Almost 50 speakers from across the world of local government finance offered insights and participated in lively discussions at the Local Authority Treasurers Investment Forum (LATIF) and Finance Directors’ Summit 2023.
The event was held in London yesterday (19 September) and, as reported, featured a frank ministerial address from local government minister Lee Rowley and an opening keynote from Dame Meg Hillier, chair of the Public Accounts Committee.
The topics covered by both speakers provided talking points for delegates throughout the day, with Rowley’s call for more efficiencies, warning to avoid experimentation, and disdain for South Cambridgeshire District Council’s four-day working week much discussed.
For her part, Hillier told attendees that in her view the “big problem” currently among local authorities is a lack of central government funding, and she promised a “real renaissance of local government” under the Labour party if it is elected at the next general election.
The combined morning session also featured insights from Kelly Watson, head of local government relationships at CCLA Investment Management, as she announced the results of Room151’s annual treasury and finance survey.
A panel featuring James Carrick, global economist at Legal and General Investment Management, and Ben Funnell, head of investment solutions at CCLA, completed the opening session, and looked at the outlook for the UK economy after a turbulent 12 months.
Carrick said that while the “consensus view” might be that growth will begin next year following a sustained “rough patch”, he was “less optimistic” this would be the case. He said inflation should be best dealt with by a central bank “pre-emptively and early rather than leaving it too late”. For him, the way out of the current tough economic situation is “ultimately about getting inflation down without causing too much pain”.
He also encouraged forming friendly trading relationships, policies that encourage more flexible working as the population gets older, and the adoption of artificial intelligence.
Funnell sees productivity – which “has been catastrophically bad in this country” – as the way out. He noted that a major problem has been a failure to invest across the economy, and urged corporates to do so. “We’re starting to see the first seeds of private sector investment in this country. I think that could be a way out and I’m watching that very closely,” he said.
LATIF 2023
‘Can’t turn off the tap’ on capital projects
The next panel discussion focused on inflation and how it is impacting councils’ capital programmes, with panellists including Tim Seagrave, commercial finance lead at Manchester City Council, Vicky Worsfold, lead specialist (finance) and deputy chief financial officer at Guildford Borough Council and David Dickinson, investment fund manager at London Borough of Barking and Dagenham.
Seagrave started off the panel by highlighting that it has become “incredibly challenging dealing with inflation on the capital programme” as Manchester can’t just stop investing. This is because the authority is part way through some “significant projects”.
Both Seagrave and Worsfold agreed that the councils can try manage inflation by changing the scope of projects, but they “can’t simply turn off the tap”.
“We have had some things in our capital programme for many years, of which are very complicated projects that are now coming to fruition and it’s too late to stop them.
“So, some of these schemes five years ago did wash their face. But, they’re no longer doing so. We’ve got mitigation plans, we’ve been descoping and are looking at how we can bridge a gap to offset the impact on the general fund,” Worsfold said.
Following on from these comments, Dickinson outlined that Barking and Dagenham used to have a big investment strategy based on social housing and property, however this has come to a “halt” in the past year as everything started to not be viable.
“We are coming to the realisation now that we have built a lot but now we need to focus more on asset management and looking at efficiencies to try to improve,” Dickinson added.
Diversifying your portfolio
After a networking break, delegates heard from Michalis Ditsas, investment director at Federated Hermes Limited, as he explained how investing in global fixed-income markets can offer “diversification” of local authorities’ portfolios, but also offer other benefits regarding environmental, social and governance issuance and sustainability.
Following Ditsas’ comments, in the next session, Jennifer Martin, investment specialist at Wellington Management, stated that combining income sources in your portfolio can also increase “diversification and consistency of income”. These sources include equities, fixed income and specialist assets, such as hybrid securities.
She said: “Income really is a big market theme at the moment, given the current economic environment, but we do also believe it is an important long-term theme and is an effective way for managing portfolios for clients.”
