The 2019/20 Financial Resilience Index, published by CIPFA today, continues to show high levels of resilience across local government. The index, which runs up to the end of March 2020, offers a comprehensive pre-COVID baseline for financial resilience in councils across nine key indicators.
While overall levels of resilience remained high as of the end of March 2020, with the index showing an uptick in reserves on the preceding financial year, this in large part will be due to the treatment of the first tranche of COVID-19 funding in March 2020.
Many local authorities have shown this funding as received in 2019/20 and most was therefore added to reserves as of 31 March 2020. When these funds are netted off, we see a real-terms reduction of £0.8bn in the level of reserves in 2020 (£24.6bn) when compared to 2019 (£25.4bn).
Andy Burns, CIPFA Associate Director, said:
"Tools like the Financial Resilience Index can provide a transparent and clearly understood source of data to facilitate conversations to stabilise council finances before they reach a cliff edge.
"While resilience for the year covered by this update was high, the world has undoubtedly changed significantly since 2019/20. Resilience will likely have weakened over the course of the pandemic, but today's update provides a baseline assessment of local authority financial resilience at the start of the first COVID-19 lockdown.
"This will act as a useful benchmark against the next update of the index which will show the impact of COVID-19 on council finances.
"Despite some financial support from government, significant challenges, uncertainties and financial risks remain that we would expect to see play out in the next update unless government support for councils goes further in 2021/22 and beyond."
Indicators used in the index include levels of reserves, external debt, ratios of income and expenditure, Ofsted judgements and auditors' value for money assessments.
The next update to the Financial Resilience Index will cover the 2020/21 financial year and is expected in November 2021.
Notes to editors:
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.
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