Governance systems haven’t improved despite budget cuts

The government has not done enough to ensure that governance systems are improved, despite local authority budgets remaining under extreme pressure.

That is the view of the Public Accounts Committee, whose new report argues that local governance arrangements are currently being ‘stretched and tested’ as councils continue to take more risks to meet increasing service demands. This includes expanding outsourcing endeavours, pursuing shared services and undertaking commercial activities, whilst cutting funding for corporate activities like governance at the same time.

Council spending power fell by 29 per cent in real terms between 2010-11 and 2017-18. Although local authorities’ governance arrangements are generally robust, the report says that, in some authorities, governance is under strain: audit committees that do not provide sufficient assurance, ineffective internal audit, weak arrangements for the management of risk in local authorities’ commercial investments, and inadequate oversight and scrutiny.

The committee suggests that the government set out: its overall plan for improving its oversights; its progress in working more effectively with other government departments to understand overall pressures on service sustainability; its objectives for the promised local governance panel and the means by which the panel’s effectiveness will be assessed; progress in setting up the new panel, including its work programme, the concrete actions the panel will take; the timetable and intended outcomes the panel will be working towards.

Meg Hillier, chair of the committee, said: “On the rare occasions a local authority fails, the impact on local citizens is severe. Residents facing decimated services get no comfort from being told that their council’s dire finances were “an open secret. We have seen examples of local authorities which have had inadequate governance arrangements and been unable to provide assurance that hard pressed budgets are being properly spent.

“The government needs to recognise the extra pressure that squeezed budgets and increased commercial risks are having on local government and make sure it is monitoring the risks effectively so that it can be alert to the impact of changes on local government.”

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