Government Sets Out Reforms to Repair Local Audit System

The government has announced a package of reforms intended to address longstanding issues within the local audit system in England, which it describes as “broken” and “fragmented.”

The reforms, outlined on 9 April 2025 by the Ministry of Housing, Communities and Local Government, aim to simplify the local audit process, increase capacity across the sector, and restore public trust in how councils manage and report their finances.

A total of 16 commitments have been set out as part of a broader “Plan for Change” to improve transparency, accountability, and value for money in local government. These include streamlining financial reporting requirements and reducing the sector’s reliance on a limited pool of audit firms.

To support the implementation of the reforms and help councils address outstanding audit work, the government has pledged up to £49 million in funding. This support will be delivered in two stages during the 2025/26 financial year. Councils will receive non-ring-fenced grants, with allocations based on the size of their audit fees and the number of modified audit opinions received. Release of funding is conditional on councils meeting statutory deadlines and paying audit fees.

In addition to this funding, £15 million in grant support was issued in March 2025 to 537 eligible local authorities. This payment, which covered increased audit fee expenditure for 2024/25, was distributed proportionally in line with Public Sector Audit Appointment fee scales.

The reform package follows a public consultation on the government’s local audit strategy, which received hundreds of responses. One key outcome of the consultation is the commitment to establish a new Local Audit Office. This new body will coordinate functions currently split across several organisations, including the Public Sector Audit Appointments Ltd, the National Audit Office, and the Financial Reporting Council.

As part of the wider recovery process, the government introduced statutory backstop dates in July 2024 to address the backlog of delayed or missing accounts. As a result, 95% of local bodies have now published audited accounts for all years up to and including 2022/23.

The Minister of State for Local Government and English Devolution, Jim McMahon OBE MP, stated that the changes are intended to ensure that taxpayers can have confidence in how public money is managed at the local level.

While acknowledging that long-term fixes will take time, the government has committed to continuing work with local bodies to implement reforms and stabilise the local audit system for the future.

Further information, including the full government response to the local audit reform consultation, is available on the GOV.UK website.