The findings from a recent s151 confidence barometer can help assess what 2024 might look like for officers, says Marcus Richards, a Partner who leads EY’s Local Government Corporate Finance practice.
In November 2023, EY published the inaugural Section 151 Confidence Barometer, highlighting the range of challenges faced by section 151 officers. While the barometer provided a snapshot of the fiscal constraints many local authorities were contending with in 2023, these challenges often stemmed from persistent, long-term issues. The findings can therefore also be used to shed light on what the year ahead may hold for s151 officers.
2024 will undoubtedly be a hugely challenging year across local government. For many, the 2023 budget setting and medium-term financial planning process will have been one of the most demanding in memory, with local authorities required to make increasingly difficult decisions in ever more challenging circumstances.
These demands will have taken their toll, and I would foresee that 2024 will provide no relief to the pressure experienced by local government.
- Exposure to economic volatility
In recent years, many authorities have integrated ambitious savings initiatives into service plans. In 2024 many authorities will be dependent on the successful delivery of these initiatives and the associated savings and efficiency benefits they should generate.
However, challenging economic conditions are anticipated for much of this year. Whilst the inflationary outlook appears more favourable, many businesses and households remain susceptible to headwinds. Continued geopolitical tensions will add further volatility, with the potential to affect supply chains, consumer confidence and service demand. This uncertainty may challenge the assumptions underpinning some of these savings initiatives, requiring authorities to be agile in how they respond.
Authorities have also increased their focus on commercial activity, particularly the means through which the pricing of fees and charges can contribute to financial sustainability. Whilst this is an increasingly important element of the sector’s funding model, it also exposes some authorities to potential economic volatility and associated risks.
- Balance sheet fragility
Local authority balance sheets have shouldered some of the weight of underfunding for some time. The 2023 Confidence Barometer highlighted the material concerns amongst section 151 officers in relation to the health of their balance sheets. The capacity for reserve funds to act as a legitimate buffer for unforeseen risk has diminished. The sector is increasingly reliant on strategies such as asset disposals; whilst consideration is being applied to policy flexibility, these transactions run the risk of being conducted at a pace that may limit the degree to which an assessment of the longer-term value some of these assets may provide.
The market within which these transactions are occurring is sub-optimal and 2024 is unlikely to provide much immediate respite. There are a number of authorities adopting innovative approaches towards utilising their balance sheets and assets, establishing models which better leverage other forms of capital. However, such initiatives are complex and take time to strategically plan and conduct appropriate due diligence. Given the pace at which authorities are being asked to deliver savings, some are struggling to find the time and resources required to properly establish these models.
- Talent and its interaction with services and technology
The complexity and scale of the challenges facing many local authorities requires capabilities that are in limited supply. This sector is home to exceptional expertise – but, as highlighted by the confidence barometer, many section 151 officers believe it could become challenging to retain and attract talent.
2024 provides an opportunity to reinforce that the sector provides an attractive environment that enables talented individuals to engage with complex and challenging tasks that ultimately shape the communities around us.
Section 151 officers will likely want to tailor recruitment and identify the skills necessary to navigate the shifting financial and commercial challenges faced by authorities. Technological capabilities will become instrumental in this process, as these skillsets become increasingly vital for finance officers, ensuring the utilisation of data analytics and artificial intelligence.
The confidence barometer also highlighted disparities across local authorities with regards to an understanding of the scale of financial challenges being grappled with. This highlights the importance of clarity on the responsibility for effective financial management between Finance and Services, and the need for a trusted relationship.
Driving, and adapting to, change
However, despite the constraints facing the sector, there are still reasons for optimism for the year ahead.
Heightened public awareness of the sector’s challenges creates a valuable opportunity for meaningful community engagement and public consultation, which should in turn help inform future decision making around service provision.
Meanwhile, technological advancements, particularly artificial intelligence and automation, present opportunities to enhance the financial resilience of authorities, with the potential to enhance efficiency, reduce costs, and detect new revenue streams and instances of fraud.
Despite the acknowledged financial challenges, these optimistic aspects underscore the sector’s capacity to drive and adapt to change. EY’s upcoming 2024 Confidence Barometer, scheduled for publication later this year, will evaluate whether section 151 officers have adopted a more optimistic perspective on the sector in 2024.
Marcus Richards is a Partner who leads EY’s Local Government Corporate Finance practice. He is a CIPFA Fellow and a PhD student, with his research thesis focused on the financial resilience of local government.
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