Research and analysis

Review of local government finance statistics

Published 11 April 2022

Applies to England

1. Background

Local government finance (LGF) statistics are produced by the Department for Levelling Up, Housing and Communities (DLUHC) using data supplied by all local authorities in England. The statistics are published throughout the year in statistical releases and live tables on the Department’s website.

In England, local government expenditure represents over a fifth of all public expenditure, and the data are used in the monitoring of public expenditure and the compilation of the UK Public Sector Finances and UK National Accounts, published by the Office for National Statistics (ONS). LGF data are also used by the government to inform the allocation of resources to local government and the development and monitoring of local government finance policy, and more widely, by local authorities, businesses and members of the public.

In recent years, users of LGF statistics have identified several areas for improvement. The Code of Practice for Statistics requires producers of statistics to ensure they remain relevant to users and address their views when practicable. Given this, a comprehensive review of the local authority expenditure and borrowing data published by DLUHC was conducted in 2021. The review considered the following groups of statistical collections:

a) local authority borrowing and investments

b) local authority capital expenditure, receipts and financing

c) local authority revenue expenditure and financing (revenue account budget, revenue outturn and quarterly revenue outturn for local authorities)

The review was led by statisticians in DLUHC, with support from the ONS.

2. Approach

The aim of the review was to identify:

a) which data needs are currently being met and which are not

b) the highest priority changes to consider taking forward

c) the additional or reduced burden on both authorities and DLUHC of making changes

To achieve this aim, the review team engaged with a range of stakeholders, including data users from central government, local authorities and other organisations. Key methods of engagement included:

a) Meetings with known users to further understand uses of LGF data and gather views on how the statistics could be improved to better meet user needs

b) A public survey to identify additional users and their data needs

c) Deep dive meetings on key areas for improvement, identified through (a) and (b)

All changes proposed through the review were considered against 6 evaluation criteria:

1. Feasibility

2. Benefits

3. Negative implications

4. Alignment with local and central government priorities

5. Burden on local authorities and DLUHC

6. Compatibility with other proposed changes

A steering group was established to agree the above evaluation criteria, provide constructive challenge to the review team, and to agree the priority of recommendations. The steering group met 3 times during the review, and had representation from DLUHC, HM Treasury (HMT), ONS, Local Government Association (LGA) and local authorities.

In addition to the steering group, a local authority advisory group was set up to gather views from local authorities on areas for improvement, and to discuss the practicalities of implementing changes proposed by data users during the review.

This report outlines the recommendations identified by the review team to improve LGF statistics. All proposed changes to data collection are subject to a consultation with local authorities to confirm the clarity of the new data requirements, the practicality of providing the information, and any additional burden.

3. Findings and recommendations

Overview of findings

Feedback from stakeholders indicated that the LGF statistics currently published by DLUHC offer a good foundation for understanding local authority expenditure and borrowing, but improvements could be made to further the extent to which the statistics meet user needs.

Recommendations from the review have been categorised into 6 areas:

1. Improving the presentation and accessibility of statistics – This includes improving the format of publications, using data visualisation and improving metadata.

2. Filling data gaps – This includes publishing more granular breakdowns within existing data tables, as well as publishing information on areas not currently covered by the statistics.

3. Exploring data frequency and data timeliness – A new working group will be established to look at opportunities for improving in-year revenue expenditure data collection.

4. Exploring alternative methods of data collection – In particular, the feasibility of automating data collection.

5. Exploring the feasibility of using administrative data sources to supplement survey collection – This includes the use of known sources, such as HMRC Pay As You Earn (PAYE) data to further understand employee costs and pension schemes, as well as exploratory work to identify additional data sources.

6. Enhancing local authority engagement – This includes providing further support to those completing data collection forms and providing additional information to local authorities on how the data provided by local authorities are used by central government.

Improving the presentation and accessibility of statistics

Key findings

LGF data tables, currently published by DLUHC in ODS files, are not readily machine-readable. Users advised that converting published data tables into a machine-readable format to enable in-depth analysis was resource-intensive, changes to the structure of published data tables (such as additional columns) makes this process time consuming, as macros need to be updated.

Users thought that the statistical releases were straightforward to navigate once familiar with the data but highlighted that this was unlikely to be the case for new, or less regular, users. It was suggested that publishing data visualisations and additional metadata would aid user understanding of the statistics.

Whilst some users commented that the bulletins published alongside annual revenue and capital data tables are too long, the overall feedback was that the bulletins are helpful and support understanding of trends.

Recommendations

1. LGF data tables should be published in a machine-readable format, with a time series.

2. A graphic or table to show links between LGF data tables should be published (for example, to show links between the revenue outturn and council tax data tables); the possibility of extending this to link to external datasets should also be explored (for example, to show links between the revenue outturn and Adult Social Care Finance Return (ASC-FR) published by NHS Digital).

3. Data visualisations should be published alongside LGF data tables to aid user understanding of the data.

4. Metadata published alongside LGF statistics should include information on local authority restructures and changes to local authority responsibilities to enable users to manipulate data to meet their needs.

