One in 10 councils with social care obligations will have exhausted their reserves within the next three years if the current rate of expenditure continues, according to findings by Whitehall’s spending watchdog.
A report by the National Audit Office found that local authorities in England are routinely raiding their “rainy day funds” to cope with an increase in demand on services.
The NAO said a growing number of these councils were managing to balance their books only by using financial reserves to cover overspends on social care services. It estimates that 10% of single tier and county councils have less than three years’ reserves left if they continue to deploy them at current rates, leaving them vulnerable to unexpected cost pressures and potential insolvency.
“The pattern of growing overspends on services and dwindling reserves exhibited by an increasing number of authorities is not sustainable over the long term,” it said.
The report will alarm Downing Street and follows claims that Surrey – where the chancellor, Philip Hammond, has his seat – is facing a £100m cash crisis. Last month, Tory-run Northamptonshire county council became the first authority in two decades to declare effective bankruptcy. The NAO report suggests that about 15 councils will be at risk of following suit.
Sir Amyas Morse, the head of the NAO, said the government’s approach to continuing problems had been characterised by “one-off and short-term fixes”.
“The weight of responsibility to respond to increased demand and maintain services remains very much on [councils’] shoulders. The government risks sleepwalking into a centralised local authority financial system where the scope for local discretion is being slowly eroded,” he said.
Meg Hillier, the chair of parliament’s public accounts committee, said that it falls upon central government to clarify long-term spending for councils but it has instead launched “short-term fixes to paper over the cracks”.
The findings indicate that the situation will worsen unless steps are taken to restructure the sector, with the reduction in government funding forecast to be 56.3% by 2019-20.
Many authorities, however, are still overspending, due to a steady increase in demand for council services over the past decade.
The NAO report estimates that authorities saw a reduction in centralised funding of 49.1% from 2010-11 to 2017-18, placing them under significant financial pressure to continue fulfilling statutory duties.
After taking into consideration greater revenues from increased council tax, the authorities are still subject to a 28.6% reduction on the level of seven years ago, the report said.
The situation has been made more drastic by an increase in demand for core social services across a similar period.
The report highlights an increase of more than a third (33.9%) in the number of households assessed to be homeless in the six years running up to 2016-17, as well as a 14.3% rise in the number of over-65s in need of care, resulting in higher costs.
In the government’s 2015 spending review, adult social care was emphasised as a priority for local authorities and the report finds this is reflected in the 3% decrease in the level of spending on social care services since 2010-11.
This is in comparison with a fall in expenditure of 32.6% for non-social care services in real terms, such as waste collection, public libraries and subsidised bus journeys, auditors said.
Despite the reduced services, however, many local authorities still overspend each year to foot the bill of social care for their area, the report concluded.
Auditors found that total overspending on services by social care authorities in 2016-17 amounted to £1.023bn, depleting local government financial reserves at a phenomenal rate.
The report suggests that more than 20% of unitary authorities and county councils would have totally depleted their reserves within four to five years at the rate indicated by the 2016-17 figures.
Paul Carter, the Conservative chairman of the County Councils Network, said: “Failure to recognise the growing plight of many councils, as outlined in today’s report, could mean that Northamptonshire will not be the last local authority to face financial crisis.”
A government spokesman said that, last month, parliament approved a new funding settlement, which increases resources for local authorities over the next two years.
“We are currently working with councils to undertake a review of their needs and resources. Our consultation on this closes on Monday, and all responses will be considered as we look to devise a new funding system,” the spokesman said.
