Within local government there has been a gradual transition to a new financial reality.
A decade of austerity has seen local government funding nearly halved while demand has risen. This has brought with it a significant change to the way organisations make financial decisions and think about risk.
We have seen a rise in commercial activity, a cutting of core services and greater use of reserves. The innovative ways councils have shown they can reduce costs are leading edge, but balancing a budget is still difficult and fraught with challenge, whether that is personal, political or financial.
These pressures came into sharp focus when the sector saw the first section 114 notice issued in almost 20 years by Northamptonshire CC. Central government responded by appointing external commissioners to create a plan for that one organisation. But a wider sector response was needed to make sure that lessons were learnt and support offered.
It is important to recognise the vital role and contribution made by harnessing the collective support and wisdom of the wider group. One of the things that makes the sector great is that every organisation is unique and able to respond to local needs by making local decisions. The downside is that some are not as strong or resilient as others.
Recognising the need to provide this support, the Chartered Institute of Public Finance & Accountancy brought together a wide range of stakeholders and asked for their insight and commentary on the idea of a financial management code. The founding concept was that such a code is a proportionate professional response to supporting the sector, and strengthens the position of the chief financial officer. In line with other codes it would be not be prescriptive, but principle based and reflective of the need for a proportionate approach.
Our resulting Financial Management Code codifies areas of local government financial management for the first time. In doing so it will provide a professional wrap around for a range of good practice, legislation, and existing codes.
The stakeholder group recognised early that we would not obtain immediate statutory backing for a code, with no bandwidth in Parliament at the current time to allow this discussion. But as you read the code you will appreciate how we have approached this.
Guided by the professional expertise of the stakeholder group, which contained treasurers from all tiers, as well as regional representative and sector specialists, the code has been drafted to support CFOs and the leadership team to provide assurance and confidence that public money is being well managed.
With all current evidence suggesting that the substantive changes needed to make local government fiscally sustainable will not be forthcoming, in the short term the sector will need to prepare to withstand greater and sustained fiscal strain.
The stakeholders and the authorities that have already piloted the code have provided substantial feedback. Along with contributors during roadshows and presentations, they have shaped the current version. But we still have unanswered questions and areas to debate.
To help refine this draft into a final code that supports the sector, both now and into the future, we need people to respond to our consultation which runs until 30 April. The final version is expected in the summer by which time your feedback will have been considered in detail and have influenced the outcome.
As it stands, the code has been designed to support good practice in financial management and help local authorities demonstrate financial sustainability by building upon the underlying principles of leadership, accountability, transparency, professional standards, assurance, and sustainability, and then supporting these principles with standards.
As with other successful Cipfa codes it is not prescriptive, and acknowledges the role and importance of local decision-making to best meet the needs of the local community. Proportionality is a word that recurs in all our discussions and we have made sure to embed this throughout the document.
The code will apply to all local authorities in England, Scotland, Wales, and Northern Ireland, including police and fire authorities as well as combined authorities. Strikingly, we are already receiving interest from other bodies that would like a version for their sector. Perhaps local authorities are again leading the way.
By establishing the correct balance between the personal responsibilities of the CFO, the collective responsibilities of the leadership team for financial management, and by encouraging medium and long term financial planning, and alignment of spending plans with future resources, the Financial Management Code will strengthen the financial sustainability of local government across the UK, and help ensure the sector can weather whatever storm comes next.
Rob Whiteman, chief executive, Chartered Institute of Public Finance & Accountancy