Responding to COVID-19: insight, support and guidance

CIPFA index shows pre-COVID baseline for local authority financial resilience

19-02-2021

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.

ENDS

Notes to editors:

  • The full Financial Resilience Index can be found here: Financial Resilience Index 2021
  • The 2019/20 index was postponed due to data delays as a result of the COVID-19 pandemic. MHCLG revenue outturn data, which the index is largely based on, was due to be published in November 2020, and was delayed to late January 2021.
  • This data is based on the 2019/20 financial year and is centrally collected. The 2019/20 local government financial year was not materially affected by the pandemic as the data cut off was 31 March 2020. Therefore, the index provides a useful pre-COVID baseline showing the resilience of councils as they entered the pandemic. CIPFA will reflect on 2020/21 data indicators later in the year. We have acknowledged the two COVID-related payments made prior to late March.
  • As no complete data record from PSAA was held for 2019/20 regarding value for money audit outcomes, CIPFA has collected this data from individual council records where available. Where the record reads N/A, this indicates that the information was not available at the time of collection.
  • The resilience index is not a predictive model but is expected to help local government CFOs assess financial sustainability. With many councils under significant fiscal strain, the index is a diagnostic tool for recognising potential signs of financial risk. Local narrative is key.
  • The Financial Resilience Index is one of a range of tools CIPFA provides to support public sector finance professionals, including the Financial Management Code and personalised organisational resilience advice.

About CIPFA

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.