CIPFA today released a briefing on the Financial Resilience Index 2018 (the Index).
Measured resilience in English authorities provides aggregated statistics on councils across a suite of indicators, which were recently refined in consultation with the sector.
Indicators now used in the Index include ‘reserves depletion time’, ‘level of reserves’, ‘change of reserves’, ‘council budget flexibility’, and ‘council tax to net revenue expenditure’.
These measures showed the majority of councils are in a stable financial position, and are not showing signs of financial failure in spite of managing severe budget cuts. Clearly this shows effective financial management against a challenging context.
However, there is a tail, of 10-15% of councils, where there are some signs of potential risk to their financial stability. Having now provided data, CIPFA will discuss professional support for CFO’s in those authorities.
A beta version of the tool was shared with local authority finance directors just this month, the first time such a measure has been provided to local authorities.
Rob Whiteman, CIPFA CEO said:
“Local government has faced unprecedented financial challenges in recent years, and we are approaching the point where a number of well-run councils will be in the position of being able to deliver little more than the core statutory provisions.
“The National Audit Office report on financial sustainability in local authorities in 2018 indicates that there is a heightened risk of more councils over the next four years falling into special financial measures.
“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.
“In time, the Financial Resilience Index will link with CIPFA’s new Financial Management Code, and support the S151 Officers in their annual report to the council setting out the proposed budget for the year and medium-term financial strategy.
“CIPFA believes that the ability to provide timely, transparent, and clearly understood advice can be effective in stabilising councils before they go over the cliff edge. Tools such as the Index are one of a range we provide to public sector accountants.
“These kinds of tools help councils avoid the type of failure we have seen in Northamptonshire County Council, where it is clear from the independent inspector’s best value inspection that too little action was taken too late.”
John Sinnott, CEO of Leicestershire County Council, 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.”
For further information please contact the CIPFA press office on T: 020 7543 5703 or E: Liam.Macandrew@cipfa.org
CIPFA, the Chartered Institute of Public Finance and Accountancy, is the professional body for people in public finance. CIPFA shows the way in public finance globally, standing up for sound public financial management and good governance around the world as the leading commentator on managing and accounting for public money.