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Local government sector evolves to meet financial pressures

The majority of local authorities are rising to the unprecedented challenges they have faced as a result of austerity, however they need to continue to evolve to remain sustainable in the long term, reveals new analysis by Grant Thornton UK LLP.

The firm’s fourth annual report on the financial resilience of the local government sector in England reveals that over the past four years, local government authorities have evolved their financial management arrangements and many are now in a position to confidently forecast financial resilience in their medium-term financial strategy. 79% of single tier authorities and 88% of districts were considered to have adequate medium term financial planning arrangements, providing assurance that financial resilience could be maintained in the future. This leaves a minority of authorities at greater risk of facing a financial tipping point by 2016, although the research provides some comfort that many of these will rise to the challenge. The transformation of service delivery will continue to play a key part in this evolution but, under current funding proposals, it is likely to require some significant compromises in the provision of local services.

All authorities will continue to face challenges in light of further spending reductions and any authorities that don’t continue to evolve could face a financial tipping point by 2016. Concerns remain about the funding structure for local authorities, and whether it allocates funding fairly in relation to local geographic, demographic and economic conditions.

The report reveals significant change in the culture of local authorities, with financial responsibility permeating throughout the whole management structure. A strong culture of continual improvement, efficiency and financial control, aligned with the authority’s medium term strategy will become a necessity over the next few years.

Commenting on the review, Paul Dossett, Head of Local Government at Grant Thornton UK LLP, said: “It is encouraging to see so many local government authorities have risen to the challenges they have faced over the past four years. This is a major achievement and reflects an evolution in financial management that would have been difficult to envisage given the original reaction of the sector to the spending review in 2010. Yesterday's Autumn Statement confirmed that austerity will last through the next parliament, but we will have to wait until the spending review following May's general election to find out the level of spending reductions that will face local government.”

Single tier and county authorities are facing a proportionally greater challenge than districts, partly due to the former’s responsibility for demand led services such as social care which continue to present a particularly acute financial risk. Meanwhile many district councils have delivered proportionally significant savings and are leading the way in new models of delivery including shared services and joint management arrangements.

Guy Clifton, Grant Thornton's Head of Local Government Advisory  added: “While their evolution should be celebrated, local government authorities will need to continue to adapt to further pressures in the coming years. Based on their track record over the past four years, we are confident that they will evolve to meet these challenges head on."

The national picture is broadly consistent, with the majority of organisations successfully managing risks related to financial arrangements and current outcomes to date, although there are some local variations. The Midlands and North of England have the highest concentration of risks in terms of their current financial arrangements and outcomes. The South West has fared relatively well but has a comparatively high level of risk associated with strategic financial planning. The South East meanwhile  has a slightly lower level of risk overall, but within this there are a broad range of experiences between boroughs.

This research follows the firm's recent report on the  future scenarios facing  local government 2020 Vision.

To download a copy of the report, please follow this link.