Andrew Hardingham marks the 10th anniversary of Room151 by looking back at a decade of local government finance.
Firstly, a statement of the obvious: Every local authority section 151 officer faces a huge variety of issues. Over the years since Room151 was launched, the in-tray has become deeper and more complex. Today’s financial director has evolved into a resources director—a jack of all trades but still a master of all things finance. Their fiduciary duties now require so much more than accounting skills.
In a previous article for Room 151, I wrote a piece on how FD’s had risen to the challenge faced during the pandemic. I referred to how CIPFA recognises the increasing demands and presented a cogent argument in its paper on the role of the FD. In simple terms: be qualified; lead a competent department; be in a position to challenge; be actively involved in, and bring influence to bear upon, all material business decisions ensuring immediate and longer term implications on opportunities and risks are fully considered.
Also, support and advise CEO’s and the executive team; lead the promotion and delivery of good financial management by the whole authority so that public money is safeguarded and, at all times, used appropriately, economically, efficiently and effectively.
It is, therefore, vital the FD is at the centre of decision making ready to advise its council whether their budget is robust and the reserves are adequate. They must be impartial in providing an assessment yet has to be in the “thick of things” beforehand to have that important in depth knowledge.
Principles
If we can remember back beyond the start of the pandemic what has changed for the FD in the last decade? Well, at one level, nothing. Or has it? The seven principles of public life as articulated by Nolan* in 1994 still apply:
- Selflessness
- Integrity
- Objectivity
- Accountability
- Honesty
- Leadership
- Openness
These characteristics are even more important than ever now. Holders of public office (and I believe that FDs are in scope) must exercise leadership and objectivity and be as open as possible about all the decisions and actions they take.
Incentives
The “2010s” have been a decade of major financial change for English local government. Not only have funding levels (and, hence, what councils can spend on local services) fallen significantly but major reforms to the funding system have seen an increasing emphasis on using funding to provide financial incentives for development via initiatives such as the business rates retention scheme (BRRS) and the New Homes Bonus (NHB).
Councils’ spending is increasingly focused on social care services—now over half of all service budgets. The impact will be cuts to spending on housing, transport, planning, and also cultural and leisure services.
The Institute for Government told us in 2018 that the local authority “spending power” (that is, the amount of money local authorities have to spend from government grants, council tax and business rates) has fallen by 18% since 2010.
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Though the pandemic has reversed this trend, what of the future? Grants from central government were cut. Rates of council tax were increased contributing to 21% growth, in real terms, in the sum local authorities raised from council tax between 2009-10 and 2018-19.
Following changes made in the 2011 Localism Act, local authorities have not been able to raise council tax rates by more than 2%, annually, without holding a referendum since 2012-13.
Although, in 2016-17, the ASC precept was introduced allowing local authorities responsible for social care to levy additional tax to help fund adult social care. At the start of the decade, councils were encouraged not to increase council tax and were rewarded with a “freeze grant”. Those councils who took the grant have never been able to reset the base. After 2015, the government ceased to incentivise council tax freezes.
System change
Before 2013-14, business rates were collected at a local level and then paid over to the Treasury before being redistributed to local authorities through central government grant funding.
This system changed from 2013-14. Since then, local authorities have kept 50% of the business rates revenues raised locally while the grant they receive from central government has been reduced to compensate. Pilots (to facilitate learning) were introduced in 2017 to allow some councils to retain 100% of rates collected. Can we conclude that there has been no “learning” as they are still running? Business rate reform is still a big issue for both local government as it is for business.
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In the last half of the decade, we have seen the issuance of section 114 notices**. There had been none in thirty years and then there was three in quick succession (Northants 2018, Croydon 2020, Slough 2021). Are other councils papering over the cracks, or will there be more FD’s forced to issue such notices, this current decade’s trend?
A recent survey of FDs agreed that even in the age of the technocratic finance chief, where communication skills and leadership ability are more important than ever, you can’t take a seat at the table without outstanding core finance skills.
How very true and relevant, endorsing CIPFA’s proclamations. My crystal ball tells me that the next ten years will see Room151 continue to provide a service to local authority section 151 officers and a market leading commentary on financial affairs, changes to the prudential code, business rates, council tax, format, content and statement of accounts, local government structures, the rise and fall of local authority trading companies, deferral of retirement ages, structure of pensions, more poverty, more wealth, greener energy…and maybe foreign holidays.
Andrew Hardingham is former service director for finance, Plymouth City Council.
* In 1994, the UK government established a Committee on Standards in Public Life. The remit of the committee was to make recommendations to improve standards of behaviour in public life. The committee was chaired by Lord Nolan, and the first report of the committee established the seven principles of public life, also known as the “Nolan principles”.
** Within the Local Government Finance Act 1988, Section 114 (3) dictates that: “The chief finance officer of a relevant authority shall make a report under this section if it appears to him that the expenditure of the authority incurred (including expenditure it proposes to incur) in a financial year is likely to exceed the resources (including sums borrowed) available to it to meet that expenditure”.
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