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Richard Flinton: Cipfa's index could have unintended consequences

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Last month, the County Councils Network warned that the “worst is yet to come” in terms of cuts, with its member councils facing a £3.2bn funding gap in the next two years.

The omens do not look great for local government, especially considering the uncertainty over the fair funding review and increased business rates retention.

It is in this context that the Chartered Institute for Public Finance & Accountancy outlined proposals for a financial resilience index for councils, to try and avoid any other local authorities going the way of Northamptonshire CC.

This is a noble sentiment, but is it the right kind of help?

The initial reaction to these ‘traffic light’ proposals from the local government sector has been lukewarm. This may look like we’re being defensive, but will the index, as currently devised, fulfil its purpose to help?

At best, it could simply name and shame local authorities without actually assisting those in the greatest need. At worst, it could actually harm the long-term prospects of local authorities by lulling them into a false sense of security with a green rating.

In essence, by over simplifying a complex issue, it could lead to unintended consequences.

For example, in order to ‘improve’ performance, this may encourage councils to stockpile reserves, despite not necessarily being in the financial position to do so. This will in turn divert badly-needed resource from frontline services and their long-term sustainability.

My chief executive colleagues and I have outlined to our council leaders the harsh reality of the situation that we are facing, spelling out the severe financial pressures facing our councils – and what needs to be done to survive – even when it is politically unpalatable. If a council is ranked as green, because it is ahead of the curve, or has differing circumstances to other authorities, does this lull it into a false sense of security to not make the difficult short-term decisions to ensure long-term stability? I have already had my finance dDirector warning me that we are at risk of a green light for reserves!

At the same time, 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. On top of this, the index could be out of date by the time it is published – rendering it moot. Your position at a moment in time is one thing, the quality of your plans for the future are another.

There is no shared set out common indices which can truly capture a council’s financial resilience. And should a local authority be given a ‘red’ rating, what happens next? The result does not offer a genuine solution to that councils’ financial plight but potentially sets off some inappropriate knee-jerk actions.

Ask yourself this: when considering Northamptonshire, the council that inspired these proposals – would a red traffic light for the council had changed anything, bearing in mind the warnings coming out of the authority originated circa 2014?

The index also, to an extent, ignores the crux of the issue. There is not enough money in the system; the CCN and Local Government Association’s recent work has shone a light on the dire situation. As well as measuring our journey to the precipice we should shout about the need for help.

I welcome Cipfa’s energy on this; we need to identify councils at risk, their trajectory and how we can help. However, I am not sure that the traffic light index is the right way forward. Instead I would want groups such as the Association of County Chief Executives to work with Cipfa, the LGA and others to create a mechanism that genuinely offers learning and support to the sector.

Richard Flinton, secretary and lead advisor for local government finance for the Association of County Chief Executives; chief executive, North Yorkshire CC

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Readers' comments (1)

  • sounds like we need a body that has a relationship with the council and can work with its external auditors and apply inspection tools across the sector to measure use of resources, value for money, and performance. it could then publish benchmark information, best practice guides and independent reports when a council is in danger.
    Oh just realised we had that and it was called the audit commission and the coalition government abolished it. What a pickle.

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