Commentary on the controversy brought about by Cipfa’s financial resilence index
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The noughties are a bygone era. France were defeated in a World Cup final following a Zinedine Zidane headbutt, Aung San Suu Kyi was the world’s most respected woman and local government was locked in a top-down performance assessment regime.
The ghosts of the comprehensive performance assessment and comprehensive area assessment still haunt many longstanding senior officers, while memories of the Audit Commission bring many out in a cold sweat.
However, Eric Pickles, made communities secretary by the new PM David Cameron in 2010, brought about a revolution. Councils were to no longer be forever looking up: sector-led self-improvement and an “army of armchair auditors” (© Mr Pickles) would replace the expensive and over-bureaucratic central institutions of inspection and regulation.
Eight years into the decade, the successes and drawbacks of this approach are apparent. The slimmed-down officer ranks of today simply would not have time to cope with the level of central reporting and inspection formerly required. Councils (albeit smaller bodies than before) have to some extent been liberated from the shackles of the old regime.
Peer support has had its successes but it has not been accompanied by a culture of openness about councils facing the gravest challenges. And, most crucially, left to their own devices some councils have either gone off the rails (Northamptonshire CC) or appear to be careering out of control towards financial oblivion.
It was to combat this that the Chartered Institute of Finance & Public Accountancy has consulted on a financial resilience index; a proposed traffic light warning system showing which councils face the most fundamental financial challenges.
The idea is that each council is given a score for six key indicators: level of total reserves as a proportion of net revenue expenditure; percentage change in reserves over the past three years; ratio of government grants to net revenue expenditure; proportion of net revenue expenditure accounted for by children’s social care, adult social care and debt interest payments; Ofsted rating for children’s social care; the auditor’s value for money judgement.
It is intended to act as an early warning system rather than a naming and shaming device. However, many are unconvinced. Even Cipfa chief executive Rob Whiteman has admitted the sector’s response has been “mixed”.
It is feared the data will be used to produce over simplistic league tables that take no account of the level of difficulty an authority (whether well run or not) faces. Strong performers will be lulled into a false sense of security. Poor performers will be stigmatised and see an exodus of staff or difficulty in recruiting new staff.
In an LGC article earlier this month, Association of County Chief Executives finance spokesman Richard Flinton wrote: “By setting out a series of indicators we risk distilling the complex into the overly-simplistic; which does not take into account the individual circumstances and environments of local councils, their culture, or their future transformation.”
And today came criticism from the Society of Local Authority Chief Executives & Senior Managers in the form of a joint letter from president Jo Miller and finance spokesman Martin Reeves.
“We understand the appeal of using a simple set of indicators to try to tell a relatively straightforward story about financial health,” the duo wrote. “But in our view an issue that is so complex needs a more sophisticated approach to be useful.” Those deemed to be struggling may have been hit by “factors outside [their] control”, they point out.
Few have publicly welcomed the resilience index, with Leicestershire CC chief executive John Sinnott probably being the most notable.
“I worry that local government will be seen as complacent if through its representative bodies or individually it tries to ward off Cipfa’s good intentions,” he wrote for LGC. “Without financial resilience a local authority fails and local government’s claim of transparency in all its doings will count for nought if warnings are not identified, publicised and addressed.”
Cipfa’s consultation on the index ends tomorrow. LGC understands the institute has received more than 100 responses, many of them supportive.
How the institute responds to the criticism will be intriguing. Cipfa exists to represent the interests of those working in public finance – including those who will be in the firing line should the index reveal their organisation’s financial shortcomings. While many members will be supportive, how many doubters can it risk alienating?
Compromise could result.
The combination of indicators and the degree of weighting given to each could be amended. Meanwhile, Cipfa is keen to do whatever it can to avoid the data being interpreted in the form of over-simplistic league tables. It is understood that the institute has never been wedded to a traffic light system and perhaps even dislikes such a characterisation of its index.
Nevertheless, it is hard to see how the index can proceed without annoying a lot of people whilst staying true to its principles of transparency and early warning.
While Cipfa faces the dilemma of whether to modify its index to address the many legitimate concerns expressed, its opponents should also be challenged.
If they are so against the Cipfa proposal, what is their alternative? How can the lack of candour seen in Northamptonshire and, to a lesser extent, Somerset and Worcestershire CCs about financial problems be avoided? They need to set out their own vision.
Local government has too regularly hidden its financial difficulties, doing residents and the sector more broadly a disservice in the process. This cannot go on.
Cipfa deserves credit for being brave enough to seek to offer a solution and start a debate that has resulted in the discomfort of so many.
Nick Golding, editor, LGC