1. Financial & service sustainability of local authorities 2018: an NAO perspective
NCCS conference
October 2018

2. Overview | NAO perspective
Three areas:
The financial and demand challenges faced by councils since and the implications for service and financial sustainability
The response by councils and by government
The future…

3. Challenges | Funding reductions since 2010-11
Substantial real terms falls in government funding:
49.1% reduction to
56.3% reduction by
Spending power fell steadily from to (28.5%) then levelled off: relies on substantial anticipated growth in council tax.
Much new cash is also focused solely on ASC. Non ASC funding falls by 8.2% from to

4. Challenges | Variation in funding reductions
Significant variation in spending power reductions between and within different types of LA

5. Challenges | Growing demand on local authorities
10.9% increase in children looked after to
9.5% increase in the estimated population in need aged 18-64
14.3% increase in the population in need aged 65 and over
33.9% increase in households accepted as unintentionally homeless and in priority need

6. Service sustainability | Reductions in service spend
Social care spend has been relatively protected:
3.3% reduction ASC (including BCF)
3.2% growth in CSC.
Other services have been cut substantially:
52.8% cut in planning and development
45.6% cut in housing services (non-HRA)
37.1% cut in highways and transport services
34.9% cut in cultural and related services
16.9% cut in environmental and regulatory services
14.6% in central services

7. Service sustainability | Concentration on social care
Across the sector as a whole social care has grown from 45.3% to 54.4% of service spend
Marked differences in the share of spend accounted for by social care across different LA types/areas.

8. Service sustainability | Total spend has not fallen as much as net spend
Total spend (which includes net spend) also includes spend funded by sales fees, and charges and other income such as transfers from other bodies.
In many services total spend has not fallen as sharply a net spend – often because income from sales, fees and charges has grown.
This means that a greater share of the cost of service provision falls on the user.
More limited falls in total spend may partially explain why the public response to service spending reductions has perhaps not been as marked as expected.

9. Service sustainability | Growing overspends
The sector as a whole had a service overspend of £901m in
Single tier and county councils have switched from a period of service underspends to growing overspends - £1bn in
District councils as a whole have managed to deliver underspends.

10. Financial sustainability | Use of reserves (STCCs)
High point for growth in reserves for STCCs was – trend started to change at that point.
In % of STCCs drew on their total reserves - £858m.
Latest figures show an upturn

11. Financial sustainability | Unplanned use of reserves
However, a substantial amount of gross use of reserves is on an unplanned basis – an LA has not budgeted to use these reserves, or did budget to use less than planned.
This may indicate that LAs are struggling to implement savings plans or manage costs in-year, though there are of possible explanations for unplanned use of reserves.

12. Financial sustainability | Overspends & use of reserves
Growing social care overspends linked with an increase in use of reserves by STCCs
But difficult to prove precisely that LAs are funding their social care overspends by drawing on their reserves.

13. Financial sustainability | Dwindling reserves
Many STCCs have built up their reserves. Use of reserves in itself does not indicate financial vulnerability.
However – not all STCCs were able to build up their reserves, and some of them are consuming them very rapidly.
Based on their rate of use in that year 10.6% of STCCs had the equivalent of less than three years’ worth of reserves left.
Compared to previous years there has been a marked growth in the number of STCCs that are drawing down their reserves rapidly relative to their scale

14. Financial sustainability | Limited room for manoeuvre
A lack of reserves or their rapid use is a potential concern.
So is a concentration of service spend on social care – as this means LAs have less room for making further savings in service spend.
In % of STCCs spent over 65% over their service spend on social care (and this includes non-schools education).

15. Responses | How LAs offset funding reductions has changed
First three years – reductions in service spend were greater than reductions in main income streams. Allowed LAs to grow reserves and increase other spending.
Marked switch in second three year phase: Service reductions account for less than half of funding reductions. Use of reserves and reductions in other spend become more important.
Also growth in alternative income (shown in negative in the chart).

16. Responses | Reducing other spend & increasing income
Since LAs have reduced spend on debt servicing by £680m and CERA by £240m
LAs increased income from trading profits and external interest by £200m
Overall – this allowed LAs to reduce service spending reductions and/or use of reserves by £1.12bn.

