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Local authorities must act now to avoid financial failure

The pandemic and long-term implications of Brexit have created the foundations for a financial reckoning so significant, many will struggle to comprehend its magnitude.

In local government alone, our forecast highlights a possible £4.8 billion funding gap by 2026/27. Over the coming year, inflation is anticipated to reach 10%, and growth in GDP is expected to shrink from around 4% in 2022 to 1.3% in 2023. The consequences of these factors are stark. But plainly speaking, those who are least resilient will be the hardest hit.

As government tries to develop a plan to weather this particular storm, it’s already signalled that public sector spending will be one of the first in the firing line – announcing the need to cut 91,000 civil service jobs and save £3.75billion. And, given past precedent, it’s not difficult to see how these economic and associated social challenges will find their way back to the front door of other public services.

At the beginning of the year, our Financial Foresight tool, developed in partnership with the Chartered Institute of Public Finance and Accountancy (CIPFA), projected the in-year gap between local authority income and expenditure to reach £3.5 billion by 2026/27. However, more recent projections, including a protracted period of high inflation, now increase that gap by £1.3billion to £4.8billion. And this is before we include the impact of growing demand for front-line services resulting from the cost-of-living crisis.


There has never been a more critical time for public sector leaders

At Grant Thornton we believe modern public services should be sustainable, people-centred, data-driven and digitally enabled.

Yet, a decade of budget pressures and swinging policy demands has meant that much-needed innovation has struggled to gain the traction needed for mass adoption. Similarly, the essential foundations for change - digital, enabling and people-centred functions - have been neglected or eroded over the same period.

Fundamentally, the public sector needs a new model for change.  

As the sector comes together at the LGA conference in Harrogate, we’ll be exploring the three core levers (outlined below) that local authorities have at their disposal to help them weather the impending storm.

Grant Thornton’s Levers for Change

  • Transformation – How do we adopt new approaches to service delivery and address the underlying assumptions that drive our view on how services should be provided?
  • Modernisation - How do we make sure that data and technology genuinely help provide new solutions to old problems?
  • Reprioritisation - How do we align services to the big challenges we face in our place?

See how we supported Lancaster Council to reprioritise their financials to align with their strategic ambition

How did we help?

Lancaster City Council was at the beginning of a significant period of transformation and we supported them in exploring how services and expenditure can be aligned around an Outcomes Based Resourcing model.

The Council has laid the foundations for a move towards an Outcomes Based Resourcing model. Significant work had gone into developing the Council’s Policy Framework within the context of ongoing financial sustainability challenges. They needed support to develop an approach to OBR that reflected their unique identify, culture, desired ways of working and future ambitions whilst ensuring the any outcome based investments were made within the Council’s financial envelope. Alongside this the financial sustainability challenges faced by the Council required exploring alternative sources of disinvestment, savings and efficiency in the short term.

We supported the Council on a programme with two key elements:

1  Realign services and expenditure around a specific Outcome Based Resourcing model for the Council

2  Reduce expenditure and improve services in line with local government best practice.

In order to deliver against these two elements we took a three stage approach:


Reviewing existing documentation and interviews with stakeholders to understand the Council’s vision and ambition and exploring areas of opportunity


Using our propriety data analysis tools to benchmark expenditure/income against comparator authorities and map existing spend to strategic outcomes


Based on the knowledge built during the first two stages we developed a high level opportunity report and an Outcome Based Resourcing model. The Council is now equipped with a high level opportunity report, which provides a basis for a deep dive into further intervention propositions. Alongside this they also have an Outcome Based Resourcing model to take forward, with our assistance.

In order for the Council to identify those opportunities to take forward we have provided them with a methodology of a prioritisation and evaluation framework. Moving forwards we have provided the Council with an indicative plan for change that sets out the workstreams we would expect the Council to follow to manage its transformation journey, including the support that we can provide the Council with.

We were able to develop a rapid and deep understanding of the Council’s vision and ambition and our support was tailored to ensure that these were front and centre of our work with the Council. This enabled us to build strong working relationships with key stakeholders which was vital to delivering the right kind of support for the Council.

We have now equipped the Council with frameworks that they can use to progress their Outcomes Based Resourcing journey and are continuing the conversation on how we can support them on this journey.