Hot on the heels of news that EDDC’s development costs for Exmouth seafront have more than doubled from £1.5m to £3.2m comes this report:
“The increasing scale of commercial activity carried out by local authorities could put council finances at risk, and town halls might lack the necessary skills for such projects, the Public Accounts Committee has warned.
In a report examining the financial sustainability of local government, published today, MPs accused Whitehall of being complacent about the risk to local authority finances.
Today’s “Financial sustainability of local authorities” review highlighted that councils were increasingly undertaking commercial activity intended to generate revenue income from capital investment in properties and businesses in an effort to offset government cuts. This includes projects such as developing houses and commercial units for rent or sale.
But the MPs warned councils may lack experience of such schemes, and council tax bills or other services could be hit if they go wrong. They called on the Department for Communities & Local Government to review the commercial skills in different types of authorities, and provide an update by next summer on the scale and nature of these activities in order to better anticipate risks.
“We do not share the department’s confidence that the increased commercial activity in the sector adds no particular risk to the department’s own work,” the report stated. The department should also work with CIPFA to ensure the local government capital finance framework “remains current and continues to reflect developments”.
Committee chair Meg Hillier said funding cuts had led councils to rethink the way they use public money, and the government wanted councils to become largely self-financing, including through business rates retention. However, she warned that poor investment decisions could cost money that might otherwise be spent on public services.
“Our committee has previously highlighted gaps in the commercial skills of the civil service as a factor in the failure of some projects and we have similar concerns about local government,” she stated.
“Local authorities need the skill-set to invest wisely and the department must bear its share of responsibility for ensuring these skills are in place. But more fundamentally, the information central government uses is inadequate for understanding trends and associated risks in local government finance.”
This represented a serious flaw in DCLG’s ability to plan properly for the future and ensure councils are following a sustainable path, she concluded, but the department was complacent about the risk. …
East Devon Watch 