A “perfect storm” of service pressures, a “broken” children’s social care market, risky commercial investments, and the need for a “wholescale” long-term financial settlement were all discussed by section 151 officers at the latest evidence session of a parliamentary inquiry into financial distress in local authorities.
The Levelling Up, Housing and Communities Committee inquiry session was held earlier this week at Portcullis House.
Section 151 officers Lorna Baxter (Oxfordshire County Council, also president of the Association of Local Authorities’ Treasurer Societies; Gary Fielding (North Yorkshire Council); Steve Thompson (Blackpool Council); and Bob Watson (Surrey Heath Borough Council) were first questioned on whether their councils were at risk of imminent financial distress and the current pressure points and problems.
Baxter noted that with 10 years of austerity, there was inevitably “more susceptibility” to financial challenges, “because less funding is available”. Inflationary increases and service demand are key drivers, particularly in adult and children’s social care, she commented.
Indeed, Baxter said the market for children’s social care is “broken” with the cost of providing placements in some councils having increased by over 30% in the last two years.
She also highlighted the pressures in housing and homelessness, as well as SEND challenges. Baxter noted a recent Association of Local Authorities’ Treasurer Societies survey that showed a 54% increase in the costs of housing and homelessness in the past two years.
“That has obviously led to significant challenges, with councils trying to manage their budgets with that sort of increase, compounded by – for an authority with both upper and lower-tier responsibilities – the pressures on adult and children social care. That provides a very challenging position,” she said.
On SEND, with the statutory override that permits deficits in SEND costs [versus funding through the high needs funding block of the dedicated schools grant] to not appear on councils’ balance sheets coming to an end, Baxter expects “a deficit of about £3.6bn across the country by the end of the statutory override. That is another challenge that local authorities have to face, if it comes back on to the balance sheet. That is a bit of a no-brainer on the statutory override: the money has gone, the money has been spent – the statutory override is in place, but the money has gone. Therefore, that is a real issue for local authorities to manage. I am aware of one county, for example, that is having to borrow to pay for the deficit, because that will be a reduction in cash. Significant issues are beginning to materialise across all sectors that are struggling.”
Thompson questioned whether service cuts were in fact causing rising demand. “Is it cause or effect?” he asked. Children’s social care is his “main priority” at Blackpool, he added. “Since we were given an ‘inadequate’ Ofsted opinion back in 2018-19, we have seen a doubling of the children’s social care budget,” he told the inquiry. “There are some very expensive young people in there. I have seen figures as high as £30,000 per week. That is a cost shared with the NHS, but it is an almost incomprehensible sum – how can £30,000 a week be justified? Ditto with SEND home-to-school transport, which is showing a £750,000 overspend.”
Fielding described a “perfect storm” of issues facing councils, “with SEND, adult social care and children’s placements all climbing at the moment”. He commented: “There is some commonality: in part, we have a disrupted market and a dysfunctional market in most areas, with supply and demand out of kilter and not enough money chasing not enough places, so prices go up. What I am observing more is the complexity of need that is presenting, and therefore the cost of that. Our most expensive older person now costs just over £500,000 per annum because of dementia and special needs support, and we now have a young person who costs just short of £1.5m per annum. Those were unheard-of sums beforehand, but it is because of the complexity, the greater diagnosis, the advances in medicine, the advances in care. Those are to be celebrated, but they come with financial challenges.”
Thompson highlighted the impact of non-statutory services being lost. “The focus is on statutory services: 75% of our net budget is spent on social care – children and adults – and 11% is spent on waste. That is 86%, and you have other statutory services: public protection, planning and so on,” he said. “Some of our most important services, like the Illuminations extension – it is all about economic regeneration and keeping people in jobs. That is a discretionary service that members would not wish to cut.”
The risk of commercialisation
The section 151 officers giving evidence were also questioned on commercial activities, and the management of risk.
Fielding said the reason for councils becoming more commercially astute “was that they were short of money and looking to generate income in order to stop needing to cut services”. He highlighted that there are skillsets in some councils. “For example, some of us manage pension funds. The pension fund I manage is worth £4.6bn, and that is commercially invested; it is on the pension funds. There are skillsets, and there are specialists involved in it, so I think there is a skillset there,” he explained.
“For me, though, the issue is understanding what the objective is, being clear as an organisation about what you are trying to achieve, and being clear that you have assessed the risks and the rewards, and that you have the necessary expertise to help you reach that view.”
Thompson highlighted the £2bn regeneration agenda in Blackpool, noting that while many might see it as commercialisation, most of it “is grant funded through effective collaboration with central government departments”.
Watson noted the drive among councils in the southeast to become self-sufficient, “not through any desire of their own, but because the government funding fell away completely”. He added: “Councils did look at other ways to make income to provide services, and this was not driven by any profit motive at all. This was a desire to provide services to the residents and businesses of the boroughs and districts around the area.
“Key also to that is that it is done for regeneration and civic amenity. As a local authority, we talk about protecting the local economy, and about regenerating and protecting our town centres. What we did as a borough was take ownership of a town centre that potentially or probably would not be there now if we had not done what we did. So, yes, a lot of it gets tied up in our councils being commercial, but we are also protecting our local residents’ civic amenity and the benefit of having a town centre within our area.
“We locked in £50m of debt at under 3%. We still keep a mixture of short-term and long-term debt. The reason we keep the short-term is that we were benefiting from some really low interest rates. We are talking about sub-20 basis points on some of those short-term loans – far below what the PWLB was doing for long-term debt. We banked the benefit of that. We are now using that to pay for the current high costs of those interest rates. But it is something that we did not for commerciality, but to try to protect services and to try to give a town centre to residents.”
Governance and financial settlements
The panel also discussed the importance of governance and the role of the section 151 officer. Baxter wondered whether enough attention was being paid to “ensuring that there are good communications and relationships between senior officers and elected members. They need to be able to challenge each other about why decisions are being made,” she said.
Watson stated that while he felt supported in his council, “I will leave it out there that in 2016 they took away some of the protections for section 151 officers, and suddenly we saw a number of 114 notices. I will leave it for you to decide whether that is connected or not.”
Fielding said there was a recognition that “where there is something out of the ordinary, you need to engage other specialists”. He added: “We have a key role as section 151 officers, with monitoring officers and heads of paid service, to call those things out. As I have got older, I have become more emboldened around that. As you get more experienced, you are prepared to do that. I think it is hard for newly appointed section 151 officers, monitoring officers or chief executives, where you have strong characters at play.”
The session concluded with a discussion over the need for long-term financial settlements, with short-termism inhibiting councils’ ability to plan delivery of services.
“I am all in favour of longer-term settlements, but what I do not want is just a long-term settlement over a very small part of it; it needs to be a wholescale thing,” said Fielding. “There is something here around how DLUHC can exercise greater influence over those funding streams that come into councils, because DLUHC is the parent department, if you like. And until that happens, I think we will always struggle, because we talk about a very narrow amount of funding and we want DLUHC to be heard louder in some of those other departments, particularly the Department for Education and the Department for Health and Social Care.”
The first evidence session of the Levelling Up, Housing and Communities Committee inquiry into financial distress at local authorities was held earlier in November. The inquiry was told how the causes of section 114 warnings are now systemic rather than idiosyncratic, among other discussions. Room151’s report on this session can be read here.
—————
FREE weekly newsletters
Subscribe to Room151 Newsletters
Follow us on LinkedIn
Follow us here
Monthly Online Treasury Briefing
Sign up here with a .gov.uk email address
Room151 Webinars
Visit the Room151 channel
