Between all the mandatory reporting requirements that local authorities must adhere to every year, pulling together the necessary information to respond to MHCLG’s financial data requests may feel like quite a chore. However, with local government expenditure making up 20% of all public expenditure, these returns are actually very important and have knock on effects for all kinds of key indicators such as GDP estimates, OBR forecasts, and even interest rate setting.
The broad aim of MHCLG collecting local authority data is to oversee the local government finance system effectively. This includes monitoring borrowing and expenditure levels to assess financial pressures and potential risks within local authorities. Such oversight aims to ensure that local authorities operate within their means and maintain financial stability. Additionally, the data informs the establishment of baselines for local government financial settlements and other funding allocations, such as compensation under the Bellwin scheme, which provides emergency financial assistance to local authorities.
Besides MHCLG, other government departments and agencies rely on this data to inform nation economic planning. As local authority expenditure makes up such a significant portion of the UK’s total public spending, the data supplied by local authorities forms an integral part of the economic and budget planning process. HM Treasury incorporates these data into the Public Expenditure Statistical Analyses (PESA), offering a comprehensive overview of government spending across various regions and services. This analysis aids in determining public spending per capita in different regions, thereby informing the government's regional policy agenda.
The Office for Budget Responsibility (OBR) also relies on this data to produce accurate economic and fiscal forecasts. These forecasts are essential for evaluating the potential impact of government policies on the economy and public finances, an especially topical and important indicator at the moment considering the keenly awaited updates to the OBR forecasts following the recent budget. The data also contributes to the Office for National Statistics' (ONS) compilation of the National Accounts and the calculation of Gross Domestic Product (GDP), ensuring that economic indicators reflect the true state of the economy and even partially informs the Monetary Policy Committee’s (MPC) decision on interest rate setting.
Due to the interconnectedness of local and central government, the level of local authority spending and borrowing has knock on impacts for central government spending and borrowing. This is because as local authorities increase taxes, this reduces the scope for central government to raise taxes (as tax capacity is finite). In the same way, where local authorities borrow from central government, a lot of this is financed by central government borrowing from financial markets which are only willing to lend so much. Therefore as local government borrowing increases, the capacity for central government borrowing decreases. This is why the IMF Code of Good Practices in Fiscal Transparency encourages that countries should aggregate the position of central and local government finances.
Central government and other government agencies aren’t the only organisations that utilise the local authority data returns. Arlingclose uses the quarterly MHCLG data to undertake analysis on the credit strength of UK local authorities to inform our Financial Strength Ratings. These ratings focus on five key areas such as debt, interest burden, income, use of reserves, and budgetary control which we think can be used to indicate risk amongst local authorities.
CIPFA provide a similar tool using these data returns known as the CIPFA Resilience Index which allows users to benchmark their financial position against other authorities. The (now closed) Office for Local Government also sought to implement a similar system called the Data Explorer which was to provide comprehensive data coverage of spending at local authorities, as well as comparative analysis and benchmarking.
The comprehensive collection and analysis of local authority spending and finance data is fundamental to the UK's public financial management. This data not only ensures effective monitoring and allocation of resources but also enhances transparency, supports policy development, and facilitates informed economic planning. Accurate and timely data submissions from local authorities are, therefore, essential for maintaining the integrity and proper functioning of public finance systems around the UK.
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