Laura Sharman 15 June 2016

Council spending being squeezed by debt payments

Council spending being squeezed by debt payments image

The cost of paying off historic debts is putting pressure on council’s ‘dwindling’ revenue resources, the National Audit Office has warned today.

A new report into the financial sustainability of local authorities found a quarter of single-tier and county councils now spend nearly 10% of their revenue expenditure on debt servicing.

The NAO said that while local authorities in England have maintained their overall capital spending levels since 2010, 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 also found local authorities’ revenue spending power fell by 25% in real terms from 2010-11 to 2015-16. Capital spending has increased by 5% in this time period, but this is uneven across local authorities and service areas.

Amyas Morse, head of the National Audit Office, said: ‘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.’

The NAO also warns that the Department for Communities and Local Government has ‘limited insight’ into broad changes in authorities’ capital resourcing and spending as well as associated risks.

It said in future Spending Reviews, the DCLG should focus more on capital rather than revenue issues.

Mr 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 DCLG spokesman said: 'The NAO recognises the system is working and capital spending increased by 5.3% in real terms over the last five years.

'This shows that councils are continuing to support infrastructure projects using new freedoms to make investments that best suit their communities.

'At the same time they are finding savings whilst maintaining high public satisfaction with services.'

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.'

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