In the last talk before lunch, Rory Sandilands, investment manager at Aegon Asset Management, turned the conversation to net zero in fixed income. He outlined that Aegon has developed a proprietary framework that helps it evaluate net zero alignment and transition readiness of individual investee companies.
“The framework isn’t necessarily about categorising companies that avoid carbon today. It’s about identifying those companies that will have the most successful pathway in terms of decarbonisation going forward and thus they must have the greatest impact on the climate,” Sandilands added.
Borrowing and debt
A key panel session at the LATIF summit discussed borrowing, debt and risk management in a high interest rate, post Woking and Thurrock environment.
David Blake, director at Arlingclose, noted that the local authorities he had spoken to were “reasonably comfortable with their short-term exposure”, with reasonably small amounts relative to the portfolio.
James Graham, pension fund and treasury investments manager at Kent County Council, outlined that the authority had delivered significant savings over the last 10 years or so. “Social care dominates that spend and that’s increasingly becoming the area where we’re going to prioritise spend,” he said.
“Demographics plays a role here. The population growth that’s happened over the last 10 years has coincided with a real terms reduction of spending power and that creates even more problems for local authorities.”
As a result, from a treasury management perspective, how the debt portfolio is structured has become “incredibly important”.
Lancashire County Council has looked at public bond markets to fund itself and has taken “a very different line” to most local authorities, according to Mike Jensen, co-chief investment officer.
Dipping into this market has helped “fix a good part of its long-term exposure” and the authority is “looking to do the same again”.
The panel also explored alternatives to PWLB borrowing and assessed the current state of local authority to local authority lending. There is a prospect of the inter-authority loan market drying up, but Blake said he was “relaxed” about this as while pricing may indeed increase, he does not expect availability to be a problem.
Graham said that taking on such loans was now a “PR and reputational risk” given the visibility of such loans in recent times.
Cash management and ESG
The panel session was followed up by a ‘fireside chat’ between Jensen and Giles Hutson, CEO of Insignis Cash. The pair assessed the progress and benefits of cash management platforms, which essentially serve as an aggregator and help treasury teams get access to a larger amount of banks.
Following the chat, Ryan Jude, programme director at the Green Finance Institute, gave a presentation on how ESG can be implemented into investment strategies. Jude gave examples of projects that involved ‘financing green’, including local climate bonds and partnerships between the institute and the Greater London Authority, the Greater Manchester Combined Authority and Bristol City Council.
‘Proper accounting practice is the right thing’
The penultimate session of the LATIF conference centred around the much-debated subject of whether the IFRS 9 override should be put in place permanently.
Both panellists, Nazmin Miah, director at Link Market Services Link Group, and Christine Golding, chief accountant at Essex County Council, agreed that it would not be appropriate to have the override made permanent or extended.
Miah told delegates: “In my opinion, I don’t think there should be an override, when you enter into these forms of funds there is this element of risk that you are taking, and adopting a proper accounting practice is the right thing to do.”
Golding added that it would be “imprudent” for authorities to assume that there will be a continuation of the override and that it is appropriate to plan on the basis that the override will not be extended beyond its current time frame.
‘Market not clocked on’ to climate change
The last session of the LATIF stream focused on what lies ahead for the global economy. On one side of the debate, Charlotte Ryland, co-head of investments at CCLA, and Steven Bell, chief economist at Columbia Threadneedle Investments, had an optimistic view on what is to come.
Bell started by suggesting that “things aren’t as bad as they are being made out”, with Ryland adding to his point by suggesting that the “initial shock” of instances like the war in Ukraine is in the past. “We are now starting to adapt and there may be light at the end of the tunnel,” Ryland said.
However, opposing these views, Creon Butler, director of global economy and finance programme at Chatham House, gave a more pessimistic view on the future of the global economy by highlighting that deglobalisation, extreme weather events and climate change are currently happening.
