Written evidence submitted by the Society of County Treasurers [FSS 003]

 

 

The Society of County Treasurers (SCT) is comprised of all Chief Financial Officers from the 25 shire counties in English local government. Following successive reorganisations of local government, the SCT also includes 14 shire unitary authorities that have similar interests in local government issues (from April 2021, the SCT will represent the 24 shire counties and 16 shire unitaries; following the reorganisation of local government in Northamptonshire). Together, these authorities represent 47% of the population of England and provide services across 87% of its land area.

 

This letter represents the response from the SCT to the Housing, Communities and Local Government Committees’ Inquiry into the financial sustainability of local authorities and the section 114 regime. Please also refer to responses from individual member authorities. This response has been broken down into the themes suggested by the committee.

 

Those issues likely to cause impact the financial sustainability of local authorities, specifically structural funding issues (including grant funding), commercial investment decisions and the impact of Covid-19;

 

The financial sustainability of a local authority can be assessed on a number of grounds, and the issues affecting each are complex will vary across councils based on local circumstances and historic decisions. SCT feels that the following factors need to be noted:

 

Funding of need – The Government introduced changes in 2014 to local government funding that in effect locked in funding to needs based on data that is now 10 and, in some cases such as adult services, 20 years old. We have been left with a Government Funding Grant that is tied to business rates, a method that bears no relation to our needs and tied in many cases to geographical and historical factors. We note that a Fair Funding Review has been planned for some time and due to factors including a general election and COVID-19 has been deferred, however this delay has led to a further gap between funding for local authorities and their needs. This is true regardless of tier or type of authority. For County Councils with such a large proportion of spend being on social care this has had a significant impact. The significantly lower level of Council Tax charged in London boroughs, particularly inner London boroughs, compared to county councils reflects this gap and the pressures faced in maintaining services. In 2020-21 the average Band D bill in Inner London was £1,307 compared to £1,847 and £1,835 in Unitary and two-tier areas, respectively.

 

In the case of SEND and children with High Needs this gap grew exponentially following changes to Government policy that were not met from new burdens money. This has led to a significant shortfall in funding leading to significant deficits, which whilst addressed in part by Government’s funding made available in the last two years, still sees County Council’s facing £500 million shortfall over all its members on its Dedicated Schools Grant balances.

 

We also now face considerable uncertainty over the funding of adult care due to the move of Government in recent years to award one off or time bound grants for adults’ social care, including the Better Care Fund. For many of our Councils these grants now account for nearly a third of the net spend. We appreciate that Government have committed to reviewing its policy, however this review is long overdue and such uncertainty undermines the ability to address the large funding gap that each year is resulting in overspends and draws from reserves, which in itself hampers longer term planning further.

 

A full reset and rebalance is required therefore of the revenue and DSG support to ensure that councils can meet the gap that has evolved over the last decade.

 

Certainty of Funding – the ability of councils to plan has been severely hampered with the recent one-year settlements. Whilst we appreciate the difficulties arising in the ability of the Government to set a budget beyond 2021/22, this continued uncertainty does not enable long term planning, decision making or service redesign. This is then reflected in the difficulties faced in awarding contracts to third party providers.

 

COVID – Clearly the impact of COVID is a major factor in the national and local sustainability of local authorities and our providers. There is uncertainty as to what impact, short and long term, the virus will have on market provision, demand for the services local authorities provide, inflation, local businesses, house building affecting future council tax bases. The role of the s151 Officer working with peers and colleagues to pick a financially sustainable path has never been harder, and at the same time lack of control over or awareness of our funding as highlighted above, means greater pressure placed on our assessment of financial resilience.

 

Commercial decisions – the factors highlighted by the recent public interest reports, such as Nottingham City; and Croydon’s s114 notice are we would argue not typical for the sector and as such should not be cast across all authorities. Over the last decade councils have been actively encouraged by Government to seek out commercial ventures to supplement shortfalls in funding. However there have been clear guidelines for undertaking such reviews, and whilst there is always risk in any venture, we would argue that County Councils experience of managing pension funds has held us in good stay when making such decisions managed against future sustainability. We would not want the decisions and circumstances of a minority of councils to be viewed and held against the majority as a cause.

