How Local Government in England is Responding to Cuts

The Chartered Institute of Management Accountants has been looking at how local government in England has responded to the swinging cuts in their budgets. While the report is very much in management speak: “financial resilience” and “developing anticipatory capacity” it is still a useful overview of tactics used in 4 English councils in the face of swinging cuts to their budgets.

The report states at the outset that while managers in local authorities had dealt with “financial shocks” before these cuts are of an entirely different level:

“ the context of austerity requires governments to put greater emphasis on flexibility, adaptability and a longer-term perspective in their financial management."

The four councils the team looked at were
• Wigan Council
• Manchester City Council
• Derbyshire County Council and
• Warrington Council.
Information was gathered through interviews with senior staff.

In the past “financial resilience” (responding to crises, budget cuts or increased demand) focused on continuous monitoring and localised shifting of funds between departments, incremental across the board savings (what we tend to call salami slicing) and the use of reserves. This report indicates that new approaches were needed for cuts at this level. Those who were interviewed say their responses involved developing better cohesion, prioritisation and better linking of financial and non-financial performance data. Councils have tried to decrease their dependency on central funds through increased and more widespread use of charges and (unlike Scottish councils, who are rate capped) raising council tax.

Pre-2008 council’s financial shocks tended to be
• policy issues i.e. changes to waste disposal due to land-fill tax
• Problems with the management of specific internal budgets
• One-off events: uninsured losses
• Gershon efficient savings targets

Post 2008, and increasingly after the 2010 election, the financial shocks have been on a whole different scale:
• Real terms reductions in central funding of 37%
• Increased demand for some services due to the economic crisis and reduced tax collection due to shrinking tax base
• Changes to business rates retention rules
• Responsibility to fund council tax benefits payments

Responses
The scale of budget cuts after 2010 meant that use of reserves and virements that had worked in the past would not cover the scale of the cuts, at best “putting off the inevitable” cuts. Healthy reserves are now considered even more important as it is clear that cuts would be long-term so would be less ability to “bounce back” in the next settlement. The level of cuts also means that there was less scope for short-term budget transfers. Departments are increasingly responsible for managing to deliver within a fixed budget including ensuring their own reserves are adequate. There is little if any scope to draw funds for other budgets as in the past in response to any issues. Even changes like increased national insurance costs had to be managed within department budgets with no access to extra funds. Managers interviewed felt that the only option to deal with cuts at the current is to change the way services are delivered.

Authorities also became much more focused on generating income locally. Unlike Scotland some authorities did make increases in council tax rates and like here increased both the rate and scope of fees and charges. A more strategic approach is being taken to growing the local tax base. For example
• Measure to help people into work to increase council tax base
• Loans to business to increase business tax base
• Supporting major commercial developments again to increase business taxes

Improving “risk management” in now seen as a priority. Monitoring tools are no longer seen as a “tick box” exercise but as a means gather accurate data to ensure that they can “see things coming” and are planning for future risks.
As stated earlier, salami slicing won’t meet the current level of cuts so there has been a move to priority based approaches which mean reviews of the affordability of non-statutory services and in some case withdrawal of those services altogether. There has also been an increase in work with voluntary and private sector bodies and setting up trusts and community interest companies to provide some services. This section of the report is couched in management jargon but the reality is that rather than spread the budget thinly authorities are increasingly giving up on whole areas of service provision. Services no longer exist unless volunteers or third sector organisations fill the gap.

Council leaders who took park were unsurprisingly pessimistic about the impact of the next range of cuts on the future of local government services.

Due to mystery IT problems it was not possible to add a hyperlink to a word in the blog today.
The report is Governmental Financial Resilience under Austerity: The Case of English Local Authorities
http://www.cimaglobal.com/Documents/Thought_leadership_docs/NHS-public-sector/Governmental-financial-resilience-austerity.pdf