17. Responses | Generating new income
Trading profit has increased by £90m since
Biggest increase has been from external interest– up £180m since
This is likely to reflect local authorities re-investing loans from PWLB until they are required in their investment strategies.
Overall, however, these are not yet large sums given the scale of the challenge faced by the sector

18. Responses | Borrowing for commercial purposes
Initially local authorities held borrowing down as part of their strategy of holding capital costs to revenue
But borrowing has ramped up since
A combination of long-term borrowing from PWLB and short-term inter-authority lending, linked to a strategy of commercial investment by authorities.
Fact that authorities have increased borrowing and reduced debt costs since is a tribute to treasury management skills in the sector.

19. Overview | Central government’s response
Financial self sufficiency and reform to LG finance system
Integration of health and social care by 2020
Reform of the NHS: 5YFV, STPs, ICSs, Vanguards, 10 year plan…
Devolution
Will go through each one one by one.

20. Responses | LG finance reform - business rates vs need
Policy goal is financial self-sufficiency by 2020, based on locally raised income.
No correlation between an authority’s business rates tax base (gross rates payable per capita) and its need for local services (indices of multiple deprivation).
So, government redistributes locally collected income to ensure that that all local authorities are sufficiently funded.
But need and ability to generate business rates locally both varies and diverges over time.
Between and the change in authority tax bases ranged from a reduction of 27.7% to an increase of 27.2%.

21. Responses | Why the interface between services is important and why integration matters
Unintegrated services mean suboptimal outcomes:
A patchwork of services provided despite users’ needs
Institutions working to their own agendas, not aligned to service users’ needs
A lack of whole-system working risks gaps, duplication and wasted resources
Policy goal for some years….

22. Overview | Why the interface matters

23. Overview | Our report on health and social care interface concluded…
Key challenges:
financial pressures, short-term funding arrangements and uncertainty about future funding
cultural and structural barriers, including leadership and data sharing
strategic issues: the relative lack of public understanding

24. Overview | The NHS & the 10 year plan
Commitment to improving the population’s health should be explicit
Learn from experience and build on success
Work collaboratively in a real sense, centrally, regionally and locally
Develop the workforce looking 10 years ahead.

25. Overview | Adult social care workforce
Signs of problems within the workforce:
Turnover and vacancy rates are high
Growth in jobs has fallen behind growth in demand
Sustainability of the care market remains precarious
Recruitment and retention challenges
Low prestige and poorer career progression
low pay contributing to high vacancy & turnover rates
particular difficulty recruiting for registered manager.
In , 7% of the care workforce were non-British EEA nationals

26. ASC workforce | Vacancy rates by role

27. ASC workforce | Turnover by role

28. Response | Devolution
Complex geographies have created challenges and tensions for local areas
Coterminous boundaries are important
Rural and two tier areas in particular have found the adoption of the mayoral model challenging.
Inconsistent approaches to devolution across central government departments.
STP footprint
. Derbyshire County Council successfully launched a judicial review against Sheffield City Region CA’s proposal to include the Derbyshire district council of Chesterfield into the combined authority structure, despite sharing no geographic borders with Sheffield.
The now abandoned proposal for a Greater Lincolnshire combined authority covered the geographic area fourteen times the size of Birmingham. The proposal was abandoned because a mayor would not be suitable across such a large area plus the challenges of engaging both county and district councils.
Local areas feel that arbitrary lines have been drawn across many DfE and DWP policy areas.
Combined authorities see their added value as providing a single voice to an area, facilitating collaboration across geographic and political boundaries and operating across functional economic geographies.

29. A way forward | Recommendations and views
The sector needs a long-term plan to secure its financial sustainability
The NHS will have a 10-year plan and resources – so should ASC
Future relationship with the NHS: ‘lockstep’
Central government needs a single central understanding of service delivery as a whole
DHSC should produce a robust national workforce strategy

30. Challenges for the future…
The weight and complexity of Brexit on central government
Further spending reductions until
Greater uncertainty with the Fair Funding Review, business rate retention & SR19
Increasing complexity of delivery landscape
No set strategy or means of sharing successful approaches
Lastly… greater opportunities for local government and greater importance of place?

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Please contact Aileen Murphie with any further questions