Around 10% of councils still face potential risks to their financial stability, according to an updated version of CIPFA’s financial resilience index.
The Chartered Institute of Public Finance and Accountancy today launched a revised version of the index after feedback from the sector on last year’s inaugural version.
3rd LATIF NORTH
March 25th, 2020, Manchester
Council treasury investment & borrowing
According to the tool, the proportion of councils facing possible dangers remains at around 10%. Last year’s “beta” version of the index put that total at between 10% and 15%, although different indicators were used in each year.
A statement from CIPFA said that against its indicators, the majority of councils are not showing signs of stress.
“However, there is a tail of 10% of councils, where there are some signs of potential risk to their financial stability,” it said.
The index is compiled from indicators covering reserves, external debt, ratios of income and expenditure, Ofsted judgements and auditors’ value for money assessments.
Councils can judge themselves against their peer group using a “near neighbours” filter, which shows the 15 most similar councils based on a range of factors including demographics and funding levels.
Speaking to Room 151 following the launch, Andrew Burns, associate director at CIPFA, said that the index could help strengthen section 151 officers in carrying out their duties.
He said: “A council might well have its head in the sand. But the chief finance officer has got a responsibility to report on resilience to the public right here, even if that’s an uncomfortable message.
“Given we broadly self-regulatory regime and haven’t got an inspection regime, this gives some data for the chief finance officer to start talking about finances in a public arena.”
He said that the vast majority of this year’s section 25 reports produced by CFOs referred to last year’s report.
Burns said that councils have nothing to fear from the publication of the index, and that councils that rank poorly would not likely be viewed any differently by lenders.
He said: “We are using public information and any potential counterparty will know that, if they do any due diligence of any sort. I don’t think it makes a difference.”
Burns said that CIPFA is in already in conversations with councils in Scotland and Wales, as well as the police and fire services about extending the index to these areas and organisations.
Carol Culley, deputy chief executive and city treasurer at Manchester City Council, said: “We hope that the release of the financial resilience index today will support local authorities in conducting their long term resilience assessments.
“However, it’s important to remember that the index forms only one part of that judgement.
“Local context must also be taken into account when forming an overall picture of resilience.”
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