Local Government Secretary Sajid Javid has revealed his department made “an historic error” in overpaying councils by £36 million.
The error relates to the business rates pilot scheme and impacts 27 councils and the Greater London Authority.
Mr Javid, in a statement to the Commons, said he has instructed officials not to seek to recover the money in light of the “extraordinary circumstance”.
Shadow local government secretary Andrew Gwynne described the incident as an “utter shambles”.
The overpayment was discovered after civil servants began to work through the necessary calculations to prepare for the extension of the business rates pilots programme in 2018-19.
Affected councils have been informed but Mr Javid said this “does not” impact on the finance settlement or the core spending power of those the error relates to.
Mr Javid said: “These local authorities will have been operating on the understanding that this funding has already been secured and, at this this late stage in the year, a sudden reduction in their funding could potentially have an impact on the delivery of the objectives agreed as part of their devolution deals.
“Therefore, although the rules of managing public money indicate that the department should recover the overpayment, I have issued a direction requesting that the permanent secretary does not do so in this extraordinary circumstance.”
Mr Javid announced that he has launched an independent review of the “internal processes and procedures that underpin the department’s oversight of business rates and related systems”.
The gaff follows an error in the draft local government finance settlement published before Christmas — which led to accusations from the Labour frontbench that he “misled Parliament”.
Mr Gwynne, responding to the announcement, said: “This is a complete and utter shambles. There is little wonder that Tory councils are going bust, when Sajid Javid gets his maths wrong twice.
“After eight years of cuts, councils are facing unprecedented pressures to balance their books and this task has been made even harder by a Government that has no long-term strategy and no grasp on the figures.
“27 authorities will now receive fewer funds than they budgeted for. Sajid Javid needs to explain how this mistake was allowed to happen and what checks will be put in place to prevent even more errors.”