Conrad Hall has written an open letter to the levelling up secretary suggesting an unusual (and tongue-in-cheek) proposal to help councils predict next year’s government grant.
Dear Secretary of State,
I realise that you must have a lot to deal with at the moment. Hopefully the impact of the pandemic will continue to recede, but we all recognise the effect that has had on government’s capacity to act. Coupled with that, the Russian invasion of Ukraine and the consequences of that for us have, of course, occupied much of your department’s time. To add to that, partly but by no means wholly as a result of events in Ukraine, inflation has returned to levels not seen since the 1990s, with significant consequences for the economy and across the policy spectrum.
Nonetheless, last week’s local elections will of course have reminded you of the very many (and very complicated) issues facing all local authorities. Not the least of those is reform of local government finance, on which I think it is fair to say that successive governments of different political persuasions have struggled to deliver reform in the meaningful way that I, for one, feel is long overdue. As you talk to council leaders and their officers, I’m sure that many of them highlight to you how overdue genuinely radical policy reform in this area is.
In that vein, I have a modest proposal to present that, I hope you will agree, will serve to make some significant improvements for the interim period while your planned reforms are finalised. I also hope that the proposal will contribute in no small way to another of your policy platforms, by creating important new opportunities for training, apprenticeships and generally improving the nation’s skills base.
It is currently essentially impossible to make reliable forecasts for next year’s budget in a local authority. This is not through lack of skill on the part of diligent council officers, nor through ill-advised decisions to cut too deeply into vital financial management services.
Sign of the times
The particular problem I am concerned with is the difficulty of producing reasonable forecasts for next year’s budget. This is always an issue for any organisation, and I think that the record shows that local authorities have, on the whole, demonstrated strong financial management underpinned by, inter alia, good forward financial planning. One exception is, of course, one too many. But I hope, given the scale of the local authority sector, that you do not view the failures and s114 notices we have seen recently as a sign of the overall standard of local authority financial management.
I should also add that the current issues with local authority accounts, while clearly serious, cannot reasonably be attributed solely to councils: auditors, regulators, standard-setters and others also urgently need to consider what role they have played in bringing the current poor state of affairs to pass and how they might address that.
But to return to my central point, it is currently essentially impossible to make reliable forecasts for next year’s budget in a local authority. This is not through lack of skill on the part of diligent council officers, nor through ill-advised decisions to cut too deeply into vital financial management services.
In my council, like every local authority I know of, we employ talented staff. Our accountants, to praise just one profession, can interpret a wide range of data to produce credible forecasts in complex areas. These include modelling the long-term costs of social care, as well as reviewing up-to-date analyses of commuting trends to understand how this will affect our transport infrastructure and what income we can reasonably recover from fair-parking charges to offset some of the investment costs. These and many other policy areas feed into our budget forecasts as we try to establish sensible financial targets for the next financial year.
We don’t rest on our laurels and I dare say there is always scope for improvement, but we have a pretty good record of accurately forecasting what is in our capacity to understand and indeed to influence.
However, as you know, most local authority financing comes from central government. Another day we may discuss the always contentious issue of the balance of funding and whether a more localised model, as seen in much of Europe for example, might be worth exploring. For now we must work with the current centralised system and that means that government grant income for next year is by some distance the biggest influence on our financial targets. However, like every council in the country we have almost nothing available at a local level to enable us to forecast this accurately.
Head vs heart
I know that local government finance reform is difficult, but the practical consequences of this uncertainty are truly problematic. My accountancy head tells me to set as high a target as possible to plan for a plausible worst-case and so to prepare a budget with substantial savings proposals. But my human heart tells me of the dangers in consulting on significant reductions to services when the government grant settlement may yet turn out far better than our worst-case projections. Is it appropriate to propose big reductions to vital services that residents rely on when we may not need to implement many of them at all?
My accountancy head tells me to plan for a plausible worst-case and so to prepare a budget with substantial savings proposals. But my human heart tells me of the dangers in consulting on significant reductions to services when the government grant settlement may yet turn out far better than our worst-case projections.
Any budget process must tackle this issue, but usually the difference is not very significant. However, this year the difference between these two extremes is far greater, by several orders of magnitude, than ever before in my career.
In fairness, some of that uncertainty is driven by inflation, which you cannot directly control. However, a very significant part of the uncertainty is caused by the plain fact that your department has made almost no data available for us to make meaningful projections on our future government grant. Nor, as I understand it, will you do so for some months yet, but our financial deadlines and responsibilities to steward public finances wisely will require us to start budgeting long before the local government settlement is announced.
Your department has made almost no data available for us to make meaningful projections on our future government grant. Nor, as I understand it, will you do so for some months yet.
Happily, I have a modest proposal that I think may deal with the issues for the next few months while you sort out the longer-term future for local government finance. I think you will agree that it is innovative and will revive important skills in a much-neglected area. As such it is well worth your department creating a new ring-fenced grant to fund some initial pilot work. (We’ll have to discuss another day whether all these new ring-fenced grants Whitehall seems so keen on are really the right way to fund local services).
Restoring an ancient art
Our problem is that modern data systems require data to work on. Local councils, regrettably, have next to nothing from your department to enable them to make meaningful projections about government grant. So instead let’s revive a more traditional approach to forecasting and create exciting new career opportunities. With a modest grant from your department, local authorities could create apprenticeships in an ancient art, supported by modern career planning and development.
With this in place, we might produce much more reliable forecasts of next year’s government grant and so consult much more meaningfully with our communities on the difficult choices that are part of any political budgeting process.
All the obvious solutions, like three-year financial settlements, seem to be too much for your department to manage, so all I’m asking for is a little funding to employ some astrologers. Given the data your department has provided us to work with, they’d have as good a chance, if not better than any accountant, of predicting next year’s government grant with some accuracy.
Surely my modest proposal is not too much to ask you to entertain?
Yours
Conrad Hall
Conrad Hall is the corporate director of resources at the London Borough of Newham and chairs the CIPFA/LASAAC Code Board. His star sign is Leo.
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