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Local government funding: Assurance to Parliament

The Department for Communities and Local Government has increased local authorities’ flexibility over their funding since 2010, but as a result has less information on how funds are being spent, according to the National Audit Office.

The Government made changes in the 2010 spending review to give local authorities more control over their spending, letting them allocate resources to meet local priorities, and to reduce reporting burdens. The DCLG subsequently led an effective review of funding to local authorities from across government to reduce conditions on how local authorities must use grants.

Eight departments gave local authorities a total of £36.1 billion in 2013-14, excluding funding directly passed to schools and individuals, to support the delivery of their statutory duties and core functions. Of this, £25 billion (69 per cent) was through unringfenced general grants, where the only expectation of how authorities spend the funding is that it be lawful. A further £7.8 billion (22 per cent) was paid in unringfenced targeted grants, where departments expect, but cannot require, that local authorities spend funding on a specific activity.

The new arrangements inevitably mean that central government departments get less direct information on how the authorities spend government funding. Central government relies increasingly on the system of local accountability for assurance that the funding it gives local authorities is spent in line with Parliament’s intentions and provides value for money. This system includes external auditors, democratically accountable local councillors and the legal duties on local authority officers.

The DCLG is clear that its role is to assure itself that local accountability is effective, rather than to monitor whether spending is value for money. DCLG believes that the system creates the conditions for local authorities to achieve value for money, but the NAO found its monitoring information gives limited insight into whether this is happening in practice.

According to today’s report, tensions remain where government departments continue to specify policy objectives for grants, despite local priorities now taking precedence for how funding can be spent. Departments do not have to monitor directly how local authorities use unringfenced targeted grants, but state their expectations for how these grants are spent. This approach may increase local financial flexibility, but there is a risk that the primacy of local priorities within the accountability system could mean that the departments’ expectations for these grants are overridden locally.

In addition, public funding can come through multi-agency, cross local border organizations which do not fit easily with government’s reliance on the system of local accountability. Local Enterprise Partnerships, for example, can have members from many local authorities, with one authority overseeing how funding is distributed and used.

Today’s report suggests that departments should assess whether continuing to fund local authorities through unringfenced targeted grants is appropriate in the context of a locally-defined approach to achieving value for money.



“Local authorities have more freedom to allocate funds according to their own priorities, but the government has less information on how funds are being spent. The Department must still assure itself that the local accountability system that oversees local spending is effective. The DCLG’s arrangements to assure Parliament over funding are in transition, but the Department should do more to understand whether the system for funding local government is effective in delivering value for money.”

Amyas Morse, head of the National Audit Office

Notes for Editors


Government funding to local authorities in 2013-14 (exc. payments to schools and individuals that pass through local authorities)


Government departments fund local authorities


Main grants paid to local authorities, 2013-14

£3.2 billion

In ringfenced grants to support local authorities deliver their statutory duties– has specific conditions on how local authorities can spend it

£25 billion

In unringfenced general grants to support local authorities deliver their statutory duties – no conditions on how local authorities spend it

£7.8 billion

In unringfenced targeted grants to support local authorities deliver their statutory duties – where departments expect, but cannot require, that local authorities spend funding on a specific activity

100 per cent

Of ringfenced funding – authorities report on how they have used the funding

0 per cent

Of unringfenced general funding – authorities report on how they have used the funding

64 per cent

Of unringfenced targeted funding – local authorities report in varying degrees of detail, on how they have used funding

1. The eight departments that fund local authorities are the Department for Communities and Local Government, Department of Education, Department for Work and Pensions, Department for Transport, Department of Health, Department for Business, Innovation and Skills, Department for the Environment, Food and Rural Affairs, and the Home Office

2. Press notices and reports are available from the date of publication on the NAO website, which is at Hard copies can be obtained by using the relevant links on our website.

3. The National Audit Office scrutinises public spending for Parliament and is independent of government. The Comptroller and Auditor General (C&AG), Amyas Morse, is an Officer of the House of Commons and leads the NAO, which employs some 820 staff. The C&AG certifies the accounts of all government departments and many other public sector bodies. He has statutory authority to examine and report to Parliament on whether departments and the bodies they fund have used their resources efficiently, effectively, and with economy. Our studies evaluate the value for money of public spending, nationally and locally. Our recommendations and reports on good practice help government improve public services, and our work led to audited savings of £1.1 billion in 2013.

PN: 32/14