Government 'complacent' about risks to local authority finances due to commercial activites, MPs warn

Taxpayers could end up 'footing the bill' for commercial failures while services could see budgets cut further.

MPs warn bad commercial decisions could further impact service budgets. Image: Peter Neal
MPs warn bad commercial decisions could further impact service budgets. Image: Peter Neal

Increasing commercial activity by local authorities risks damaging their parlous finances further as many councils lack commercial experience or skills, the Public Accounts Committee has warned.

The committee warns the Department for Communities and Local Government (DCLG) "appears complacent about the risks to local authority finances, council tax payers and local service users arising from the increasing scale and changing character of commercial activities across the sector", in a report released today.

It has called on central government to do more to understand local authorities’ commercial activities and their potential impact on finances and taxpayers, saying: 'if commercial decisions go wrong, council taxpayers will end up footing the bill and other services will be under" threat'.

At the same time, these activities are drawing funds away from investment in services such as parks, the report adds.

Committee chair Meg Hillier MP said: "Central government wants local authorities to become largely self-financing and against this backdrop councils are exploring new ways to raise cash.

"It is therefore alarming that the Department for Communities and Local Government does not have a firm grasp of the changes happening locally and their implications for taxpayers. 

"Our committee has previously highlighted gaps in the commercial skill of the civil service as a factor in the failure of some projects and we have similar concerns about local government.

"Poor investment decisions cost money – money that might otherwise be spent on public services."

The committee recognises the growing trend among England’s 353 councils to raise revenue from capital investment in properties and businesses, such as developing houses and commercial units, which might include business units in parks.

In its report, the committee expressed concern about risks arising from this and called on the DCLG to work with partners in the sector to review commercial activities in local authorities and update committee MPs by the summer on how it is strengthening its understanding of the scale and nature of authorities’ commercial activities, focusing in particular on risk.

The update should also address other concerns raised by the committee, including how future spending reviews by central government will consider "the interactions between revenue spending, capital spending and borrowing, and the resulting pressures on local authority capital programmes". 

The report also identifies the uncertainty surrounding Brexit and "new questions about transparency and accountability" raised by further devolution as complicating factors, and urges the DCLG to work with the Chartered Institute of Public Finance and Accountancy to ensure the local government capital finance framework "remains current and continues to reflect developments".

The issue of whether local authorities have the necessary skills and experience needed to transition from a model of publically-funded parks budgets to a number of different structures currently being considered, such as a self-financing commercial model and parks trusts, has been a question asked by the Communities and Local Government Committee during both oral evidence sittings of the current parks inquiry.

During the first session Heritage Lottery Fund (HLF) head of landscape and natural heritage Drew Bennellick said he did not think the skills were there. "Parks managers to some extent are rabbits in the headlights, there is a need to help people through this transition over the next three to five years. They have to make big decisions with very little resources."

For more on the parks inquiry see the next issue of Horticulture Week, out next Friday.


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