Supporting financial resilience


by Rob Whiteman, Chief Executive CIPFA

The financial strain faced by local government is an issue that can no longer be easily ignored. Northamptonshire County Council’s financial situation is in large part the result of a failure of leadership, but with the news that East Sussex County Council amongst others intends to strip back services to the statutory minimum, we see how even well-run local authorities are faced with financial insecurity. Indeed, East Sussex is known to have an effective and robust financial management function, which is supporting the corporate leadership being given there. 

As we look to the forthcoming Comprehensive Spending Review, we are in a unique position, in as much as the principle investment decision has already been taken, which is to materially increase funding to the NHS. CIPFA’s advice therefore is to look within existing funding envelopes for the majority of medium-term planning decisions. We hope that together with other stakeholders the local government sector can successfully lobby for enhanced resources, in areas such as adult services and children’s services. We will also work hard for good solutions on rate retention and fair funding, but uniquely CIPFA’s role goes beyond lobbying. Our royal charter, which states our responsibilities as a standard setter and regulatory role in relation to accountants’ professional conduct, means that we must say what needs to be done if the lobbying doesn’t succeed.

We are clear therefore that no authority should bet the bank on the government coming to the rescue; and like East Sussex all councils must get ahead of the curve with detailed planning and clear decision making, while also ensuring that governance structures are robust. Given that the NAO’s recent report highlights that 10% of upper-tier authorities are vulnerable to financial failure, it is incumbent that a material number of councils reassess their strategies for long term and find sustainable solutions. One-off sticking plaster actions will not suffice.

CIPFA is committed to helping the achievement of strong financial management by embedding best practice in all councils through a new financial management code. However, while seeking to praise and enshrine through this the many strengths and examples of financial leadership we see across the sector, CIPFA has a role to raise our concerns that we also see the risk of failure beyond Northamptonshire, where governance, corporate leadership and medium term planning is presently less strong. Even if a small number of councils fail, it will have a negative impact on the sector as a whole. 

The Institute’s proposal for a financial resilience index is designed to prompt local debate about present plans and resilience. The ambition is that a readily available tool published free of charge by an independent professional body means that where needed, debate is not avoided on the grounds of affordability to commission external advice, which can lead to help being sought where it is most needed. CIPFA aims to ensure CFOs’ concerns on risk are heard in all cases, and not only in those authorities that already have strong governance in place, where there is respect between elected members and officers, and transparent and objective corporate information.   

It is not in our bailiwick to assess the strengths of corporate leadership and culture, and we do not wish to comment on such. Our aim is to provide advice on the arithmetic trajectory of spend, savings, tax and reserves and taking into account weighted factors that signal risk, such as capabilities, culture and governance are considered where needed. CIPFA has designed a lengthy consultation period to understand the sector’s views on the index’s methodology and design, so that we can create a meaningful and genuinely helpful tool.

We recognise that the index could place pressure on leaders, cabinets, CEOs, CFOs, corporate management teams and their auditors to be certain that their judgements and actions are sufficient. However, while receiving some concerns that it reverses the trend since 2010 of sector wide comparisons, the index remains a very modest proposal. Moreover, we think that the financial management code, and basket of tools and services we will provide to implement it well, will be the more material step that we are taking to support the sector’s long-term revenue sustainability, in much the same way that the Prudential Code was a bold move at the time and yet years later an integral part of investment planning.  

This article first appeared in MJ.

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