage their business, but we want to make sure that it is done in a sustainable way, so we have been working with CIPFA, we have updated our own statutory framework, we have improved our data and we are improving our understanding of risks so that we can make sure that we are overseeing these types of decisions and that councils are not taking undue risk.

Sir Geoffrey Clifton-Brown

But past performance is not necessarily a guide to future returns, particularly with the impact of the internet on the high street.

Jo Farrar

No, that is right, and we would expect local government to take account of that. In fact, in a number of areas, local government is very sophisticated in the way that it makes judgments about where to invest. In my former authority, we made several judgments about where to invest, and we also used independent experts to advise us, to make sure that we were making the right long-term decisions for the area and not basing something on an industry that may not be there in 10 years’ time.

Chair

We will pause there, because we are expecting a vote. Sitting suspended for a Division in the House. On resuming—

Chair

Welcome back after the Division to the Public Accounts Committee on Wednesday 9 May 2018. We were part way through our panel session with Melanie Dawes, the Permanent Secretary at the Ministry of Housing, Communities and Local Government, and Jo Farrar, the director general for local government at the same Department. I will ask Lee Rowley to come straight in.

Lee Rowley

I’d like to pick up on a few of the points that were raised with Mr Snell. Just so I’m clear, you stated that we are not in an unsustainable position, correct?

Melanie Dawes

Yes, for the spending review that we are in now, that is our judgment.

Lee Rowley

How are you judging that?

Melanie Dawes

Well, I don’t want to use the Committee’s time by repeating my description of our oversight from earlier, but I think we have comprehensive oversight. It is a databased oversight of the system that looks at trends.

Lee Rowley

But is your analysis entirely based on trends?

Melanie Dawes

No, it looks at what is going on in any one year. It looks at finance, services and leadership. It also relies on what the local governments themselves tell us. We hear the pressures that were described earlier.

Lee Rowley

For the previous financial year we have just completed, can you tell me what your assessment of sustainability was from a quantitative perspective?

Melanie Dawes

I don’t have a measure for sustainability, so I can’t give you a quantitative number in answer to that question.

Lee Rowley

If you don’t have a measure of sustainability, how can you assert that the sector is sustainable?

Melanie Dawes

I don’t want to rehearse all the numbers in the NAO Report, but we look at reserves—

Lee Rowley

They’re the NAO’s numbers, not yours.

Melanie Dawes

Reserves and the build-up of reserves would be one example. We have a sustainability tool, which Jo might want to say a bit more about. We have a variety of financial data and other data that we bring to bear. There isn’t a single point—

Chair

Mr Rowley asked a particular question. Will you repeat it, Mr Rowley?

Lee Rowley

Please help me. How philosophically can you say that a sector is sustainable if you cannot assess sustainability? Those things are irreconcilable.

Melanie Dawes

I don’t agree with that, in the sense that when we come to the spending review next year, what we will do is a very thorough quantitative assessment of the costs and pressures that local government faces and the resources it has at its disposal, including the distribution of those resources.

Lee Rowley

So tell me what that showed in the last financial settlement.

Melanie Dawes

I can’t share with you the advice that we gave to Ministers as part of the last spending review, but what I can say as evidence of our keeping this under review is the fact that Ministers collectively decided to make available to local government allowing it to increase council tax—picking up on the debate we were having earlier—and so on in order to provide more resources for social care.

Lee Rowley

If you cannot give me the exact number you gave to Ministers, give me a ballpark of the sustainability—they had 5% more money than they need, they had 5% less money than they need—

Melanie Dawes

I’m afraid I can’t give you figures like that.

Lee Rowley

But you have them?

Melanie Dawes

We have estimates of the pressures that formed part of our internal advice during the spending review. That is described by the NAO in its Report—

Lee Rowley

I hope you can see where I am trying to go. I am trying to make you give me a very clear answer about the assessment that you made for sustainability. I will concede the point that you cannot tell me—I don’t know why you can’t tell me, to be honest, but let us put that aside for the moment—but what is your methodology and how are you assessing?

