High Street

Rising to the challenge: the evolution of local government

By: Paul Dossett, Partner, Grant Thornton
Published: Wednesday, December 17, 2014 - 12:38 GMT Jump to Comments

You will have read much this week about Birmingham City Council, where significant budget reductions are driving what the press have called "dire cuts". Birmingham, as we know, is far from alone in facing a tipping point.

But the sorry tale of local authority austerity, far more extreme than that imposed on Whitehall-run services, does not need another re-telling here. 

I would like to weave in another plot-line and tell the story of how the fittest authorities are gradually evolving to cope with the “new normal”. For a few, the sense of crisis may even be receding.

Through our series of reports on the financial resilience of local authorities over the last four years, we have tracked the effectiveness of their arrangements for financial management, planning, governance and control. Most authorities have weaknesses or risks in their arrangements of one kind or another and a minority have multiple weaknesses. But there are very few councils with red-rated, critical issues arising.

We have just published the fourth in this series - Rising to the Challenge – the Evolution of Local Government. This draws our work with around 40% of English local authorities and our on-going dialogue with senior leaders from across the sector.

Half-way through the current austerity period, we found that 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 original reaction of the sector to the 2010 Spending Review.

What stands out is how local authorities have maintained and in some cases improved their financial performance in the face of ever increasing challenges. Through a combination of necessity, driving cultural change, innovation and strong leadership, many organisations have risen to the challenge.

Through our work, we have seen financial management arrangements strengthen significantly over this period, with financial control showing particular improvement. This is even more impressive when you consider that the level of sophistication and effectiveness required to achieve savings has increased year on year.

For single-tier authorities and counties, the ‘graph of doom’ scenarios relating to demand-driven services, in particular social care, remain a key part of the challenge. But many local authorities are prioritising new ways of delivering services – such as care at home, prevention and early intervention – that can alleviate some of these risks.

We are also seeing some progress on health and social care integration, which is explored further in our recent report on the implementation of the Better Care Fund.

Different types of authority are facing very different types of pressure due to their size, breadth of responsibility or geographic, demographic or economic profiles. Our analysis shows that single-tier authorities of all types are under more pressure than counties or districts. This probably reflects some differences in the funding structures between single- and two-tier arrangements. All single-tier authorities show strategic financial planning as an area of concern, which reflects the scale of savings required over the next few years.

Metropolitan district councils and London boroughs, both with urban demographics, show some similarities in the pattern of amber ratings 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 in both areas, which is likely to be linked to the less favourable economic conditions compared to London – 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 with reasonably strong key financial indicators. These are perhaps linked to fewer problems with financial controls. However, they have more problems with 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.

The counties appear relatively strong compared to single-tier councils, despite similar responsibilities for adult social care and other demand-led services. 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 done this largely successfully.

Overall, sixty per cent of authorities have weaknesses or risks in their arrangements of one kind or another and a minority have multiple weaknesses. But there are very few councils with red-rated, critical risks relating to their arrangements for securing financial resilience.

Our experience over the last four years gives us some confidence that these risks can be managed by many authorities. Predicting the future is fraught with difficulty, however, particularly as the outcome of the 2015 general election is unreadable and could have far-reaching consequences for local government financing.

Nonetheless, chief executives are showing increased confidence about the future of their organisations. We have already seen significant change in the culture of local authorities. Finance is no longer solely the preserve of the finance department. Responsibility, accountability and financial skills have permeated throughout the whole management structure.

A strong culture of continual improvement, efficiency and financial control, aligned with the authority’s medium term strategy, will become a necessity over the next few years. There is significant work to be done here, particularly in regard to engaging front-line specialists in financial management. This should be an important area of focus for local authorities.

The very best authorities are creatively and proactively redefining themselves working in partnership with other organisations, based on solid insight on how their operating environment will change. They have the right senior leadership teams in place – both officers and members - with the necessary skills and capacity to ensure delivery and the vision to take their organisations with them.

It is unlikely that in balancing the books local government will be able to preserve all of the services it currently delivers. Renegotiating service provision with the public (to enable it to remain within a reducing financial envelope) will be a key task for local government in the next few years.

With the possibility of greater devolution of powers and financial freedoms on the horizon, strong arrangements will become ever more important. Local authority members and the public will have to come to terms with the fact that in future their organisations could look and feel very different to the way they did before 2010. But we are only part way through the age of austerity and significant challenges remain which will continue to drive the evolutionary process.

The views and opinions expressed in this article are those of the author(s) and do not necessarily reflect the official policy or position of The Information Daily, its parent company or any associated businesses.

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