It’s hard to overstate just how challenging the current environment is for local authorities. With roughly 80% of local authority budgets spent on providing statutory services, it has become increasingly difficult to deliver public services to residents.
Many councils were encouraged to take advantage of ultra-low borrowing costs during the second half of the 2010s to invest in commercial property and business ventures in order to generate alternative sources of income. However, the high-profile cases of Thurrock, Woking, Croydon and Slough councils demonstrate how inadequate accountability, poor governance and underinvestment in finance teams can end up with councils in effective bankruptcy.
The local audit crisis makes spotting and dealing with any governance failures even more challenging – just 1% of local bodies published audited accounts on time for 2022-23. While we welcome the introduction of statutory backstop dates for delayed accounts, and the government’s commitment to overhauling the local financial reporting and audit system, it will take a long while to get back on track.
With little third-party scrutiny or assurance beyond the external audit, the complicated nature of local authority accounts means they are not adequately fulfilling their role in supporting local democracy and accountability, ensuring value for money and driving effective, efficient local services. Bold reform is desperately needed.
Financial reform
One immediate change that would help would be to end the practice of requiring local authorities to bid for money from multiple pots administered by Whitehall. Reform is also needed to the outdated core local government funding formula and to the hundreds of funding streams that are used to allocate money to local authorities.
Probably the most important reform required is to provide more stability and predictability to the funding that councils receive. Not knowing the level of central government grant funding until just before the start of each financial year makes it extremely difficult for local authorities to plan ahead effectively, especially on capital projects that can extend over several years. The government’s plan for rolling three-year spending reviews updated every other year should help, but by how much has yet to be seen.
Structural reform
The evolution of local government has resulted in a patchwork quilt of different types of regional and local authorities across England. It is perhaps unsurprising that Whitehall struggles to manage this complex web, with more than 440 different regional and local authorities of different sizes, shapes and responsibilities to deal with.
While streamlining the different types of local authorities has been debated for a long time, and might make the system function more effectively, the need to accelerate the roll-out of a regional tier of government across England is probably a higher priority. This is particularly important if local government is to be able to contribute to genuine economic development. For example, Greater Manchester’s mayor Andy Burnham is all too eager to grasp whatever powers he can and run with them, but there is no one to take the lead in the same way for most of the South West.
Governance reform
Many of the problems we have seen in local authorities have come down to poor governance and weaknesses in accountability. In our view these become more important – not less – when money is tight.
Our vision for local audit sets out a series of proposals to improve governance and financial management, in addition to the improvements in financial reporting and audit that provide the critical foundations they need.
One key proposal that we believe is essential is the need for audit committees to contain at least one independent member with financial expertise to be able to assist their elected colleagues in asking the right questions and in navigating the worlds of finance and audit.
Strengthening financial expertise
ICAEW has published a series of case studies that demonstrate the extent to which local authorities and public sector bodies can benefit from strong finance skills. By sharing best practice, we aim to support local authorities in better understanding how their teams can strengthen their financial expertise and ensure effective financial decision-making.
Each case study focuses on a particular challenge. They explore several issues, including how successful finance teams can work effectively with business partners to deliver the best outcomes and the skills required to ensure data-led decision-making.
We have a case study focusing on how finance teams can ensure their non-financial colleagues understand financial information and how best to develop financial literacy across the organisation. We also cover the common challenges councils face in preparing financial statements and how best to prepare for an external audit.
To support our members, we will continue to call for greater investment and skills training for local authority finance teams. Our annual ICAEW Public Sector Conference shares expert insight on the requirements of finance professionals and key public finance management topics.
I would like to thank the finance professionals that contributed to these case studies for their time and insights and also for their dedication to advancing local authority financial expertise and ensuring better outcomes for their local residents.
Read more
This is a shortened version of Alison Ring's article: 'Strengthening financial expertise across local government' which offers context to our series of practical case studies for local government finance teams.
Local government finance skills
As backstop dates for audited accounts come into force, ICAEW explores how local authorities can strengthen their approach to financial management.