Councils are at risk of failing to deliver savings which rely on ambitious transformation plans, according to the National Audit Office.
The NAO released two reports today covering the financial sustainability of councils and the impact of cuts to funding from central government.
Local authority auditors interviewed by the authors identified concerns about funding gaps within medium term financial plans, and the risks that could prevent councils delivering savings through service redesign and transformation.
The NAO said: “Auditors are positive about authorities’ financial management capabilities and take confidence from their record in delivering savings to date.
“Despite this, auditors are concerned that some authorities are unable to show how they will deliver savings required in 2015-16 and beyond.
“Furthermore, where they have identified methods to deliver savings over the medium term, these often involve substantial, but largely untested, restructuring and transformation of services.”
One report said that Leicestershire County Council is planning to achieve £1 million in savings by 2016-17 through a programme to reduce demand on the Children and Young People’s Service.
However, the NAO said that initial savings would benefit other bodies, such as police and health services, rather than the council.
Overall, the authors said, local authorities have maintained financial resilience so far. But it said that some, particularly metropolitan districts, are now showing signs of financial stress, with increased uncertainty about how they can manage further income drops – planned at 37.3% by 2015-16.
Auditors reported that 16% of single tier and county councils had difficulties in delivering their 2013-14 budgets. Among metropolitan districts, the figure was 22%, with 19% having difficulties in 2012-13 and 2013-14.
The NAO said: “Local auditors have expressed concern about more than half of all metropolitan districts and unitary authorities, in terms of their capacity to deliver medium-term savings targets.”
Some of these savings, including ICT projects, are being delivered with support from central government funds including the Transformation Challenge Fund and the Public Service Transformation Network.
But the NAO said that DCLG has “limited understanding” of the size and timing of resulting savings.
It said: “The department expects that local authorities would need to adopt ambitious programmes of service transformation in order to maintain services if funding reductions continue.
“However, it has not yet assessed whether such projects could deliver savings which are large and timely enough to enable local authorities to maintain services.”
The watchdog recommended that the department develops a more robust methodology for assessing savings so far from local authority transformation schemes and the timescales involved.
“It should use this to update its assessment of the capacity of different local authorities to make more savings,” it said.
Responding to the report, local government minister Kris Hopkins said: “The reality is since 2010 budgets have been balanced, council tax has fallen by 11% in real-terms and public satisfaction with local government has been maintained.
“But there is still much councils can do to cut waste and make sensible savings, such as using their reserves, making better use of surplus public sector assets, clamping down on fraud, boosting council tax collection rates and sharing back offices.”