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U.K. Must Prepare for Local-Government Budget Failures

Jan. 30 (Bloomberg) -- The U.K. needs to do more to ensure local governments don’t suffer financial failure as a result of cuts to funding as demand for essential services increases, the National Audit Office said.

A survey of English local authorities, responsible for a quarter of managed public expenditure in the U.K., found 12 percent expect not to be able to balance future budgets, according to a report published by the spending watchdog in London today. Prime Minister David Cameron’s coalition government is cutting support for England’s 353 local councils by 7.6 billion pounds ($12 billion), or 26 percent, between April 2011 and March 2015 to help narrow the budget deficit.

“The Department for Communities and Local Government will need to be able to detect emerging problems and respond flexibly and quickly,” Amyas Morse, the head of the NAO, said in an e-mailed statement. “Local authorities are facing the challenge of reducing spending while protecting the services they provide.”

Local councils are required to fulfill 1,335 statutory responsibilities, ranging from child protection to housing and road maintenance, the NAO said, and there is increasing demand for high-cost services, including social care for adults and children.

The biggest cuts have been to planning and development, the NAO said, and there have been high-profile campaigns to protect libraries and parks.

Failure ‘Untested’

“The accountability framework for local government to address widespread financial failure is untested,” the watchdog said. “Where there have been ‘one-off’ failures requiring central government intervention, the failure regime has managed to resolve them. However, past failures in the local government sector have generally related to services or corporate governance, or both, and not financial failure.”

Margaret Hodge, the opposition Labour Party chairwoman of the House of Commons Public Accounts Committee, said her panel will be asking the government for a full assessment of the effect of funding changes on local services.

“Authorities will have to search harder and wider for future savings, as quick-win cost reductions have already been harvested from services representing a small proportion of their overall spending,” Hodge said in an e-mailed statement. “This will need to be done without closing the door to people who rely on these services in their communities, particularly the most vulnerable.”

To contact the reporter on this story: Thomas Penny in London at tpenny@bloomberg.net

To contact the editor responsible for this story: James Hertling at jhertling@bloomberg.net

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