Melanie Dawes

Our methodology is to go through all the different service lines that local authorities have to deliver. In some cases—in fact, in most cases—it is down to other Government Departments to do an assessment of the costs and potential revenue sources, and we also have quite comprehensive analysis of efficiency and productivity which has been led from our Department, by our chief analyst, over the past few years. We bring all that evidence to bear. We look then at the resources that local government has, both those that it raises itself through council tax and those where Government are involved at least in the redistribution, such as business rates or Government grants. Then we put that picture together, and we look at the sector level and at the individual authority level.

Lee Rowley

How can I as a Member of Parliament and as a member of this Committee have confidence that you have assessed the sector as sustainable if you won’t tell me what the numbers are of your last assessment of sustainability?

Melanie Dawes

It is a fair comment that there is not very much transparent analysis of this type in the public domain. The NAO Report comments on that. Personally, I would like to see bodies such as the Institute for Fiscal Studies—we are also trying to engage the Office for Budget Responsibility—in some of these questions. Our own advice to Ministers is a confidential matter, but I am in favour of more transparency and openness on these questions. Typically in government, a good way to get at these things is for others to do that, to challenge the Government on their estimates. That happens in a number of different fields of public policy.

Lee Rowley

I am challenging you on your estimates, and you aren’t telling them.

Melanie Dawes

I can’t share with you the advice that we give to Ministers. That is just something that we cannot do. What the NAO Report has looked into is the process that we follow, and it said that in 2015 we had improved on what we did before. It also said, “Right, you need to improve further”—that is what we will try to do next week, because the tighter the finances get, the more important it is that our analysis is as comprehensive as possible.

Chair

Ms Dawes, there must be information that you can provide Mr Rowley and the Committee that is short of the advice you gave to Ministers—you have done numbers, you have methodologies, so you have facts and figures. That is not advice to Ministers; that is just facts and figures, some of which the NAO has reflected in its Report and projections. Is there anything you can help Mr Rowley and the Committee with in terms of your understanding of the level of risk and sustainability?

Melanie Dawes

I can certainly say now that many—in fact, all—of the indicators in the NAO Report are ones that we think are relevant to risk. We talked earlier about reserves, why it can be important and when it might not look like what it is initially. There is never in my view a single-point number. As a former analyst, I am never keen on single assessments of mixed matrices—

Chair

That’s not what Mr Rowley has asked.

Melanie Dawes

I am trying to give you a flavour of the things that we look at—at the data sources that we look at—and we recognise the picture in the NAO Report.

Lee Rowley

Let’s go to the point you made a moment ago: paragraph 4.30 of the Report and the local authority sustainability tool. I don’t particularly want to dwell on exactly what it does and does not support. I want to know the methodology behind it. What is the definition of unsustainable according to that tool?

Jo Farrar

What we do—

Lee Rowley

What is the definition of unsustainability according to that tool?

Jo Farrar

We don’t have a definition—

Lee Rowley

You must do, because you say, “inform the Department’s assessment of the level of risk of widespread financial failure.” That is a subjective assessment. I want to know what the subjective assessment is behind.

Jo Farrar

On the assessment, we take all of the data that the permanent secretary mentioned and we would then put that on to a distribution, and then that would allow us to look at outliers, and we would work then with outlying local authorities—

Lee Rowley

The tool—

Jo Farrar

Yes, that is what the tool does.

Lee Rowley

On the tool, you stick in a load of data and it comes out with an output?

Jo Farrar

It comes out with a distribution.

Lee Rowley

And therefore within that distribution there will be a range of outputs that are acceptable or “sustainable”, and a part of that distribution will be to define unsustainable. What is the definition of unsustainable?

Jo Farrar

No, that gives us an indication of their financial sustainability, but we then talk to the local authorities to balance that against their leadership, governance and culture, and their use of reserves and why they are doing certain things at certain times, to get more of a picture of those individual authorities. We do not look at the sector as a whole and say the sector is sustainable.

Lee Rowley

What triggers the requirement to have a discussion with the authority?

