Navigating the local financial crisis: moving past business as usual


By Philip Craig, Head of Local Government, Oracle

Challenges for councils in navigating the local financial crisis

The COVID-19 pandemic has created and accelerated countless financial and operational challenges for local government.

CIPFA recently invited finance leaders from across the UK to take part in three roundtable discussions, hosted by Oracle. The roundtables provided an opportunity to discuss how councils are working with partners to mitigate the worst effects of the pandemic, as well as a forward look to the role of councils in local recovery and reducing inequalities.

Councils are shifting from short-term measures to longer-term financial planning

Even before the pandemic, local government was forecasting a significant budget shortfall, largely due to a gap in adult social care funding. Councils now face a significant additional shortfall in their funding in this and future financial years due to rising costs and falling income. Reductions in council tax revenue, business rate reliefs, and payment holidays will have an increasingly significant impact even as the economy recovers.

Government has provided local government with relief through additional funding and cash-flow support. However, some councils are reporting that the costs of the pandemic are likely to be three to four times higher than the financial support already provided. Since the first roundtable, four councils in England have been awarded emergency funding because of cash shortfalls. More are in talks with government and this may only be the tip of the iceberg.

Many short-term emergency measures are now becoming a fixture of life. Councils are embedding new ways of working, including the adoption of new ways of delivering services and widening the range of services provided online. Finance teams are reviewing their budgets and financial plans to strengthen expenditure and revenue effectiveness. Greater emphasis is being placed on restoring financial stability over the medium to long term.

The unprecedented scale of the COVID-19 crisis limits any comparison with past crises. We were told that councils face a difficult trade-off between making cuts (in year or in coming years) and investing in programmes for recovery (such as projects to prevent and predict service pressures and support for small businesses and community organisations).

There is a desire to avoid 'wait and see' approaches. Councils are adopting a variety of strategies to achieve 'futures thinking', including scenario planning, zero and performance-based budgeting and participatory tools that encourage service user input when addressing budget dilemmas.

Adopting a business-as-usual approach may no longer be the answer

Beyond the health impact and human tragedy, the pandemic has triggered a serious economic crisis. Measures to contain the virus have hit local businesses particularly hard. Some areas, particularly those dependent on tourism and hospitality, have been particularly badly affected.

Many of the economic pressures faced by local areas pre-date the pandemic but have been accelerated by it. Parts of the UK have suffered from weak productivity over many decades. Without intervention, disparities in skills, investment, innovation, enterprise and employment are likely to accelerate.

Participants highlighted encouraging examples of councils taking the initiative, from making a permanent shift to flexible working, through upgrades to business services (such as finance, HR, procurement), the widening of service channels and improvements to data-driven decision making. The rapid adoption of digital technologies as a result of the pandemic has enabled these shifts.

Looking outside the boundaries of the town hall, councils have worked with the local community, as well as the voluntary and business sectors to mobilise resources in support of agreed local priorities. Participants talked about the need for effective mechanisms for vertical (across the public, private and community sectors) and horizontal (between central and local tiers of government) coordination.

The key message for national government was that local government stands ready and is planning to create stronger, more inclusive communities. Where councils have the powers and funding to do so, they are working across the public, private and community sectors to develop a vision and strategy for their area and its communities. However, if councils are to exercise this place-shaping role, there is still a need for greater flexibility, less control from the centre and more incentives for councils to promote economic growth.

Aiming to survive the crisis with confidence

While local government faces an unprecedented health crisis that creates a perfect storm of economic and fiscal challenges, participants felt this was a test which they should feel able to approach with some confidence. Local government has proven itself to be resilient and able to cope with crises. From austerity to the pandemic, the sector has continued to deliver services effectively to citizens.

That said, it is wise to check that all of the appropriate skills and competencies – leadership, financial management, improvement and innovation, change management and more – are present in the team and ready to fire. Participants reported that recent years have seen a stripping out of capacity for strategy, innovation or long-term thinking in local government. Councils should be developing strategies and plans and preparing the organisation for the long term.

First, councils need to fix the budget and a few surrounding processes. It should be strategy-led, focused on the medium term and engage a significant proportion of staff and customers. Councils need to be much more rigorous about measuring and tracking efficiency savings, so that decision-makers can fully understand where resources are being freed up, how they are being redirected and where further work is required to stimulate new thinking and change.

The second key area is communications. Councils need to communicate the authority's strategy and its financial position clearly and effectively to all stakeholders. They need to show how available resources are being positively deployed to deliver the strategy.

Third, councils need to think about the style of management that their organisations need to be successful. This means bringing into sharper focus the expectations of citizens, the services to be delivered and the capacity, capability and management style required to deliver them.

It also means continuing to ensure that departments stick to their spending plans, while understanding what value the citizen should expect from the resources and effort deployed. This approach includes seeking a better understanding of the cost and value drivers of the authority, deeper thinking about fees, charges and especially commercial investments and greater understanding and more proactive management of risk.

Finally, participants would like to see more dialogue across councils to create consensus on the changes critical for the improvement and development of the organisation. There are many examples of good practice and innovative ideas that occur up and down the country. CIPFA might be well placed to provide a safe forum for this dialogue, and to advocate for investment in research and increased internal capacity for information sharing in local authorities.

This article was sponsored by Oracle.

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