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Solace raises 'serious misgivings' over financial resilience index

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The Society of Local Authority Chief Executives & Senior Managers has revealed it has “serious misgivings” about plans for a simplified approach to assessing councils’ financial resilience.

Concerns have been raised about not just the way the Chartered Institute of Public Finance & Accountancy has proposed assessing councils’ financial performance but the impact it could have on the ability of local authorities to attract and retain talent.

Cipfa’s proposed index methodology would see councils scored against six indicators of financial resilience, which will be colour coded using a traffic-light system and then presented in a table.

LGC has previously reported widespread concerns from across the sector about Cipfa’s approach creating a false, damaging, and over-simplified hierarchy of performance.

In a joint letter to Cipfa chief executive Rob Whiteman, Solace president Jo Miller and finance spokesman Martin Reeves said: “While we are sympathetic to the intent behind Cipfa’s proposals, we have serious misgivings about whether a simple set of scoring metrics can produce a meaningful assessment of an authority’s financial health.”

Ms Miller and Mr Reeves said there is “a real challenge” in capturing local context and circumstances using the current framework.

“To that end, we believe that both the proposed indicators and the method of presentation need further work and consideration,” they said. “We understand the appeal of using a simple set of indicators to try to tell a relatively straightforward story about financial health. But in our view an issue that is so complex needs a more sophisticated approach to be useful.”

Solace has specific concerns about the proposed indicators focusing too much on reserve levels and not taking “other legal risks” associated with cutting services into account. It has also questioned why the proposed index does not appear to measure forseeable future spending pressures. Ms Miller and Mr Reeves said they were also “surprised” that Cipfa had not proposed to assess councils’ borrowing as they said “it can be one of the factors that limits councils’ flexibilities to adjust future spending”.

On the way Cipfa has proposed to present the data, Ms Miller and Mr Reeves said there was “no way” to tell if a council was rated as performing poorly “primarily because of the decisions it has taken or because of factors outside of its control”. They added: “This is important, not because we want to classify performance as ‘good’ or ‘bad’, but because it would provide vital intelligence about how much scope still lies within the authority’s hands to improve its own resilience.”

The pair also raised concerns about the “knock-on effects on talent retention and recruitment that a council in the red zone might experience”. They said: “Past experience from adverse Ofsted judgements has shown us that authorities who most need support to improve can experience significant challenges in attracting and retaining the expertise and leadership they need.”

The letter from Ms Miller and Mr Reeves highlighted the fact councils had lobbied regulatory bodies, like Ofsted, to “provide a more nuanced picture of local performance”, based on a wider variety of information and data, and added: “It would be a shame if a tool the sector developed for itself reverted to the cruder approach that we have warned others against.”

Ms Miller and Mr Reeves said it might be time to urge the Local Government Association to make “peer reviews both mandatory and transparent, as they were originally intended to be”. Using those alongside external audit reports would give people a better idea about a council’s corporate governance and need for improvement, they said.

“We do want to caution that any tool to measure resilience will inevitably have a limited shelf life if local government funding and pressures continue on their current trajectory,” said Ms Miller and Mr Reeves. “Frankly, if the status quo holds in the next spending review, as officers we will be talking to elected members about when we will run out of road, not if.

“We say this to dispel any notion that external observers may have that by enabling councils to measure their financial positions against each other that we will somehow conjure up scope to absorb further cuts to local government funding.”

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Readers' comments (2)

  • I am a member of SOLACE I cant remember them asking me my view. The sector lost a lot when the audit commission was abolished, and the index is just one step to ensure the issues around council financial failure are flagged publically before it happens and that is a ggod thing.

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  • If CIPFA don't do it then probably someone will. As a treasury manager. I would pay a reasonable fee for this information. If an authority runs into problems then I would like demonstrable evidence to say why we invested with that authority. It's probably mainly an issue around reputational risk than financial risk.

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