Within the Local Government sector there has been a gradual transition to a new financial reality in which the pressures of a decade of austerity have seen local government funding nearly halved and demand rising. This has brought with it a significant change to the way organisations make financial decisions and think about risk.
We have seen a rise in commercial activity, a cutting of core services and an increase in the use of reserves. The innovative ways councils have shown they can reduce costs are leading edge, but balancing a budget is still difficult and fraught with challenge, whether that is personal, political or financial.
These pressures came into sharp focus when the sector saw the first section 114 notice issued in almost 20 years by Northamptonshire County Council. Central government responded by appointing external commissioners to deliver a plan for that one organisation; however, a wider sector response was needed to make sure that lessons were learned and support offered.
It is important to recognise the vital role and contribution made by harnessing the collective support and wisdom of the wider group. One of the things that makes the sector great is that every organisation is unique and able to respond to local needs by making local decisions, but the downside is that some are not as strong or resilient as others.
Recognising the need to provide this support, CIPFA brought together a wide range of stakeholders and asked for their insight and commentary on the idea of a financial management code. The founding concept was that such a code represents a proportionate professional response to supporting the sector and strengthens the position of the CFO. In line with other Codes it would not be prescriptive, but rather principle based and reflect the need for a proportionate approach.
The CIPFA Financial Management Code (CIPFA FM Code) codifies areas of local government financial management for the first time. In doing so it will provide a professional wrap around for a range of good practice, legislation, as well as existing codes. The stakeholder group recognised early on that we would not obtain immediate statutory backing for a code, with no bandwidth in parliament at the current time to allow this discussion, but as you read the CIPFA FM Code you will appreciate how we have approached this.
Guided by the professional expertise of the stakeholder group, which contained treasurers from all tiers, as well as regional representative and sector specialists, the CIPFA FM Code has been drafted to support CFOs and the leadership team to provide assurance and confidence that public money is being well managed. With all current evidence suggesting that the substantive changes needed to put local government onto a sustainable fiscal pathway will not be forthcoming, in the short term local government will need to prepare to withstand greater and sustained fiscal strain, and we need to be prepared.
The stakeholders and the authorities that have already piloted the CIPFA FM Code have provided substantial feedback, and along with contributors during roadshows and presentations, they have shaped the current version, but we still have unanswered questions and areas to debate.
To help refine this draft into a final code that supports the sector, both now and into the future, we need people to respond to our consultation which runs until 30 April. The final version is expected in the summer by which time your feedback will have been considered in detail and have influenced the outcome.
As it stands, the CIPFA FM Code has been designed to support good practice in financial management and help local authorities demonstrate financial sustainability by building upon the underlying principles of leadership, accountability, transparency, professional standards, assurance, and sustainability, and then supporting these principles with standards.
As with other successful CIPFA codes it is not prescriptive and it acknowledges the role and importance of local decision making for realising a vision which best meets the needs of the local community. Proportionality is a word that keeps reoccurring in all our discussions and we have made sure we have embedded this throughout the document.
The CIPFA FM Code will apply to all local authorities in England, Scotland, Wales, and Northern Ireland, including police and fire authorities as well as combined authorities. Strikingly, we are already receiving interest from other bodies that would like a version for their sector, so perhaps local authorities are again leading the way.
By establishing the correct balance between the personal responsibilities of the CFO and the collective responsibilities of the leadership team for financial management, by encouraging medium- and long-term financial planning and alignment of spending plans with future resources, the CIPFA FM Code will strengthen the financial sustainability of local government across the United Kingdom and help ensure the sector is able to weather whatever storm comes next.
You can find the draft CIPFA FM Code for consultation on CIPFA’s website. All responses must be provided by email to FMcode@cipfa.org by 30 April 2019.