Whilst the LGF data review focussed on local authority expenditure and borrowing statistics, we recommend producers of other LGF statistics in DLUHC (for example, producers of council tax statistics) also consider implementing the above proposals, where appropriate.

Filling data gaps

Adult social care

Key findings

Users and providers of adult social care data said that more granular breakdowns within existing revenue data tables, such as expanding the ‘other income’ column to show income from the Better Care Fund (BCF), would increase transparency and comparability of adult social care statistics across local authorities.

Some users requested additional age breakdowns for the adult social care services where this is not currently provided in the revenue outturn, to enable central government to meet reporting requirements according to the Classification of the Functions of Government (COFOG) (ZIP file, 536KB). Data providers we spoke to did not support this, they said that client age breakdowns are difficult to provide and so are often estimated, leading to inconsistent results across local authorities.

Some data providers said that the requirement to submit adult social care expenditure data through both DLUHC’s revenue outturn and the Adult Social Care Finance Return (ASC-FR) should be removed, or that the timing of the returns should be aligned, to allow one return to be a by-product of the other. However, it was noted that the 2 returns have different purposes. The ASC-FR is often used when analysing detailed adult social care expenditure in isolation as the information included is more granular and includes unit costs, whereas the revenue outturn is often used when comparing adult social care expenditure to other service areas and local government expenditure as a whole.

Recommendations

1. Explicitly show BCF income and other NHS income in the revenue outturn for adult social care services.

2. DLUHC should continue to work with producers of ASC-FR to reconcile discrepancies between figures in the revenue outturn and ASC-FR, to improve the coherence of the 2 collections. Following this, producers of the statistics should explore whether updates to guidance documents are required. This may make it easier for local authorities to map data from one return to the other.

3. DLUHC should work with users and producers of adult social care statistics to explore the potential of administrative data sources to supplement adult social care data collection, particularly in relation to client age groups.

Children’s social care

Key findings

Users of children’s social care data raised concerns regarding discrepancies between figures in DLUHC’s revenue outturn and Section 251 statistics produced by Department for Education (DfE). In addition, users requested more granular breakdowns of existing spending lines in the revenue outturn to increase insight and enable more effective comparison with Section 251 statistics.

Recommendations

1. Establish a cross-government group, with representation from DLUHC and DfE, to reconcile discrepancies between figures in the revenue outturn and the Section 251 data return.

2. Publish a more granular breakdown of expenditure on children looked after in the revenue outturn to show expenditure on residential care and fostering services.

3. Publish a more granular breakdown of expenditure on asylum seekers in the revenue outturn to show expenditure on looked after and non-looked after asylum seeking children.

Grant income

Key findings

Users asked that DLUHC publish memorandum items to show the full list of grants included in the ‘other grant’ field in the revenue outturn to increase transparency and support understanding of trends.

Recommendations

1. Publish memorandum items showing all grant information submitted by local authorities in the revenue outturn.

2. Explore the feasibility of improving standardisation of grant names to improve the usability of such memorandum items.

Housing Revenue Account

Key findings

The Housing Revenue Account (HRA) is a local authority statutory account and contains all spending and income related to the housing stock owned by councils. Users of HRA data asked that DLUHC publish all housing-related expenditure split by HRA and non-HRA expenditure. Publishing this split in all revenue and capital data tables would enable more accurate reporting of the HRA at a UK level, leading to higher quality fiscal indicators through the Public Sector Finances and an improved sector split in the UK National Accounts between local government and public non-financial corporations.

In response to the above request, data providers advised that HRA and non-HRA expenditure is recorded separately in local authority systems, though it was noted that not all local authorities with housing functions have a HRA.

Recommendation

Publish HRA and non-HRA housing expenditure in the following statistical releases:

1. Quarterly capital payments and receipts

2. Provisional annual capital payments and receipts

3. Quarterly revenue outturn

Other revenue outturn

Key findings

Users suggested additional areas where more granular breakdowns within existing revenue outturn data tables may increase transparency on issues affecting the comparability of data across local authorities.

Data users and providers also suggested that the revenue data provided by local authorities should undergo more thorough scrutiny before being shared with DLUHC for publication. Suggestions for this included external audits, internal audits and certification by Chief Finance Officers (CFOs).

Recommendations

1. Publish expenditure on recharges for management and support services for each service line in the revenue outturn.

2. Publish expenditure by local authorities on agency staff for each service category in the revenue outturn.

3. Expand the existing ‘other income’ column in the revenue outturn to show income from other authorities for services provided on their behalf and income transferred from other bodies.

4. The final revenue outturn should be certified by CFOs before submitting to DLUHC.

Capital and commercial

Key findings

Prior to the LGF data review, DLUHC took specific action to improve the data it collects on local authority capital borrowing and investments. From 2022, the revenue account outturn and revenue account budget forms will collect new data on: the income from local authority financial investments; the income and costs, including borrowing costs, arising from commercial properties; the general location of commercial properties; and, losses and gains from holding financial assets such as equity, loans and bonds. This information will provide detail on individual authority’s risk exposure from their investments.

During the LGF data review, users made further suggestions on how capital and commercial data collected by DLUHC could be improved to better meet user needs. Suggestions largely focussed on publishing additional information to enable better understanding of local authority risk.

