Tough task as councils look to balance the books

More than a third of councils may struggle to balance their books over the coming years as they adjust to funding cuts, auditors warned.

The Audit Commission raised concerns that the financial health of 12 per cent of councils presented an “ongoing risk” which meant they were not well-placed to deliver their plans in 2012/13 or in the medium-term.

A further 25 per cent were well-placed to stick to their plans for the current financial year but “less so” for the rest of their medium-term plans, the spending watchdog said.

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In a report – entitled Tough Times 2012 – it also described how the most deprived areas had suffered the biggest cuts since 2010, although they still received more per resident than in more affluent areas.

Government funding for councils fell by £1.6 billion in real terms in 2012/13, on top of £3.4 billion of cuts in 2011/12 – equivalent over two years to 9.3 per cent of councils’ 2010/11 revenue spending.

But among the most deprived fifth of single-tier and county council areas the cuts were equivalent to 14.1 per cent of what they were spending in 2010/11. In the least deprived fifth of areas, the cuts were only worth 4.4 per cent of spending.

The Audit Commission stressed that the majority of councils had coped well with their reduced settlements and many had even put additional money into their reserves – a total of £1.3 billion in 2011/12.

But a “significant minority” had been forced to find additional funding, restructure their savings programmes or find extra cuts in order to meet their plans, it said.

And, although financial resilience had been “relatively strong”, the Audit Commission’s research did not cover the impact of cuts on council services.

“Councils’ performance in meeting their 2011/12 savings targets was good – but this does not mean that services were unaffected,” it said.

Jeremy Newman, chairman of the Audit Commission, said: “We should recognise the significant achievement of councils in ensuring that their finances are in order.”