Article

From resilience to financial sustainability

Paul Dossett Paul Dossett

No area of the public sector has borne a greater burden in terms of delivering savings than local government.

And in 2018, the realities of what the distressed councils (and in turn their citizens) are facing were seen in the very public struggles of Northamptonshire and Somerset County Councils.

Since the introduction of the UK government’s austerity programme, local authorities are beginning to fail financially - the Chartered Institute of Public Finance and Accountancy estimate 15% of councils are currently showing signs of financial distress. And, if the rate at which this is happening continues, the National Audit Office estimates that 10% of local authorities will have depleted their reserves by 2021. A situation which will be untenable for all. Based on our own data, we think that up to 20% of local authorities could fail.

Surviving the challenge

In the 2018 budget, although the chancellor took the opportunity offered by improved public finances to direct spending at a number of public services, we were offered a large number of short-term solutions with no clear commitment to future sustainability.

For example, although the £650 million grant funding for adult social care in 2019/20 is a welcome recognition of the increasing demand and growing funding crisis in this area, a longer-term solution is necessary given that demand for this type of service means that the cost will continue every year for at least a decade. So unless the upcoming Green Paper and Spending Review resolve the longer-term policy and tax issues at the root of the social care crisis or local authorities can meaningfully tackle this, we risk seeing services collapse.

Local governments therefore face an extremely challenging mix of financial and demand pressures which, set against the backdrop of Brexit, create a complex trilemma that will involve some difficult choices. For example, is it right that monies are diverted from other issues such as local infrastructure or environmental projects to sustain social care?

Given these decisions involve public money and directly affect people and their communities, there is a wider public accountability, with citizens, the media and other stakeholders calling for the evidence on which decisions are made. Questions include: What other options have been considered? How have potential risks been managed and mitigated? And whose views have been taken into account in the decision-making process?

Understanding your area

Nearly 10 years after the introduction of austerity, almost all councils have financial resilience challenges. But these challenges are not the same, and local authority leaders need to understand the big picture for their own place and develop their plans against that local context. The right approach for a unitary council may not be right for a district or a county council. Councils with large urban areas will also need to take a different approach to those covering a large rural area. The right approach say, North Tyneside is going to be different to that taken by Hackney.

Our data shows, that for 66% of councils, spending on services outstripping budgets. In many cases this can be explained by rises in demand. But the pressure this creates is magnified if there is a weak financial grip on the service. In this scenario, part of the remedy has to include effective spend governance, cash management and better analytics. In other cases there are some councils who can grow income through levers such as growing the tax base and increasing commercialisation.

But whatever your position, in an era where so much is at stake and the margin for error is so small, you need information to formulate and execute effective strategy – achieving targets and not overspending could be the difference between surviving or not.

Financial Foresight

Our predictive Financial Foresight model can give you this information. Not only can it provide you with information regarding the bigger picture of where you are now but it can also help you map where you want to be and how you want to get there. For example, assessing the impact over five years of increasing council tax or reducing spend on road maintenance.

Through Financial Foresight and our associated strategy workshops we can support local authorities to test and appraise a range of financial strategies and levers to develop a plan for a sustainable future.

Contact Paul Dossett for further information on issues raised in this article or to find out more about Financial Foresight.

Article
Councils are at risk - but do they really know why? Find out more