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‘Serious misgivings’ raised over financial resiliency index by Solace

Proposals to create an index to measure a council’s financial resilience to avoid another Northamptonshire-style spending ban have been criticised by a senior body for public sector managers.

The Society of Local Authority Chief Executives and Senior Managers (Solace) published a letter sent to CIPFA chief executive Rob Whiteman outlining a number of “serious misgivings” in the proposals that would create a ranking-style index of all local authorities across the country so that timely action can be taken at a local level to prevent spending shortages such as Northamptonshire County Council and Torbay Council from reoccurring in the future.

The letter, signed by chief executive of Doncaster Council and Solace Jo Miller, said it can see a “real challenge” in being able to set out a clear and unambiguous picture of local council’s spending across the UK whilst at the same time being able to capture local context and circumstances.

“Looking at council performance through a single lens, be it finance or children’s services, does not necessarily make balanced decision making easier,” the letter said.

“Over-emphasis on financial considerations is as big a risk to corporate governance as any other imbalance. It would be better if any resilience tool helped challenge and support a balanced view within the council across multiple domains and all statutory duties.”

The document to Whiteman noted three main concerns about the proposed indicators being consulted on: Solace noted that a more “forward-looking tool” that allows a council to assess its ability to withstand future pressures and shocks was needed.

“Apart from the marker about the Ofsted inspection score which can create a specific external pressure to maintain or increase spending, there do not appear to be any indicators to measure foreseeable future spending pressures,” it added.

Solace also highlighted the use of reserves needing to be in the mixture of indicators.

“In the current proposals, an authority could come out as looking relatively resilient partly on the basis of the level of reserves it holds, but incur other legal risks that would threaten the ultimate sustainability of its financial strategy,” Solace said.

The representative body also noted that the use of borrowing was not in the indicators — Solace noted that the level of borrowing from a local council can be one of the factors that limit council’s flexibility in future spending.

Solace also highlighted issues such as the knock-on effect on talent retention and recruitment if a council is in the ‘red’ zone of the index, and queried whether there was any way to distinguish if an authority is in the red zone because of its own decisions or whether it was due to external impacts that the local authority had no control over.

“Frankly, if the status quo holds in the next Spending Review, as officers we will be talking to elected members about when we will run out of road, not if,” the letter wrote. “We say this to dispel any notion that external observers may have that by enabling councils to measure their financial positions against each other that we will somehow conjure up scope to absorb further cuts to local government funding.”

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