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Warning up to 15% of councils are showing signs of financial failure

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Up to 15% of councils are showing signs of financial failure, the Chartered Institute of Public Finance & Accountancy’s resilience index has found.

In a briefing on the first findings, published today, Cipfa said indicators including reserves depletion time, level of reserves, council budget flexibility and council tax to net revenue expenditure show the majority of councils are in a stable position “in spite of managing severe budget cuts”.

“Clearly this shows effective financial management against a challenging context,” it said.

However, Cipfa said the index also shows there is a “tail” of 10-15% of councils which are showing some signs of potential risk to their financial stability.

Cipfa added that it would approach these unnamed councils to discuss support for chief finance officers.

Cipfa chief executive Rob Whiteman said it would not be long before well-run councils will deliver little more than core statutory services due to “unprecedented financial challenges”.

“With acute financial pressures continuing to put many councils under significant strain, the resilience index provides a useful tool for recognising potential signs of risk to councils’ financial stability, and prompting appropriate action,” he said.

Earlier this month LGC reported how Cipfa had postponed controversial plans to publish a “league table” of councils’ financial sustainability following uproar within the sector at the plans.

The decision was one of a number of changes to the institute’s proposed local authority financial resilience index which was slammed by many senior local government figures when it was put out for consultation earlier this year.

Leicestershire CC chief executive John Sinnott was one of the few who welcomed Cipfa’s proposal.

Responding to the index findings, he said: “Cipfa has demonstrated that whilst many authorities are managing their difficult financial situation, some will need help sooner rather than later.

“Having this resilience index information benefits the whole sector so that we discuss what’s needed to ensure another failure like Northamptonshire is avoided. The sector can only benefit from being honest with itself, which hasn’t always been the case.”

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