The Opaque Cost of Austerity

06-10-2016

by Cliff Dalton, Head of Local Government, CIPFA 

Much has been said of austerity and its impact on local government. As a policy, it has defined the sector for this decade, much as compulsory competitive tendering (CCT) did in the 80’s, best-value during the 90’s and efficiency statements through the noughties. 

But this link to past government policy is undoubtedly where any similarity really ends. Because those who worked on their authority’s CCT outsourcing calculation, would soon discover that with a little creativity over the use of notional credits, their target could easily be met. Best-value then allowed councils to apply non-cash savings on a self-assessed improvement basis, while efficiency statements were largely a desk top extension to best-value, just collected via annual returns to DCLG. In truth, all of this was pretty easy to sidestep for those who chose to do so.

Austerity is different. Because cash is king and suddenly everything has changed. 

Councils can no longer draw upon artificial credits, double discounts or pre-shrunk allowances. They must operate in the real world of balancing the books. Of trying to accommodate huge drops in revenue, while still expected to protect front line services or even raise standards to meet rising expectations from stakeholders.

And they must do this despite the uncertainty of much yet to come. Of further cuts to their revenue support grant (RSG), structural changes from devolution, reorganisation and boundary change and more reform in service delivery. A new housing bill, welfare reform and social care integration, along with further accounting changes on infrastructure assets and earlier closedown – challenges all, and that’s without even mentioning Brexit!

And for those who can’t forecast, monitor and adapt to all of this, or where their reserves are not sufficient to offer wiggle room or time to adjust to the sheer pace of change, the narrative and tone around austerity can soon change; to that of an illegal unbalanced budget and section 114 notices, perhaps a threat of intervention, lost services and some reputational risk to both the authority and those officers expected to deliver all of this.

Resilient Councils 

Councils are nothing if not resilient. Whilst austerity is painful and will mean tough choices, most appear to be rising to its challenge: staff restructure; service rationalisation; demand management (reduction); new income generation; outsourcing or sharing services are all options typically considered to balance those books. And given satisfaction levels from the public remain so high, it’s fair to say most appear to have done an excellent job to date.

But beware the opaque cost of austerity, especially for those needing to rein in costs or perhaps push for more income before they are really ready to do so. 

Because not all plans and projected savings are as clear cut as they may appear and anything ‘forced’ without full rigour or due diligence in its business case, risk or impact assessment can easily come back to haunt.

This is the opaque. A hidden and often delayed consequence of making a wrong or ill-informed choice and it could easily prove more expensive than any savings originally envisaged.

Legal Challenges

So what would constitute such a cost? Well, it’s the legacy of a legal challenge where service standards slip below a statutory minimum; where legislation is missed because too many experienced staff were let go in the last restructure; the flawed governance and weak internal control from a new alternative delivery model or hurried merger; that poor choice in strategic partner; the wrong service delivery model; the forgotten EU procurement rules.

It’s all of these and more, and we are seeing more examples of each as austerity continues to take hold.

Gattenby-Sanderson recruitment have noticed a marked increase in council job vacancies that suddenly expect incumbents to be commercially aware and generate revenue streams for the authority; while Richard Harrison, CIPFA’s new MD for consultancy services, has concerns over the increasing number of councils that don’t seem to know the differences between the alternative service delivery models they may be looking at creating.

Judith Barnes of Bevan Brittan tells of increasing numbers of council statutory officers and cabinet members taking up director roles in newly formed local authority companies, without thinking through the full responsibilities and accountabilities and separating the council responsibilities from those running the company. Not only is this poor governance for the council around separation of duties, it can also fall foul of company law on conflict of interest rules. 

Mark Dyer from Deloitte also outlines shortcomings with new local authority companies, occasionally set up without full knowledge of the private sector tax regime. Typical problems include uncertainty over which costs to allow recoverable VAT or what the full tax liabilities are on a trading surplus. 

Even CIPFA’s Technical Enquiry Service has recorded a notable rise in practitioner requests to the Institute to simply ‘check if something looks right’ to gain some re-assurance; one officer even forwarded a full copy of the council’s annual accounts by e-mail and asked a Financial Advisory Network advisor to check its Code compliance. Perhaps the clearest sign of all of the increasing pressures now being placed on staff and the extreme measures they are taking to try and deliver?

CIPFA’s response to all of this has been a positive one. Our resilience peer support programme is helping to identify new options for authorities to balance their books. Assured Managed Service, in partnership with EY, automates the year-end closedown process, ensuring compliance at the touch of a button with all new Codes and early closedown deadlines. And we have software models and finance management tools designed to improve all areas of council performance and staff training programmes that will support and enhance the knowledge of all abilities.

But in the end CIPFA can only support and tailor these solutions where we are asked to do so; where authorities see themselves in some of these shortcomings and, most importantly, where they are bold enough to do something about it. Because for some authorities, the greatest financial challenge of all from austerity may not be how it moves from the red to the black, but how it sees through the opaque.