Debt payments pinching council spend, NAO finds

A new report by the National Audit Office (NAO) has found that the cost off paying off historic debts is squeezing out council’s dwindling revenue resources.

The study examined the financial sustainability of local authorities and found 25 per cent of single-tier and county councils now spend nearly 10 per cent of their revenue expenditure on debt servicing. The NAO warned that the cost of servicing debt and the need to maintain investment in their existing assets will put them under increasing pressure in the future.

The report found that local authorities’ revenue spending power decreased by 25 per cent in real terms from 2010-11 to 2015-16. It also claimed that capital spending had increased by five per cent in this time period, although the increase was uneven across local authorities and service areas.

Amyas Morse, head of the National Audit Office, commented: “Local authorities have acted prudently and maintained overall capital spending levels, but the cost of servicing debts accounts for a significant share of revenue spending and this is likely to increase.”

Morse added: “The Department therefore needs a deeper understanding of the capital issues local authorities face. Without an understanding of broader trends it will not be well-placed to anticipate risks to value for money as authorities come under greater financial pressure.”

A spokesman for the County Councils Network (CCN) said: “In a difficult era of dwindling resources and markedly less funding, CCN member councils have shown ambition to continue capital investment programmes and have the vision and innovation to drive growth.

“To illustrate this, the NAO report reveals that counties have increased their capital spending over the last five years, compared to other local authority types.

“However, many of our members say they are facing substantial gaps in funding for infrastructure over the coming years, severely hampering planned growth. Counties, with the expertise for making economic and strategic decisions at size and scale, are well-placed to work with LEPs and businesses to ensure that infrastructure is in place to enable growth and development to support vital services.”