Creon highlighted that his major concern is climate change as the market has not seemed to acknowledge this risk yet. “To put it quite bluntly, I don’t think the market has clocked on to what is going on and I’m not sure whether it will be a gradual or sudden adjustment when the market wakes up,” he explained.
Finance Directors’ Summit 2023
A united front
A ‘presidents’ panel’ opened the Finance Directors’ Summit, featuring Michael Hudson, Clive Palfreyman, Adrian Rowbotham and Maria Christofi, representing the Society of County Treasurers, the Society of London Treasurers, the Society of District Council Treasurers and the Society of Municipal Treasurers.
The panel identified some of the biggest challenges facing section 151 officers and sought solutions to them. Looking at funding, Hudson said the focus should not be on how to divide the very small cake that is provided to local government, but how to “make the cake bigger”.
He also stressed that commercial ventures should not now be seen as automatically bad, given that examples of poorly-done such ventures have caused financial struggles at certain local authorities. They can still have a big part to play in financial activities when done right, Hudson said.
Palfreyman noted the importance of getting the sector’s narrative right in light of the Department for Levelling Up, Housing and Communities (DLUHC) and the treasury taking more notice of local authorities’ finances, while suggesting that Rowley’s criticism of the four-day working week somewhat “misses the point” in terms of the challenges facing the sector.
Rowbotham followed this up by noting that the control of lots of district councils has changed after recent elections, meaning there is now an abundance of inexperienced councillors. As such, it is vital that section 151 officers are able to get their messages across effectively.
He also noted challenges in capital programmes, with many now having a different outlook to when they were first put forward. Christofi said that such programmes were having to be pushed back, and questioned what this meant in terms of election pledges. “We’ll see more local authorities talking about it in the coming months,” she stated.
Christofi said the sector was facing challenges “like at no other time”, with pressures seemingly rising exponentially. This is against the backdrop of funding “just not being sufficient”. Noting Rowley’s plea for authorities to find more efficiencies, she stressed that this would be difficult in areas such as children’s social care, where the market is limited and the complexity of need is increasing.
The panellists agreed that working together collaboratively would be important, ensuring that communication is consistent.
Innovative solutions
A second panel looked at possible ways of making overstretched budgets work harder. Geoff Tucker, group director at Norse Group, highlighted the need for innovation. New technology and artificial intelligence could change the way councils deliver services, he said.
Getting to net zero will also require significant innovation, Tucker noted, and he questioned whether the sector had underestimated the cost of this, in terms of demand and resources. “We will need some support from central government, which we are not seeing yet,” he said.
Leigh Whitehouse, deputy chief executive and executive director of resources at Surrey County Council, said that against a background of austerity, cuts and fatigue driven by the “relentless pressures of the past few years”, driving “innovation, creativity and energy” was essential to face the current challenges.
But there are right ways to go about this, and wrong ways, he warned. Innovation must relate to core functions, he noted. The role of the section 151 officer is to set the culture rather than being the root and source of all innovation.
There also shouldn’t be a “flight to innovation in denial of a problem”, and Whitehouse said officers should be wary of exotic solutions. Finally, the financial challenges facing the sector “won’t be solved by a single issue or idea,” he said.
Julie Murphy, director of corporate services and CFO at Rochdale Borough Council, outlined the importance of a stable workforce, which she said was “key to everything”. Rochdale has started apprenticeship and training schemes, while there is also a keen focus on staff retention.
Councils need to be the ‘ringmaster’
The next discussion focused on the housing crisis, with panellists including Adele Taylor, executive director of finance and commercial (S151 officer) at Slough Borough Council; Max Cawthorn, head of strategy at Pension Insurance Corporation; Simon Chisholm, chief investment officer at Resonance; and Jamie Broderick, deputy chair at the Impact Investing Institute.
Taylor kicked off the panel by highlighting that local authorities need to act as the “ringmaster and the enabler” when it comes to creating new housing, with Chisholm adding to her point by suggesting that councils are the “catalyst” for solutions in the area.
