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Mike O’Donnell: More will buckle if financial resilience is ignored

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It was when Northamptonshire CC issued its first section 114 notice that the penny finally began to drop in the political and public mind that local government faces a deepening and immediate financial crisis. 

The second 114 notice must hammer that message home, particularly given the scale of the county’s financial problem has proved to be significantly larger than first thought.

Indeed, numerous reports have demonstrated how councils are struggling to survive and that the risk is mounting. According to the National Audit Office’s most recent financial sustainability report, 10% of upper-tier authorities are vulnerable to financial failure, leaving essential services at risk for literally millions of tax paying citizens.

The issue can no longer be ignored. Local leaders must seize the opportunity, whilst there still is one, to take action to ensure the sector is put on more sustainable footing. Otherwise, we will likely see more local authorities buckle.

Cipfa is working in three ways to support local leaders to address the challenge. We are developing a new financial management code, to sit alongside established treasury management and prudential codes, which aims to support good practice in the planning and execution of sustainable finances. We will also continue to share practical advice on funding and resource management via our funding advisory service. Finally, the new index will provide stakeholders with impartial information on how financially resilient individual councils are and what pressures they need to pay attention to.

Cipfa is currently consulting on the index’s design and methodology. As responses emerge, it feels an opportune moment to address the standout concerns being voiced to us directly and in the press.

The proposal for the index to use a ‘traffic-light’ grading system is a concept that some are finding challenging, and there is concern that it will be an exercise in ‘naming and shaming’. Naming and shaming is not Cipfa’s intention at all. It is, however, our intention is to provide an early warning system for local authorities with deteriorating financial positions and thereby to prompt action where it is needed.

Furthermore, by sharing this information publicly, there will be more pressure on councils to respond swiftly and effectively. And, in circumstances where there is a reluctance from some parts of a council’s leadership to address emerging financial problems, a public index will strengthen the s151 officer’s arm in ensuring that such problems are tackled at an early stage rather than past the point of no return.

Indeed, the reality of Northamptonshire’s position should be warning enough that burying our head in the sands just won’t wash anymore. Councils are anything but complacent but, nevertheless, we need to keep smelling the coffee. As JFK noted, “There are risks and costs to action. But they are far less than the long-range risks of comfortable inaction.”

One is tempted to muse that Northamptonshire’s systematic failure might have been picked up earlier by the Audit Commission. And like that of the Audit Commission, the data for Cipfa’s index is intended to be objective, independent and impartial.

To give those running and those served by local authorities a clear understanding of their level of financial stress and what their main pressures are, Cipfa will use a range of indicators. These include the level of resources, the rate of depletion of resources, social service demand pressures, the level of borrowing and auditors’ value for money assessments.

Cipfa has chosen these indicators because we believe, based on our experience advising the sector, they will paint an accurate and detailed picture of financial risk. The proposals are still subject to consultation, so if there are additional or better indicators, then these can be incorporated.

We have no agenda behind the index, other than to be genuinely helpful by identifying risk, to provide objective context to decision makers and the opportunity for 151 officers to challenge the insidious tendency towards optimism bias that led to Northamptonshire’s demise. While such transparency may be uncomfortable, it is hard to argue against it in principle. How we do it in practice we can work on together.

Mike O’Donnell, associate director of local government, Cipfa

You can download the consultation document here

You can submit your response the consultation online or by emailing Cipfa at resilienceindex@cipfa.org

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  • how stupid does abolishing the audit commission look today?

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