Warrington Borough Council’s overall borrowing and finance risk threshold should be clearly established as managing medium term risk “will be crucial to the authority’s financial sustainability”.
That’s according to a recently published Local Government Association (LGA) corporate peer challenge report, which said that the council’s approximate £1.8bn in borrowing and reliance on investment returns gave it a “very different” risk profile to many other local authorities.
The “complexity and specialist nature” of elements of the commercial and investment portfolio made it difficult for the peer team “to identify how the overall risk profile in Warrington is understood and who owns it”. The council’s risk threshold needs to be politically determined and “fully understood by elected members, informed by statutory officer advice and the national context”, they said.
While Warrington says its investments generate £23m per year in additional revenue and help keep essential services running, the report said there would be benefit in the council communicating a “detailed narrative around what this has meant in practical terms, in relation to the specific services that have been able to be sustained and the benefits and impacts derived for local communities”.
The peer team also questioned whether the return was “worth it” against the background of the council holding the level of risk that it does, the cost of expert external legal and financial advice, and “the effort and attention that has been absorbed within the organisation and the profile and scrutiny that has been generated”.
The report also noted the issue of external audit, with the “complexity of Warrington’s commercial portfolio” compounding the challenges already faced by the external audit market, leading to a “lagging” in the external audit sign off of the council’s accounts. The authority’s financial risk profile necessitates the council securing as much assurance as possible, the report added.
A ‘realistic and proactive’ approach
The risks to Warrington’s financial sustainability, which the peer team said must be “fully” understood, are “a cumulative impact of the council’s borrowing and investments plus the revenue position over the medium-term”.
Warrington is facing a budget gap across the three years from 2024/25 to 2026/27 of £64m, with an “unsustainable” use of revenue reserves noted – levels have reduced from £123m in 2021/22 to £70m, with this figure to diminish further.
The report said work to determine the approach to addressing the revenue position “needs to start in earnest” with 2025/26 “recognised by the council as a particularly challenging one”, but the council may not be “accustomed to the types of changes and levels of savings that have been required across much of wider local government”.
The peer team gave credit for a “prudent” building up of reserves, the ability to generate additional revenue, and the use of capital funding – “all of which has enabled [the council] to adopt more of an ‘invest to save’ approach than a ‘cuts’ based one” – but this mindset could now work against it, they said.
While Warrington, both managerially and politically, believes it will be “able to rely upon further non-traditional income, such as continuing revenue return on its investments, and ‘corporate solutions’ developed by the council’s finance function”, the peer team said the organisation needed “to drive a much more realistic and proactive approach to the financial situation, and to do so at pace”.
From discussions with “managers at different levels across the organisation”, the peer team said the council’s financial challenge being considered across more of a medium-term horizon, “as opposed to the year-by-year approach that has traditionally been the case”, would be welcomed.
With these managers “keen to have the opportunity to contribute more to addressing the financial challenge”, the report recommended creating a cross-organisational plan for savings running across three to four years. “This would enable more strategic, cross-cutting and creative solutions to be developed than can perhaps be achieved through a focus on a single year,” the peer team said.
The report also recommended developing a programme of transformation at a corporate level to “enable a more holistic approach to achieving major change”, with initiatives potentially contributing significantly to addressing the council’s financial challenge.
“Areas to explore here might include the use of the council’s assets and its office accommodation in particular – in a context of the council last producing an asset management plan in 2010 – and the digital agenda,” the report stated.
Finally, the report noted the importance of delivering on the recommendations of a government-commissioned CIPFA report, which were supported and accepted by the council.
The CIPFA report, which raised “concern” over “extremely high levels of debt”, resulted in a Best Value Inspection being ordered by government.
An action plan has been created at Warrington to implement the recommendations of the CIPFA report, although the authority reported challenges in establishing an independent investment advisory panel in July.
The council also saw its credit rating with ratings agency Moody’s withdrawn earlier this year because of a “lack of sufficient, current audited financial information caused by an audit backlog”. Warrington said it was seeking to secure an alternative rating from another EU-recognised ratings agency.
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