Most councils are coping with the cuts councils but they will face difficult decisions about how to meet their funding shortfall in the next few years. This is the conclusion of the Audit Commission report Tough Times.

The Commission believes that, so far, councils have responded well to these challenges. Auditors have some confidence that most will balance their books this year. Many have also protected the most vulnerable people in their area. But with more reductions to come, and wider economic problems intensifying the pressure, councils need to prepare for a potentially rocky road ahead.

‘Good financial management and the continued search for efficiency savings will help councils navigate their way through this period, but they will also need to make some tough decisions about how to bridge the funding gap in the coming years.’

Local government faces three more years of cuts in government funding with almost 60 per cent of the total reductions yet to come. To meet this future challenge the report finds that some elements of councils’ cost-reducing strategies will have to change. In the larger councils almost half of this year’s savings will come from planning, housing and cultural services, but these only cover 16 per cent of service spending. These services cannot deliver similar savings every year. Many councils will face difficult decisions about how to meet their funding shortfall in the next few years.

Strong leadership and financial management mean that most councils should balance the books this year. However, many have had to cut back on services to secure their financial stability. Most local authorities are taking the right steps to make efficiency savings but have also had to reduce the quality and quantity of services. Charges are going up in many councils.
Although most councils are coping, the report finds that a minority of councils were considered by auditors to be ‘at risk’ of not meeting their budget for 2011/12.

The common characteristic of these councils is a combination of financial and managerial issues. Facing large funding reductions is not, on its own, enough to cause auditors to worry about a council’s financial resilience. It is councils with both big funding reductions and weak financial management that are at most risk of not achieving their budget. ‘At risk’ councils were less likely to have thoroughly evaluated their savings proposals and were more likely to use short-term financial fixes.

Tough times can be downloaded here.