Balancing local authority budgets
Funding cuts, a drop in RSG and a rising demand for services are all causing CFOs to worry about balancing their budgets. The financial management challenges facing councils are complex and ever shifting. This Insight looks at what a balanced budget means and the dynamics of financial leadership.
Concerns about unbalanced budgets are seated in the realisation that local government has faced significant funding cuts in recent years and this, combined with rising demand, means councils are under unparalleled financial pressure.
The RSG will drop by £7.8bn or 78% by 2020 and for many that cut is front loaded. While there is possible income to be generated in the future through changes such as 100% business rate retention, but balancing the books will be harder through to 2020. Uniquely across the public sector the CFO also has the power and responsibility to legally suspend spending for a period of time if they judge the council does not have a balanced budget or the imminent prospect of one.
This is known as a Section 114 report and is outlined in the Local Government Finance Act 1988. The financial management challenges facing councils are currently more complex than ever and constantly shifting. New partnerships, new governance and new commitments all impact on financial sustainability and as none of these new arrangements have been stress tested for resilience it is easy to see why balancing a budget is full of risk.