Councils continue to struggle with budget constraints, some driven to see central government help. However, there may other ways to confront financial shortfalls.
We are now entering the period when local authorities are setting their revenue budgets for next year. The National Audit Office tells us that real terms support to local government through spending power has fallen by 28.7% between 2010-11 to 2019-20. Times were tough before Covid-19 but now, for some local authorities, the position has become even more difficult.
In my last article on for Room 151 I wrote about the merits of a strategic approach which mainstreams financial sustainability throughout the organisation.
While ultimately a long-term strategic approach is the best way to achieve financial sustainability we are, nevertheless, seeing an increasing number of local authorities that are facing short-term financial challenges that require urgent and robust actions.
In these circumstances local authorities may need to consider, “fast cash” approaches to ensure they can maintain balanced budgets when they are under short-term pressure.
The remainder of this article considers five areas a local authority can focus on if it wants to deliver short-term savings or income
1. Off payroll staff: Agency staff are the most expensive way to populate a staffing structure and deliver a service. Working as an interim manager, I am acutely conscious of the value agency staff can add, but they can also be expensive when used as a long-term option.
Limiting the recruitment of daily rate interim workers and instead employing permanent staff, who have a long-term commitment to the organisation, can both save money and achieve better outcomes in service quality.
Local authorities need to ensure that there is a simple and understandable monitoring arrangement for agency headcount. It should be reviewed on a weekly basis at a senior level and progress monitored. It can be surprising the rapid cash benefit this delivers as the agency headcount is reduced.
2. Universal voluntary redundancy offer: This provides an opportunity for staff who wish to leave the organisation to depart on positive terms. However, only people that are generally redundant can be allowed to exit. A senior level redundancy panel is essential to ensure the scheme operates in the interests of the organisation.
The capitalisation of revenue costs can help limit the financial costs of exits. It is, however, not an alternative to a long-term restructuring program but a complement to it.
3. Expenditure constraints: Imposing a collar on all non-salary revenue spend over a certain level (for example £500) is a basic policy but generally has a positive effect in terms of reducing ad hoc costs.
There needs to be a process in place which provides a safety valve. This will normally be a senior level council officer (probably a chief financial officer) that can grant approval to spend in exceptional circumstances.
4. Major contracts: In most local authorities a significant amount of revenue spend is embedded in major contracts. This does not mean that the spend cannot be reviewed though.
Where local authorities have beneficial partnership arrangements with contractors there is always the scope to have grown up conversations about levels of service and fees to contractors.
In times of financial constraint nothing can be off the table and experience is that contractors will be flexible to help public sector partners in difficult situations.
5. Structural corporate financing: There are a range of initiatives that a chief financial officer can implement in endeavouring to support the balancing of a budget. In brief the following can be considered:
- Increasing charging to the housing revenue account, designated schools grant, and pension fund.
- Reviewing minimum revenue provision (MRP) with a view to a reduction in the amount that the council needs to set aside to repay debt.
- Review earmarked reserves to consider if they are all required at the levels they are held.
- Applying to the government for a “capitalisation directive” to enable the local authority to use capital for revenue purposes.
- Scrutinise historical budget over and under spends with a view to corporately reclaiming surpluses from underspends and addressing the drivers of overspending.
These initiatives will not be suitable for all local authorities but will provide benefits in certain circumstances. Additionally, it is not an exclusive list as there are a range of other actions that a local authority can take that are not explored here.
Ultimately, the road to financial sustainability needs to be strategic and long term. However, in the current uncertain business environment “fast cash” initiatives can help in achieving the short-term balancing of the revenue budget in advance of more fundamental strategic solutions.
We live in the world as it is, and not as we would like it to be; a “fast cash” programme can help to maintain immediate solvency in advance of long-term financial sustainability.
Stephen Fitzgerald is an interim finance director.
@SHJFitzgerald
Image by Steve Buissinne from Pixabay
FREE monthly newsletters
Subscribe to Room151 Newsletters
Monthly Online Treasury Briefing
Sign up here with a .gov.uk email address
Room151 Webinars
Visit the Room151 channel
