Auditors say most councils are coping with cuts, but stress is starting to show

21 November 2012

Councils successfully delivered their budgets in the last financial year, despite continued reductions in government funding. Tough Times 2012, published today by the Audit Commission, finds that in 2011/12 councils largely delivered their planned savings and in many cases added to reserves. However, auditors reported that signs of financial stress were visible. A sizeable minority of councils had to make additional in-year cuts, seek additional funding, or restructure efficiency programmes in order to deliver their budgets.

Jeremy Newman, Chairman of the Audit Commission, said:

‘We should recognise the significant achievement of councils in ensuring that their finances are in order, at a challenging and uncertain time for local government. On the whole, councils have worked hard to cope with reductions in funding, and have reserves available for future challenges, including further funding changes in 2013. However, auditors expressed concerns about a number of councils that have already shown signs of stress, and which are facing further significant challenges. Auditors should remain vigilant for any problems, while councils should continue to closely monitor their finances to ensure they remain on an even keel.’

In 2012/13, councils’ funding from government has reduced by £1.6 billion – markedly lower than the £3.4 billion reduction in 2011/12. Nonetheless, auditors are concerned that 12 per cent of councils are not well-placed to deliver their 2012/13 budgets, while they feel that a further 25 per cent will cope in 2012/13, but may struggle in the remaining years of the Spending Review period. Auditors felt that councils that were already showing signs of financial stress in 2011/12 were more likely to be a risk for 2012/13 and beyond.

The report also looks at councils’ expenditure on different services, and finds that in 2011/12, planning and development was the service with the highest average fall in spending (28 per cent) while adult social care and children’s social care saw the lowest average cuts. However, budgets for 2012/13 showed that adult social care was no longer protected from major funding cuts, and councils planned to make substantial reductions in adult social care expenditure. In contrast, children’s social care actually saw a small increase in funding overall, and was the only service not to see a fall in spending. The report did not look at the impact of funding cuts on services, so it is not possible to say whether service levels or standards were affected.

Notes to editors

1. The report sets out the scale and impact of the funding cuts in 2012/13:
   • Government funding to councils fell in real terms by £1.6 billion in 2012/13, compared to a cut of £3.4 billion in 2011/12.
   • Metropolitan district councils were the worst affected, with cuts of more than double those affecting county councils in the last two years.
   • Councils in the most deprived areas were most affected in both years, but they still receive more funding per resident than less deprived areas.
2. It identifies groups of councils, based on how financially resilient auditors felt councils are in the short and medium term. These groups were:
   • An ongoing-risk group which was not well placed in the short or medium terms. This group was made up of 13 per cent of single tier and county councils (STCCs) and 12 per cent of district councils (DCs)
   • A future-risk group. This group (30 per cent of STCCs and 22 per cent of DCs) was well placed in the short but not the medium term. Councils in this group had a degree of difficulty in delivering their 2011/12 budgets, and many also face financial challenges in 2012/13.
   • The majority of councils (57 per cent of STCCs and 67 per cent of DCs) are in a low-risk group. These councils are well placed to deliver both their 2012/13 budget and the remainder of their medium term financial plan (MTFP).
3. The Audit Commission’s role is to protect the public purse.
4. We do this by appointing auditors to a range of local public bodies in England. We set the standards we expect auditors to meet and oversee their work. Our aim is to secure high-quality audits at the best price possible.
5. We use information from auditors and published data to provide authoritative, evidence-based analysis. This helps local public services to learn from one another and manage the financial challenges they face.
6. We also compare data across the public sector to identify where services could be open to abuse and help organisations fight fraud.
7. The Audit Commission is planning to publish a report on councils’ reserves in early December.

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