There was also interest in having access to further information on the grants local authorities have used to finance capital expenditure, to increase transparency on funding of capital expenditure.

As with the revenue outturn, data users and providers suggested that the capital data provided by local authorities should undergo more thorough scrutiny before being shared with DLUHC for publication.

Recommendations

1. Publish additional data tables to show the value of local authority assets.

2. Publish a list of local authority trading companies, subsidiaries, associates and joint ventures. This should include sector industrial classification of the company and information on the size of the company.

3. Publish memorandum items to show the grants local authorities have used to finance capital expenditure.

4. Publish an updated forecast of local authority capital finance requirement (CFR) on a quarterly basis.

5. Survey a sample of local authorities to collect information on the capital grants paid to households and non-profit institutions serving households (NPISH). This exercise should be repeated every 3 years to ensure the ratio used for the UK National Accounts remains up to date.

6. The final capital outturn should be certified by CFOs before submitting to DLUHC.

Additional balance sheet information

Key findings

The UK prepares economic and fiscal statistics according to internationally agreed statistical frameworks and standards. An important benefit of adhering to these standards is that the statistics are comparable between countries and over time. More comprehensive balance sheet information from local authorities is required to meet these international reporting standards.

These data are also required for domestic purposes, to support the compilation of new fiscal indicators, for the UK National Accounts, and for policy purposes.

Recommendations

Collect and publish the following:

1. Estimates of provisions, contingent liabilities and guarantees.

2. More detailed recording of loans and equity – acquisitions, disposals, and repayments, where applicable.

3. A breakdown of the stock of each type of financial liability by currency.

4. A breakdown of the stock of each type of financial asset and liability by residency (UK vs. rest of the world) of the counterparty.

5. A breakdown of the stock of each type of financial asset and liability by institutional sector of the creditor, for example, central government, local government, households.

6. Parallel valuations of debt liabilities (especially gilts and other bonds) – market (fair), face (redemption), and nominal value, where applicable.

7. A breakdown of the crossholdings of each type of debt liability within, and between, local authorities, public corporations, and central government.

Exploring data frequency and data timeliness

Key findings

Data users asked that DLUHC explore the feasibility of publishing regular monthly local authority expenditure data. However, local authorities we spoke to advised that accurate in-year expenditure data is difficult to provide as accounting systems are generally not set up to extract information more frequently than annually, and highlighted that this is an ongoing problem for completing both the quarterly revenue outturn and the Covid financial monitoring return.

Recommendation

Establish a working group with representatives from central government and local authorities to explore opportunities for improving the collection of in-year revenue expenditure data, this may include improvements to the content, frequency, timeliness or presentation of the data. The working group should aim to find out more about different local authority accounting systems and internal monitoring practices to understand what information may already be available to provide to central government on a monthly or quarterly basis.

Exploring alternative methods of data collection

Key findings

LGF data collection is currently carried out through either the DELTA data collection platform or Excel spreadsheets. The DELTA platform is used for smaller collections, for example, quarterly returns, whereas Excel spreadsheets are generally used for larger collections, such as annual returns.

Both data users and data providers were supportive of exploring the feasibility of automating data collection to reduce burden on local authorities and potentially lead to improvements in data quality.

Recommendation

DLUHC should explore the feasibility of automating data collection, for example by using secure hooks in the accounting software of local authorities to draw down intelligence which might supplement or replace existing collections.

Exploring the use of administrative data sources to supplement LGF survey collection

Key findings

Existing collections of local authority finance data place considerable burden on local authorities. In view of the need for more timely and more detailed LGF statistics, which might increase that burden, the review has considered the potential of administrative sources to supplement, or in some cases replace, survey collections.

Recommendation

This area is of particular interest to ONS, as such, it is recommended that ONS work with DLUHC to explore the use of administrative data to supplement LGF data collections, including but not limited to:

a) HM Revenue and Customs (HMRC) Pay As You Earn (PAYE) data to provide further insight on areas such as employee costs and pension schemes

b) HMRC Value Added Tax (VAT) data to provide further insight on areas such as local authority trading schemes

c) Central portals local authorities use to record spending or carry out a particular activity

Enhancing local authority engagement

Key findings

The review team asked local authorities for feedback on what more could be done by DLUHC, in addition to current engagement, to support data providers. Suggestions included setting up additional meetings to discuss data collection forms and providing further information on how the data provided by local authorities are used by central government.

Recommendations

The LGF data collection team in DLUHC should:

1. Host annual webinars on each of the collections for data providers to attend and raise any questions

2. Facilitate the set-up of a group for data providers in local authorities to discuss completing data collection forms

3. Provide further information to local authorities on how data users from across central government use the data provided by local authorities

4. Consultation and implementation

All proposed changes to data collection are subject to a consultation with local authorities to confirm the clarity of the new data requirements, the practicality of providing the information, and any additional burden. We plan to consult local authorities on the proposed changes to data collection in spring 2022.

Timings for implementation of the recommendations will be confirmed following the consultation, but broadly we expect to make approved changes over a 3-year period with the earliest changes implemented from 2023.