Written evidence submitted by Pete Carpenter [FSS 010]

It is important to take sustainability in the wider context and not wholly look at it in terms of financial indicators. As the prime deliverer of services vital to the Community factors that must be initially taken into account before looking at financial indicators must include:

Cost information should then be overlaid on these more qualitative indicators and should include:

My Council has a structural deficit and has had it for a number of years.  It has mitigated the position through short term measures over the past 4 years through the use of reserves and capital receipts.  These “short term” resources are now almost exhausted exposing that structural deficit. Low unit costs and a low Council Tax base exacerbate the position leaving the Council with very limited ways to mitigate further shocks to the system.

It is clear that the effects of COVID have had a significant impact on Councils financial positions.  On my MHCLG returns, the Council has had circa £40m of additional pressure (almost 25% of the net budget) and this has been over 90% funded this year through various Government Support for which we are grateful and without which we would not have survived 2020/21.  However, support drops off significantly (by over 60%) in the 2021/22 provisional settlement increasing the Councils potential structural deficits.  The Governments assumption that services will return to normal relatively quickly is not a viable assumption as:

The scale of the problem is significant.  I welcome the position that MHCLG have taken in reviewing Council information on a monthly as the true scale of the problem can only be assessed by the use of live information.

The CIPFA resilience indicator has some good information, but to be effective that data needs to be up to date (at the moment we are looking at 2018/19 information and this clearly does not reflect how councils are having to work today).

We have to redefine what Councils are to deliver and with what.  That includes linking funding to the services provided.  The vast majority of taxpayers do not use Adult or Children’s services however typically these services make up 55-70% of upper tier Councils expenditure.  The connectivity between funding and service provision must be redefined in any review of Local Government Funding.

Because of this Councils (not my own) have been drawn into Commercial relationships and wide-scale regeneration projects to ensure they can balance budgets.  The recent low level of the PWLB compared to what the private sector can finance projects has only led to increased movement to this funding source. However, in recession we have seen these schemes are not always viable. I welcome the reclassification of what PWLB finance can be used to fund as this clarifies the function of Local Government.

Capitalisation directions, unless Councils structural funding problems are short term, are not helpful for problems that cannot be bridged to a deliver a sustainable budget the following year.  They involve additional debt costs in future years budgets and although they allow time for Councils to rectify problems if the Council cannot bride a structural gap the problem reoccurs in the following financial year.

All these factors put more pressure on Council budgets and the present financial climate moves more Councils into potential S114 territory.

What can the Sector and MHCLG do to mitigate the position identify who is in trouble and reduce potential S114 notices:

  1. There is the requirement to understand if a Councils budget is in trouble or not and if that is a short or longer term position.
  2. MHCLG, in reviewing Councils applying for additional financial support this year are looking at the following factors in particular which I agree are crucial:
    1. Does the Council have a budget issue (structural) and is it short term or ongoing;
    2. Can the Council make additional savings (are unit cost low) and validation of this;
    3. Although all Councils are different, MHCLG must set a minimum level of reserves (General Fund and Reserves) a Council should hold (i.e. 5-7% of Gross budget);
    4. Are there usable reserves over and above the prescribed level in c). Here, I mean all reserves, as a council might have saved for a rainy day or pet projects.  With the amount of support Government has given, Councils must be honest on these resources.  I feel this is not the case at the moment;
    5. Does the Council have Capital resources that can support the budget
  3. This is an expensive process to review – a template needs to be established with evidence levels for this to be supplied by Councils to MHCLG
  4. A vetting team (pre MHCLG) needs to be established of Ex Local Government Directors of Finance (or secondments) who understand what they are looking at and how Councils define reserves in particular to validate the above so MHCLG staff can concentrate on the Councils passed through to them who are really in trouble.

 

January 2021