OPINION - The London Question: Are our cash-strapped councils heading for financial armageddon?

 (Alamy Stock Photo)
(Alamy Stock Photo)

For a glimpse into the severity of the state of our ailing public services, look no further than London councils. A perusal of the annual accounts pages of council websites across the capital lays bare a host of mistakes, excuses and delays that makes for pretty alarming reading.

Just seven of London’s 32 boroughs have published a set of audited accounts for 2022. You read that right — seven. If that wasn’t bad enough, some councils have not had their accounts audited since as far back as 2018.

To make matters worse, the excuses they come up with for not doing so make increasingly desperate reading. Ealing cited a delay due to “resourcing issues” within the external audit teams at Deloitte. Sutton blamed it on troubles valuing pensions liabilities, while Hounslow and Harrow said it was because of difficulties valuing infrastructure. Bromley, who have not published since 2020, said there was a delay to their 2021 accounts because of a delay to their 2020 accounts, while Waltham Forest gave up on an explanation altogether and just said there were “a variety of complex factors”.

The councils that have published their accounts do not inspire confidence. In one of its previous accounts, Tower Hamlets auditors warned its “corporate governance arrangements did not appear to be capable of preventing or responding appropriately to failures of the best value duty in the areas of the payment of grants… the disposal of property… and spending on publicity”.

There is a lot more at stake than flouting the norms of public accountability

EY, the auditors for Richmond, warned in 2021 they had found a £5 million error in the way the town hall recorded the value of its assets, while in Newham, the head of internal audit opinion noted that “only limited assurance can be provided on risk management and the internal control environment within the authority”. On top of that, many councils have hundreds of million in pensions liabilities, with no clear route back into the black. In the private sector, failing to file annual accounts is a criminal offence — and directors could end up in jail if they publish figures that are deliberately misleading. But our public officials plod along without seeming to care.

Why does this matter? It’s true that few people, beyond a handful of unemployed and elderly cranks, are going to devote time to looking through a council’s balance sheet — and that’s half the reason why local authorities are getting away with it. But there is a lot more at stake than flouting the norms of public accountability.

Croydon council collapsed into bankruptcy three years ago almost to the day, amid a gaping black hole in its budget and exposure to risky loans. Birmingham city council went bankrupt in September, warning it did not have the resources to balance its books. The point is we do not know how many more Croydons or Birminghams there are across the capital — how many more ticking financial timebombs that could cost the taxpayer billions — because we simply cannot see the numbers. The longer this continues unchecked, the greater the risks at play. The Commons public accounts committee investigated the difficulties of local authorities across England. It warned of the scale of the problems ahead. More than 400 local government bodies missed the deadline for publishing audited accounts, with the cumulative backlog of unpublished opinions rising to 632 for 2021/22, meaning the “risk of significant financial or governance issues being detected too late increases significantly”.

Councils have continued to fall like dominoes

Meg Hillier

Dame Meg Hillier, the committee’s chairman, told the Standard: “Since we warned in June once again of the flashing red signals for the Government on the state of local government finance, councils have continued to fall like dominoes. The full impact of the bankruptcy of Birmingham, the largest local authority in Europe, is likely to carry serious implications for many years for its residents. Just as with the issue of crumbling concrete, council finances have been allowed to quietly deteriorate for decades. We are now beginning to see the results of financial and governance issues being detected too late, leading to catastrophic collapse.”

It is important not to be too alarmist: most local authorities are not in danger of imploding at any minute.

“However wayward authorities might be with their audited accounts it wouldn’t override the need for the chief finance officer to ensure the books balance every year,” said Tony Travers, professor in government at the London School of Economics, who added that political pressure on councils to cut their audit spend has led to poorer quality of auditing work. “There have been big pressures on budgets, but whatever the excuse is for not producing finalised accounts, none of this is good news. There may be serious problems ahead that are not yet revealed.”

Simon Hunt is the Evening Standard’s Business and Technology Correspondent