Social care pressures leaving councils raiding reserves

The National Audit Office (NAO) has found that local authorities in England are regularly raiding their reserve funds to cope with an increase in demand on services.

The spending watchdog’s report reveals that an increasing proportion of councils were managing to balance their books only by using financial reserves to cover overspends on social care services, with one in 10 councils with social care obligations predicted to have exhausted their reserves within the next three years, leaving them vulnerable to potential insolvency.

Government funding for local authorities has fallen by an estimated 49.1 per cent in real terms from 2010-11 to 2017-18, while, at the same time, the number of looked-after children in council control has increased by 10.9 per cent and the estimated number of people in need of care aged 65 and over increased by 14.3 per cent. Despite growing demand, spending on social care still fell by 3.0 per cent from 2010-11 to 2016-17.

The report is likely to worry Whitehall, after Northamptonshire County Council imposed strict in-year spending controls last month in response to being at risk of spending more than the resources it has available in 2017-18, which would be unlawful.

Amyas Morse, head of the NAO, said: “Current funding for local authorities is characterised by one off and short-term fixes, many of which come with centrally driven conditions. This restricts the capacity of local authorities and yet the weight of responsibility to respond to increased demand and maintain services remains very much on their shoulders. The government risks sleep walking into a centralised local authority financial system where the scope for local discretion is being slowly eroded.”

Lord Porter, chairman of the Local Government Association, responded: “The report acknowledges the unsustainability of councils being forced to use reserves to plug funding gaps. As we have previously said, reserves are designed to help councils manage growing financial risks to local services and do nothing to address the systemic underfunding that they face. The size of the cuts councils are having to make is simply too big to be plugged by reserves.

“Councils’ ability to maintain local services at a time of inadequate resources and rising costs is already extremely stretched, and the NAO rightly warns about the huge uncertainty over how the government intends to fund local services after 2020. The government needs to urgently address this cliff-edge and the growing funding gaps facing local services. It also needs to provide the financial sustainability and certainty needed to protect the local services our communities rely on into the next decade and beyond by committing to allow local government as a whole to keep every penny of business rates collected.

“Only with the right level of funding and powers, can councils continue to make a difference to people’s lives by building desperately-needed homes, creating jobs and school places, providing dignified care for our elderly and disabled and boosting economic growth.”