 

Council Tax levels and Reserves – Most County Councils now find that around 80% of their funds come from council tax. From 2011-2016 Government encouraged all councils to freeze council tax with receipt in return of a Council Tax Freeze Grant. In 2016 this was rolled into the Revenue Support Grant (RSG), and then the RSG was removed over the next four years to zero. As such those councils that choose not to put up their council tax ended up losing that income. For many of our councils that choose this option that means that today their funding is around £30 million per year less than it would have been had they introduced an inflationary increase. We accept this is a difficult political decision to take and affects our residents household income, but this decision set aside the lack of funding of need has meant many councils have had to take significant cuts and use of reserves over the last decade to balance their books. For some that has meant general fund reserves are now less than 5% of net expenditure.

 

The scale of the problem, including assessment of CIPFA’s resilience index;

 

We cannot quantify the scale of the problem as it is not that simple, each authority and their s151 officer in conjunction with the monitoring officer needs to consider the matter. We have seen one county council (Northamptonshire) issue a section 114 however we are aware that for a number of councils including County Councils they continue to face ongoing annual deficits, low reserves and low council tax levels which as noted are restricted in the ability to increase to cover costs. We note that CIPFA’s financial resilience indicators and other measures must be seen in the round and always need interpretation. Low levels of reserves are not in themselves a single measure, and sometimes softer measures of appetite and ability to make savings can give greater insight.

 

We believe it is right that all authorities, including councillors and MHCLG should collect and use data to prompt conversations around future sustainability. As with other inspection regimes though this needs to be triangulated with other evidence.

 

The role of MHCLG, including oversight of the Prudential Framework, capitalisation and reform of the Public Works Loan Board (PWLB);

 

SCT would like to recognise that we feel we have a good working relationship with MHCLG both as a Society and individual members. We have actively engaged with and been engaged by MHCLG, this has proven invaluable and a strength in the times we have faced COVID and we would not want to see that relationship change.

 

We do note that the Department has introduced a number of checks and use of resilience indicators that we have held discussions on and further improvements can always be made, however the complexity and difference of  local authorities we suggests mean there is no single measure to assess the financial sustainability or risk, and that strong working relationships and dialogue between councils and MHCLG is vital.

 

On the matter of the Prudential Framework, we note that councils and s151 Officers are required under CIPFA guidance to report prudential indicators at least twice a year and these will be reviewed by external audit. However, we suggest that the understanding and use of these indicators could be improved.

 

The reform of the PWLB is a factor for local councils planning, but not we suggest its financial sustainability. We have been consulted on recent changes and the revised PWLB rate announced by Government is welcomed, however, strong business case and assessment of all decisions commercial or regeneration should remain the focus of all s151 Officers, Monitoring Officers, Strategic Leadership Teams, Cabinet and Councillors.

 

What measures could help to stop, or reduce the number of, further S114 notices being issued?

 

We start by noting that having the provision of s114 notices is a powerful statutory tool and one which draws serious consideration and a strong financial culture. As such we should not in itself see the issuing of a s.114 notice as something to discourage. The key factors though that will ease the pressure to serve such a notice have been set out in the response to question one and that is clearer increased funding linked to need, and with more long-term stability.

 

It should also not be lost that a s114 notice should cover the medium-term financial sustainability not just the short term. This is a point often lost and uncertainty over future funding does not help in that appraisal.

 

We would also highlight that the role of external audit, especially in light of the Redmond Review, needs to be assessed and whilst the increased review of value for money is noted, there is learning from notices, such as Northamptonshire that need to be taken into consideration in the role external audit can play in supporting MHCLG and local councils, including the s151 Officer.

 

We would note that in response to s114 notices and other areas of concern, such as the scale of Equal Pay claim at Birmingham City Council or responding to OFSTED review at Stoke City Council, the Government have often allowed the matters to be resolved with increased capital flexibilities. We would encourage that this option is available to other councils meeting thresholds identified by MHCLG perhaps. This was considered during COVID in conjunction with CIPFA and could be a longer-term option. Alongside that the option for Minimum Revenue Provision could be considered but with clear long-term plans and need, again possibly by thresholds set by MHCLG.

 

Further control over local tax raising ability would also assist but we accept that both locally and nationally that may not be deemed acceptable in all cases.

 

 

January 2021