When short term actually means long term

The good news is that official figures for January suggested that the UK’s public finances were in the greatest surplus for four years, following a fall in local government borrowing and a rise in tax receipts. However, it seems confidence among local government finance offices is less than upbeat for the medium term future, as The Chartered Institute of Public Finance and Accountancy’s (CIPFA) latest poll of local authorities indicates. 

The poll suggests that some 40 per cent of councils are likely to reduce their budgets by a further 5 to 10 per cent over the coming year; this is coupled with mounting concerns about service delivery and financial cushions. At a time like this, the phrase ‘short term pain for long term gain’ could not ring any louder but  rigorous risk management is critical to manage the impact that cost-cutting will have years into the future.

In our own research conducted a year ago that looked at the key risks affecting the public sector over the following five years, 64 per cent of public sector leaders believed that short-term budget challenges would prevent them from addressing longer term risks effectively. The same percentage also agreed that they needed to make significant changes to the way they approach strategic risk.

But with this latest poll from CIPFA suggesting a clear difference in how individual authorities are tackling the cuts, it appears the risk landscape for local government is likely to become an ever greater minefield over the coming months.

Decisions about staff rationalisation, outsourcing, shared services and the sale of assets cannot be made in isolation from each other, as each decision could have a lasting impact, and one which could be heightened by another. While many Directors of Finance in the CIPFA poll may consider public libraries, museums and leisure services prime areas to make short term cuts in 2012/13, it is important to remember that these services often hold an underlying role for local community cohesion. Full closures and the cessation of services could therefore not only create severe damage to a council’s reputation in 2013/14 but also have unforeseen longer-term consequences.

Although last year was an important year for Directors of Finance and local authorities to create a route map for efficiency measures and begin the process of cost cutting, I would argue that this year is even more critical. There is time ahead of the deadline for budget submissions on April 1st for local authoritiesto conduct a rigorous decision-making and risk management process. Without which, some councils and their communities could indeed be facing long term pain.