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Sean Nolan: Councils face unbalanced budgets

Sean Nolan
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Councils are nothing if not resilient.

Years of austerity have provided a steady stream of challenges and tough choices, particularly for chief financial officers around all things to do with financial balance and resilience.

Initiatives range from staff restructures and service rationalisation, to demand management and the need to develop new income generation, and all while public satisfaction levels remain high.

But already, as we begin to move through 2017, the strain is beginning to show for some councils and if we can predict anything for this year and the near medium term, it’s that there is much more uncertainty to come.

Over the coming months and years, councils will face further reductions to revenue support grant, structural changes from devolution, reorganisation and boundary changes and more reform in service delivery. That is as well as a new housing bill, welfare reform and social care integration, living wage increases, further accounting changes on infrastructure assets and earlier closedown (councils must currently approve their accounts by 30 June and publish them by 30 September, but from 2017-18 these dates will change to 31 May and 31 July). This is all before even mentioning the growing and immediate social care cost pressures.

With so much change and uncertainty ahead, many councils face the very real risk of unbalanced budgets, possible section 114 notices, the threat of intervention and also reputational risk both at the authority level and for those officers responsible for delivering all of this.

It is crucial under these circumstances that finance officers have in place robust medium-term financial plans that take into account such degrees of uncertainty.

Financial planning sits at the heart of good public financial management. Alongside budget preparation, performance management and stakeholder reporting, the ability to look strategically beyond the current budget period is a crucial process to support a council’s resilience and financial sustainability.

Developing a medium-term financial strategy will help bring together all known factors affecting a council’s financial position and its financial sustainability into one place. This should be as wide ranging as possible and include capital as well as revenue and all the assets and liabilities on the balance sheet. It will allow the finance director to balance the financial implications of objectives and policies against constraints in resources, while also factoring in uncertainty. This should in turn form the basis for decision making.

A good medium-term strategies should provide a clear and concise view of future sustainability and the decisions that need to be made in order to address any gaps in long-term financing. It forms the pivotal link to translate the council’s ambitions and constraints into deliverable options for the future.

The most sophisticated strategies may use elaborate and detailed econometric and financial forecasting models to present a view of the future, while others may be more qualitative in nature in providing more basic forecasts and a description of potential variations. The key to the effectiveness of the strategy, however, is its ability to give a clear and understandable messages to decision makers on the actions that are needed to ensure long-term financial sustainability. It is for this reason that while it may be produced by the finance team, it should be promoted and owned by the wider organisation, especially by decision makers. Financial forecasting cannot be separated from actual delivery of the strategies and plans to deliver financial balance.

Sean Nolan, director of local government, Chartered Institute of Public Finance & Accountancy


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