Both Cawthorn and Broderick stated that private capital has a “real role” to play in helping local authorities create new housing, but the question remains of how councils can attract the sector.
Broderick highlighted that the difficulty is that both sectors think differently and so therefore the task ahead is how to make their views align.
He said: “Local authorities think horizontally, and asset managers think vertically, so how do you make a conversation between them and how do you build that trust to get private money into these projects.”
The ‘graph of doom’
The afternoon session of the Finance Directors’ Summit featured an insightful presentation from Tony Travers, director of London School of Economics, as he reflected on the infamous Barnet ‘graph of doom’ 11 years on.
The graph would have been uncannily accurate had the government not changed its policy, he said, but nevertheless the impact on ‘unprotected’ services has been broadly as predicted.
The real test of how near a ‘tipping point’ local government funding is currently will be in the number of section 114 notices issued in the coming months by councils which do not face “dramatic and unusual” financial difficulties, he said. If there is a spate of notices issued, DLUHC would come under significant pressure; a situation that would be “very awkward for government”.
Travers concluded that while Britain “wanted Sweden’s services with America’s taxes”, he worried that the reverse might soon be delivered as a result of the issues identified in the graph of doom.
The audit crisis – ‘just make a decision’
A panel session featuring the Financial Reporting Council’s Neil Harris and the PSAA’s Andrew Chappell assessed how local government audit should be reformed. Michael Hudson, executive director finance & resources at Cambridgeshire County Council, and Suzanne Jones, strategic director – customer, business and corporate support at St Albans City and District Council, completed the panel.
Harris stressed that the recent proposals from DLUHC on clearing the audit backlog had been reached following engagement with many stakeholders. The immediate short-term priority should be resetting the system, he added, with the proposals making for an uncomfortable situation that is “not without risks”. “There will be consequences to drawing a line under historic accounts,” he said.
But doing so is necessary to “put in place the building blocks to make sure the system is more sustainable in the future”.
Hudson expressed frustration that despite the proposals, no definitive position had been reached yet, causing issues with upcoming accounts. “Just make a decision; I’m fed up and bored,” he said.
He added that future efforts should be put into ensuring a quality future workforce, with recruitment to the sector vital.
Chappell was in full agreement with this sentiment, calling for a situation where people want to work in the audit sector again. “Get it back to being the ‘noble profession’ that it was before,” he said.
Jones expressed her concerns over the impact that the perception of a “broken system” was having on the public. The delay in sorting out the backlog only adds to the “heightened public perception that CFOs and CEOs are ‘hiding things’,” she worried.
Do things differently
The final panel of the summit looked at the challenge of recruitment into the local government finance sector. Creative solutions were passionately presented by the panel, which featured Alison Scott, shared director of finance at Watford Borough & Three Rivers Councils; Adele Taylor, executive director of finance and commercial (S151 officer) at Slough Borough Council; and Anisa Darr, executive director of strategy and resources and S151 officer at the London Borough of Barnet.
Scott noted the importance of succession planning and coaching, and stressed that no employee should ever feel alone. Agile working is also very important, she added, and it could be that four-day weeks are “needed to attract and retain the workforce”.
Taylor said that in her recent recruitment process at Slough she had brought in people from outside the sector. “You’ve got to be bold, be brave, and do things differently,” she said. Taylor noted that she hadn’t used a recruitment agency, thus avoiding seeing the “same old CVs”.
“We have a responsibility as CFOs and you don’t need to know local government for every job,” she stressed. “The narrative also really matters. Unless you can see yourself doing something it won’t happen.”
Taylor also said the positive real-world impact of the sector should be emphasised during recruitment. “It is a privilege to work in local government and we need to talk this up,” she said.
Finally, Darr urged every local authority to come up with their own unique story or selling point. “For us it was about being individuals, we could show that the authority was invested in progression and developing people, which attracted a crowd of people,” she explained.
Ultimately, it is about being “open minded and taking risks”, Darr said.
Reporting by Jason Holland and Aysha Gilmore.
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