The government will always be able to allocate blame to local authorities when they issue a s114, but without some sort of intervention it is likely that other authorities will follow Birmingham. It has had many opportunities to reform local government finance in recent years but has taken few of them, delaying the implementation of its Fair Funding Review – a move which would more equitably allocate grant funding based on need and which was first promised in 2016 – until April 2025 at the earliest. It has declined to reduce the statutory duties of local authorities, as the Conservative leaders of Kent and Hampshire suggested in their letter to the government last year. It has also kept tight control of the limit to which authorities can raise council tax each year. There are relative merits and drawbacks to each of these suggestions, but the government has been unwilling to countenance any.
To its credit, the government did make more money available for
adult social care at the autumn statement last year, but that money will mostly be eaten up by inflationary pressures. Without a large increase in funding or a reduction in local authorities’ responsibilities, councils will not be able to deal with the dual pressures of rising demand and large cost increases.
In addition to those systemic issues, there is an enormous backlog in local authorities’ financial audit. In November 2022, over 630 local government annual accounts had not been signed off, some dating as far back as 2015/16. Timely audit is crucial for understanding financial risk in local authorities. The government’s recently-launched
Office for Local Government will make some financial information more easily accessible, but will do little to shed light on previously unknown financial risks. More importantly, the government has delayed the establishment of the Audit, Reporting and Governance Authority (ARGA), a body intended to lead the local government audit system, until at least 2024. In its report on the subject, the Public Accounts Committee (PAC) concluded that the delay in establishing ARGA “risk
performance deteriorating further”.
The government would do well to take action on these systemic problems now. If not, there is a very real risk that many other local authorities following will follow Birmingham down the route of a s114 notice.