Northamptonshire CC being served a section 114 notice by its chief finance officer is newsworthy.
That it was not set to deliver its legal requirement for a balanced budget is significant not only for the council concerned but for the whole local government sector, and indeed all public services facing spending pressures.
At the Chartered Institute of Public Finance & Accountancy we believe there are three lessons for local government from this incident. First, the sector will require more spending quantum to cover a £20bn gap against service pressures by 2020-21. This shortfall, including £5bn on adult social care, could be solved overnight by the Treasury not retaining 50% of the local business rates that councils collect.
But central government should not pass extra funding responsibilities to local government as a sleight of hand to further retention. If some funds are better devolved, the resources to cover them should be devolved too.
Secondly, while some councils overall need more resourcing, this is not the whole story in Northamptonshire. There has been collective financial mismanagement by elected members and officers. It placed all its bets on an approach to transformation that did not take the necessary tough decisions. It failed to remodel its services’ finances in the way other councils equally challenged by loss of government grant have achieved.
The council consistently denied to itself and its stakeholders that it had lost financial control, and indeed queried in the trade media whether the legal requirements on budgeting should be retained. In truth, were it not for comparatively massive adjustments between revenue and capital, it would have breached s114 much earlier.
Thirdly, while keeping the context that most councils have so far managed their position and that the recent National Audit Office report suggests 10% of those with social services could exhaust their reserves in three years, we should not allow optimism bias to creep in. We must not ignore that a larger number of councils are approaching a precarious position.
Many organisations have a role to play in addressing these three points. In our role as a standard setter and partner in self-regulation, Cipfa has designed a phased approach to serving councils. We propose a solution that will provide a blend of codified professional practice and modern progressive tools for financial management in councils.
Acknowledging that the sector has experienced a historically unique reduction in its revenue budget, we will develop a code on financial management and planning. This will sit between the respective codes on reporting past activity and planning future borrowing, as well as complementing them.
We will work with a wide range of relevant stakeholders to achieve a high-quality code which we will ask Cipfa Council to be frank as a professional requirement, and government to recognise through regulation in due course. The code will cover the prudential use of reserves to complement existing guidance in prudential borrowing.
We will also consult shortly on a methodology to produce an annual resilience index and report. This will not seek to achieve a view on service quality or value for money. Instead, it will focus on whether a council appears on course to maintain minimum financial resilience over the four years ahead.
In addition, we will develop and enhance capacity building tools and approaches for all councils to move along the curve towards excellence. To better support councils’ financial planning, we will provide decision makers with events, training and tools – for example on modelling future resources.
Good financial management is in the day job of all elected members and managers. While Cipfa will always see the chief financial officer as a key player within the council, it is clear that the tone of financial management robustness, and overcoming the very considerable pressures faced, must be owned by the whole leadership community.
Finally, there is much shared endeavour for us all – Cipfa included – to promote councils’ unique role in convening the local state, supporting devolution, and providing the evidence to government that the sector urgently needs to raise more resources. Our licence to operate has long been founded on a reputation for providing the best financial acumen across all public services. Northamptonshire shows us that there is no room for complacency or relying on past performance.
As we mark the 10th anniversary of the worst recession since the 1920s, the depth and length of this era of fiscal consolidation cannot be overstated. So we must – and will – improve our financial resilience in the face of this never-ending austerity.
Rob Whiteman, chief executive, Chartered Institute of Public Finance & Accountancy