OREANDA-NEWS. The finances of UK local authorities (LAs) cannot be easily compared with those of their international peers, as their presentation varies and they may omit certain details in their cash flow statements, Fitch Ratings says.

This may become more relevant to investors as the UK pursues plans for greater devolution, and as local authority debt rises. Recent data from the Department for Communities and Local Government (DCLG) showed that local authority external debt had risen to GBP100.4bn at FYE15. Earlier this month, the government said it had received 38 proposals from cities, towns and counties for greater control of public spending.

UK local and regional governments (LRGs) enjoy a predictable and supportive institutional framework, which is a ratings strength, and the financial framework in which they operate is transparent (they have to publish annual accounts, for example). However, we think that the UK is one of the countries in Western Europe where it is the most time-consuming to extract complete financial information from the public accounts of local authorities. This can make it difficult to compare LRGs' budgetary execution and performance and their fiscal flexibility across countries.

LAs present a comprehensive income and expenditure (I&E) statement, a balance sheet and cash flow statement in their financial accounts. Format changes since FY11 have resulted in differences in the presentation of accounts. Cash flow statements are now compiled using the indirect rather than the direct method. Some detailed cash flow data, such as employee costs, fees for charges and services, and the costs of supplies and services are no longer published in the I&E statement, which presents gross expenditure and income according to the services it is spent on (for example housing, education, social care), or in the accompanying notes.

Nevertheless, despite challenges in comparing LAs' accounts, efforts to ensure accountability do support financial transparency. LAs' annual accounts are prepared in accordance the relevant Chartered Institute of Public Finance and Accountancy (CIPFA) codes of practice, and are approved by internal and external auditors. The Local Government Act requires them to secure the necessary funding to finance their operations, give an accurate account of where the money goes, provide good value for money, and provide accounts that balance.

LAs do make more detailed information available to DCLG, which collects unpublished returns from them as part of its preparation of financial accounts for the entire UK public sector (the Whole of Government Accounts or WGA). The aim is to aid parliamentary and public scrutiny of public sector spending. Only part of the returns is published by the DCLG, although unpublished data is available on request. Reconciling WGA and published LA accounts can be complex.