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Rising to the challenge

Paul Dossett, head of local government at Grant Thornton UK LLP, discusses how local authorities are evolving to cope with the challenges of austerity.

With regular reports in the press about councils being forced into dire cutbacks and brutal service reductions, you could be forgiven for thinking that the sky is about to fall in on local government. However, as auditors of around 40% of English local authorities, we have a first-hand view of the developing patterns of financial strengths and weaknesses within the sector, and we see a more nuanced picture. Overall, the sector is evolving to cope with the challenges of austerity and for some authorities a sense of crisis may even be receding.

In the latest of our series of annual studies on the financial resilience of local government in England, we found that just under two-thirds of the local authorities have at least one notable weakness in their arrangements for financial planning, governance or control. There remain a small number of authorities that have struggled to evolve quickly enough, and some of these are facing challenging deficits over the next few years. In some of these cases, the feared ‘tipping point’ may soon become a reality, without some form of government intervention. However, mercifully, few authorities are in this position.

Financial resilience

As we approach the end of this Parliament’s period of austerity, with expectations that further austerity measures will continue until 2020, most local authorities are still delivering local services to a high standard within a balanced budget. Many are forecasting financial resilience confidently in their medium-term financial strategy. This is a major achievement and reflects an evolution in financial management that would have been difficult to envisage given the reaction of the sector to the 2010 Spending Review.

What stands out is how a surprising number of local authorities have maintained and in some cases improved their financial performance in the face of ever-increasing challenges. Through a combination of necessity, cultural change, innovation and strong leadership, many organisations have risen to the challenge. This is even more impressive when you consider that the level of sophistication and effectiveness required to achieve savings has increased year-on-year.

Breakdown by council type

Of course, different types of authority are facing very different types of pressure, based on their size, breadth of responsibility or geographic, demographic or economic profiles.

All single-tier authorities show strategic financial planning as an area of concern, which reflects the scale of savings required over the medium-term.

Metropolitan borough councils and London boroughs, both with urban demographics, show some similarities in the pattern of moderate weaknesses for key financial indicators and financial controls, which are often closely linked.

The metropolitan borough councils, concentrated in the north of England, show a higher number of issues compared with London, which may be linked to the less-favourable economic conditions outside the capital – affecting both revenue potential and cost pressures.

Unitary councils – often with a greater rural population and concentrated in the midlands and south west of England – show a different pattern again with reasonably strong key financial indicators. These are perhaps linked to fewer financial control weaknesses. However, they have more weaknesses in relation to financial governance, certainly in comparison to the London boroughs. This could be related to the relative access to members with strong financial backgrounds enjoyed by some London boroughs.

It is harder to find common themes with the counties: there are fewer of them and their experiences are varied. However, they generally appear to be faring better than single-tier councils, despite similar responsibilities for adult social care and other demand-led services, because they typically have greater resource capacity to manage the challenges being faced. Financial control seems to be the main area of concern. Although this has not yet impacted on key financial indicators, there is a risk of this in the future in some cases.

District councils fare better. They do not have the pressures of demand-driven services, such as social care or large-scale urban or rural deprivation, that other councils face. However, in proportion to revenue, some districts have had to deliver significant savings and have delivered this largely successfully.

Confidence in the future

Predicting the future is fraught with difficulty – particularly as the outcome of the 2015 general election is so unpredictable – but all three main parties have indicated that austerity measures will continue. Our experience over the last four years gives us some confidence that the majority of authorities will continue to cope. However, it is unlikely that local government will be able to preserve all of the services it currently delivers, or deliver them all in the same way.

With the possibility of greater devolution of powers and financial freedoms on the horizon, strong financial and governance arrangements must keep pace with innovation. We are only part-way through the age of austerity and significant challenges remain. These will continue to drive the evolutionary process and bring out the best in local government.

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