National Audit

David Hencke writes:

The announcement that the National Audit Office cannot sign off the Whole of Government Accounts – the gold standard for recording every penny spent by the UK Government – because of billions of pounds of unaudited local authority cash is a culmination of a scandal that began in 2018.

That was the year the now defunct Conservative-controlled Northamptonshire County Council became the first authority to go bankrupt for over two decades. The council which boasted one of the lowest council taxes in the country decided to privatise every service and reduce the staff working for them to just 200 people.

But instead of saving millions, the council ended up having to sell nearly everything it owned, lost control of its finances and went bankrupt owing over £1 billion.

Prime Minister Theresa May called in a retired local government executive to investigate the council who decided it was not rescuable and it was abolished and replaced by two new unitary authorities covering the county and abolishing all the district councils in the county.

At same time other local councils – which had a faced nearly a decade of Conservative government cuts and rising costs for education and social services, started investing in increasingly risky developments to create new income streams.

This sparked a fresh wave of bankruptcies in 2020, starting with Labour controlled London borough of Croydon and quickly followed by Conservative-controlled Thurrock council and Labour controlled Slough Council. The collapse of the councils was triggered by financial mismanagement of these schemes which instead of providing more cash, drained their budgets.

Local councils were also hit by the Covid pandemic and money used by local government has still not been properly audited.

But the scale of the problem was masked from central government by two decisions taken by leading Conservative figures. Eric (now Lord) Pickles took the decision as Local Government Secretary to abolish the Audit Commission in 2015 as part of the Government’s agenda of scrapping “red tape”. Now this body checked and monitored local government finances every year, produced value for money reports and made sure there was no backsliding even in the smallest parish council.

Instead, the auditing of local councils was seen as a private sector activity and left to the market. Unfortunately the big audit firms were not keen on bidding for the work when they could work for big private corporations instead, and councils had difficulties getting anyone to audit them, which then caused a backlog.

Gove when appraised of this problem, as Levelling Up Secretary, was incredibly slow in taking action. He thought about introducing a new slimmed down version of the Audit Commission in 2023 to retake control of the situation but never introduced any legislation to create the new body. Rishi Sunak did no better as PM – using the bankruptcies of Birmingham and Nottingham councils as a political football by claiming it was because of “Labour mismanagement”. This ignored evidence from the Local Government Association that it was affecting councils of all political colours.

The present parlous situation was handed over to the Labour government and work is starting to get some of the councils audited. But as the National Audit report just published shows, it has a long way to go. It is also leaving the Treasury not knowing the full picture with 187 councils out of 426 in England still unable to produce accounts to the government for the financial year 2022-23. Meanwhile only 10% of the councils have sent in audited accounts. It has also affected the accounts of Whitehall ministries which use local government services. Last year both the Ministry of Justice and Department for Culture, had their accounts qualified because they could not produce any data from local government.

Until now, outside local government and the Commons select committee monitoring local government itself, the only people who have been raising the seriousness of this issue have been the National Audit Office and the Commons Public Accounts Committee.

But it looks like Labour could tackle it by introducing radical reform of local government as announced this week by abolishing the second tier of councils and creating big unitary authorities with elected mayors like Manchester and Liverpool. Events would have turned full circle. Labour’s plans – though emphasising democracy rather than tackling bankruptcy – would mean a national solution not that far different from Theresa May’s one-off solution for dealing with errant finances in Northamptonshire.