Jo Farrar

We talk to them all the time using this tool. We talk to all local authorities, but we would definitely talk to—

Lee Rowley

We can go round in circles, but I am going to get an answer to this. So there is a tool. The tool provides an output.

Melanie Dawes

It does not provide a point estimate or a yes/no answer, though. It tells you some indicators.

Lee Rowley

In this process that has a tool embedded within it a subjective assessment is made about sustainability. You have defined where it is in the process for me, but tell me what that subjective assessment is.

Melanie Dawes

It is not the case that we look at these numbers and say, “Yes, sustainable” and “No, not sustainable.” What we look at is things like levels of reserve use and the amount that is available and left for particular types of authority. We look at that against underspends and overspends.

Lee Rowley

I don’t know how you can state that the sector is sustainable. You cannot have it both ways where you say, “We don’t do all this to assess sustainability, but trust me, it is sustainable.” Those points cannot be reconciled on a philosophical basis. They just can’t.

Melanie Dawes

I think that assumes that sustainability is something that you can measure in a point way. To my mind, it is a risk judgment. It depends partly on looking at trends, and it is not just about finance. It is also about instructions and actions and governance.

Chair

I am going to bring in Mr Snell briefly on this point.

Gareth Snell

I think the question that Mr Rowley has asked is quite pertinent. What I want to ask is: if you are not doing it on a numerical basis, how are you determining consistency in that analysis if one person’s outlier is another person’s acceptable level of sustainability?

Jo Farrar

That’s why we would test against a number of factors. We would not just take a pure number. We would then look at a number of other factors in order to get a judgment about that individual authority.

Gareth Snell

I understand that, but if you have got that distribution that you have just described, and that distribution includes outliers who are the ones that you want to speak to, how are you ensuring that a local authority that is an outlier for one person within your team, whoever is analysing this data, is consistent and that everybody sees that as an outlier and then takes the necessary steps to follow up those conversations? If that is what happens, then by definition you have a criterion against which you judge outliers.

Jo Farrar

We would bring a lot of data together not just from our own Department but from other Government Departments, including Ofsted judgments and other information, to make sure that we have a rounded picture of local government and individual local authorities in particular. We have to remember that local authorities are independent elected bodies that are responsible for their own financial sustainability, and that is why they have 151 officers and statutory responsibilities. If we have authorities that we are concerned about, then of course we will have a discussion with them, but we will also expect the LGA to work very closely with those authorities that they are concerned about.

Melanie Dawes

Perhaps I can try and help a little more here. We would be happy to write and explain what we can about how the model works. We map distributions on a number of different criteria and then we look at those authorities that are outliers on more than one criterion. That will generate a group of authorities, sometimes, in similar circumstances, such as, for example, social care authorities, but then we put that against other information that we have and we keep a very regular oversight of what that is showing for us, and I look at that once a quarter. But, as Jo said, it is often the case that when you place that financial data against what we know of service outcomes and from Local Government Association work and so on about individual authorities—and what they often tell us as well—a risk that looked like it was there is no longer as apparent. But we keep that very actively under review.

Lee Rowley

I think the challenge we have is that you are collecting a lot of data, doing a lot of analysis and investing taxpayers’ money in sustainability tools. Out of those come impact points, whether they are ranges or distributions, in order for you to make an assessment. What I have not heard in anything either of you have said is what the subjective analysis is behind that assessment—when you decide whether it is sustainable or unsustainable, and how you conclude the sector is sustainable on that basis. I will leave it there, as I don’t think we will make any further progress.

Melanie Dawes

I don’t think there is much more I can say—sorry.

Lee Rowley

On a separate point, what is the point of a long-term funding settlement in local government? Why is it a good thing?

Melanie Dawes

Well, the settlement is needed in order to make sure that local government has the funding it needs to deliver services.

Jo Farrar

A long-term funding settlement allows an authority to plan over time, so it can make longer-term decisions in terms of its investment or how it will manage its services. So longer term settlements—the four-year settlement—have been welcomed by the sector. I think you heard that.

Lee Rowley

If that is the position—in order for it to plan—how can local government plan with the constant tweaks that we see in figure 3 in the Report?