The chief executive of the Chartered Institute of Public Finance & Accountancy Rob Whiteman says the fair funding review should be delayed until after the Spending Review.
He told the Housing, Communities and Local Government Committee on Monday that the Fair Funding Review has “quite a bit of work to do yet”, and that it might be best delayed to avoid “unintended consequences”.
He said: “I do wonder whether it might best be delayed in order that there are no unintended consequences to it and that sector is clear on quantum and its abilities to raise money and then any redistributive effects of fair funding …there is a huge amount of work to do to ensure the right foundations for distribution and service specific areas - kids and adult services, and how you look at costs.”
There was a general consensus among the panel of local government finance experts that councils’ efficiency savings are nearing exhaustion after a decade of fiscal cuts. According to Mr Whiteman, “the low hanging fruit” of the easiest cuts “went some time ago” while Tony Travers, director of LSE London, said evidence shows “the most deprived areas have seen the most cuts”.
Peter Murphy, director of the public policy and management research group at Nottingham Business School told MPs councils are “raiding their reserves” for non-recurrent expenditure.
But public satisfaction has held up despite the cuts with recent LGA polling showing satisfaction has remained much higher than in NHS, though it has fallen slightly recently.
Mr Travers said this was because most council services are “miraculously still there”. “I think that a lot has been said about the cuts in local government libraries etc – but in most places, the library is still there and we tend to judge things against our expectations.
“Changes to refuse are presented elegantly as ‘environmental improvements’. And most people don’t use more expensive local services.”
Mr Whiteman said that the ratio of staff to volunteers has changed considerably in libraries, “but most people wouldn’t realise that”.
It was put to the panel by one MP that county councils have seen the greatest financial problems, when they have not experienced the greatest cuts. Neil Amin-Smith, local government finance economist at IFS, responded that the “most high pressure cases” have been the county councils Northants and Surrey - “but it is less clear whether county councils have struggled more in general.”
“County councils have less reserves for spending, but it is not clear they would deplete reserves quicker than [other] upper tier authorities,” he said. “Potentially there are political or institutional reasons. Maybe their electorates…are less willing to allow the level of cuts required.”
Mr Whiteman explained that CIPFA’s view is that county councils are facing potentially more financial problems, and will be publishing research on this later this year.
Concern was also raised about how councils have been borrowing against their assets, and Mr Murphy said “the vision of Icelandic banks comes to mind”, referring to the 2008 crisis when councils lost around £1bn by investing heavily in Icelandic banks.
He claimed some councils were “buying assets overseas”. “I think [borrowing] was too restricted in the late twentieth century and it was quite rightly eased… I wouldn’t want to stop properly researched investment but I would be concerned when we are getting towards investing in Icelandic banks.”
Mr Whiteman explained that CIPFA has just tightened up prudential code, “because we think there has been excessive borrowing”. “There is irony that local government is relatively poor but has relatively good capital freedoms.”
He pointed to the example of Spelthorne BC, which had a £30m turnover has borrowed £1bn to invest in commercially, and said that CIPFA is “against guidance for that degree of investment outside of one’s area…you want local government to have a mixed portfolio of investments.
“We are also concerned about retail parks because of possible over exposure – if they take a hit in the local economy, council investments could be less attractive.”
Mr Whiteman said councils’ voluntary submission of performance data had suffered as a result of funding cuts. “Without bringing back the Audit Commission, it would be nice to review the quality of the data and see a way of collecting data to help drive redistribution and performance management.”