Housing secretary says DLUHC will ‘continue to monitor pressures on all councils’

Financial position of local authorities

 

In the letter, Mr Gove highlighted how the Department for Levelling Up, Housing and Communities (DLUHC) monitors the financial health of councils.

 

He said: “We do this on a regular basis, using a range of data, as well as through extensive direct engagement. We have a set of internal models, which we have discussed previously with the Levelling Up, Housing and Communities Committee and the Public Accounts Committee.

 

“These models are similar to those that Chartered Institute of Public Finance and Accountancy (CIPFA) and others use. CIPFA’s financial resilience model looks at things like inflexible spend, reserves and service pressure, and identifies local authorities that may be at higher risk or moving through the risk profiles.

 

“While data is essential to monitoring a nationwide system, data alone cannot show the entire picture in any given local authority. We use the data we collect to guide us towards the local authorities with whom we might have conversations.”

 

Mr Gove said that where failure has occurred, the reasons for this have been complex and are driven by a number of factors including ineffective leadership, risky commercial investments, poor culture, and poor accounting and financial practice.

 

He said following the powers it has taken on capital investments through the Levelling Up and Regeneration Act, the government consulted on four public metrics on local authority borrowing.

 

“These new powers allow the government to intervene in a targeted and timely way specifically in response to risks arising from borrowing and investment practices, based on metrics designed to identify such risks,” Mr Gove said.

 

The housing secretary also clarified the role of the Office of Local Government (Oflog), explaining that it does not take a view on the overall financial challenges facing local authorities.

 

What it has done, and will continue to do, is publish key metrics on finance and service delivery that help better inform citizens, government and councils themselves where there might be “risk of underperformance”, he added.

 

This is subject to the caveat that neither Oflog nor the government will make a judgement about the performance or financial health of an individual council without also talking to people who understand the local area.

 

Mr Gove said: “Separately, Oflog will be seeking to identify councils who may be at risk of serious failure of leadership, governance or culture (which can in turn create financial problems) and have not declared themselves to be at such risk. For local authorities that already consider themselves to have financial problems, DLUHC should continue to be the first port of call to discuss their options.”

Local government funding

 

Mr Gove said in response to Mr Betts asking what support and advice the department is providing to help councils plan for the medium term, beyond 2025, that spending decisions beyond the next financial year are “a matter for the next spending review”.

 

However, Mr Gove confirmed that the provisional local government finance settlement for 2024-25, published in December, makes over £64bn available.

 

This is an increase in core spending power of almost £4bn or 6.5 per cent in cash terms on 2023-24, according to Mr Gove.

 

This includes an additional £2bn of additional government funding, including £1bn for children’s and adult social care.

 

“This above-inflation increase demonstrates how the government stands behind councils across the country,” Mr Gove said.

 

“This means that local government will see real terms increase in core spending power [the government’s measure of funding available to local government] over the period 2019-20 to 2024-25.”

 

Mr Gove said that in response to being previously asked how DLUHC assesses the amount of funding local authorities generally require, ahead of fiscal events the department estimates the additional resource required to fund the expenditure needs of local authorities.

 

He added that his department will “continue to monitor pressures on all councils”.

 

“We use a range of forecasts and indices to estimate demographic and unit cost pressures facing local government,” he said.

 

“This includes considering the effect of inflation. This modelling is supported by holding in-depth financial conversations with local authorities and regular conversations with treasurer societies.

 

“We will, of course, continue to monitor pressures on all councils. The department stands ready to speak to any council that has concerns about its ability to manage its finances or faces pressures it has not planned for.”

 

In response to being asked for local authority funding figures after inflation, Mr Gove said that the real terms increase in core spending power from 2024-25 is 4.7 per cent.

 

“We use inflation projections published by HM Treasury – the GDP deflator,” he said.

 

“Given the GDP deflator is forecast to be 1.7 per cent for 2024- 25, all local authorities will receive an above inflation increase in their core spending power.

 

“The latest projections were published by HMT [HM Treasury] in November, following the Autumn Statement. For comparison, the OBR [Office for Budget Responsibility] forecast for CPI [Consumer Price Index] inflation in 2024-25 is three per cent.”

 

Local Housing Allowance

 

In his Autumn Statement, Mr Hunt announced an end to the freeze on LHA rates for one year from April 2024.

 

LHA is used to calculate housing benefit entitlements for tenants in the private rental sector (PRS). The change followed London Councils calling for an end to the freeze to prevent almost 60,000 Londoners in the PRS from becoming homeless over the next six years.

 

In his letter, Mr Gove said that increasing the LHA will have “significant benefits” across the country.

 

He said that the effect of restoring the LHA to the 30th percentile of local market rents next year will be that 1.6 million households get around £800 more a year in housing support.

 

“This significant investment of £7bn over five years, taken together with the wider benefits uprating, will improve housing affordability for low-income households on benefits renting in the private sector, helping them afford their rent and reducing the risk of rent arrears and homelessness,” Mr Gove said.

 

“We have listened to the concerns of colleagues in local government, including London Councils, who suggest that restoring LHA to 30 per cent of local market rents would save the public finances in London more than £100m each year.

 

“Increasing the LHA will have significant benefits across the country, particularly in areas where rents have increased significantly.”