By David Williams
1 March 2011
Council finance departments are facing a ‘perfect storm’ of unprecedented cuts in income, rising demand for services and soaring redundancies. To help analyse the long-range forecast and prepare for the tempest to come, Public Finance and Civica invited FDs and other finance experts to a round table debate in Manchester
The severity of the local government grant settlements came as a shock to even the most pessimistic public finance experts when they were published late last year. And the misery piled on when, as was grimly predictable, the figures confirmed that the great public sector spending squeeze would be tightest in the areas with most deprivation.
Ministers insist that councils can make the required savings by becoming more efficient, sacking ‘bureaucrats’ and screwing down executive salaries – but it is clear now that service cuts will be needed too. As councils finalise their 2011/12 budgets, it is the large metropolitan areas with high levels of poverty that are emerging as the eye of the storm.
So it was appropriate that Public Finance’s round table on councils and cuts took place in Manchester, which has already announced rapid reductions in its local authority staff. Commenting on the hugely challenging time ahead for the public sector and service users, city treasurer Richard Paver told the forum: ‘In 20 years as a treasurer, I’ve never seen anything like this.’
Joining Paver for the debate, which was sponsored by Civica, were figures from across the local government finance world. They included: Geoff Dobson, head of strategic finance at Suffolk County Council; John Tizard, director of the Centre for Public Service Partnerships; CIPFA chief executive Steve Freer; and Angela Brown, honorary secretary of the Society of District Council Treasurers.
This is a critical period for councils, as the abstractions of last year’s Comprehensive Spending Review are converted into tangible ground-level choices about what can be cut and what must be kept.
And as finance officers attempt to work their diminishing grants into credible budgets, it is clear that a number of factors are colliding in a way that is without precedent in living memory. Mike Owen, director of finance at Bury Metropolitan Borough Council, said falling income, rising demand for services, front-loaded grant cuts and the high cost of implementing redundancies have created a ‘perfect storm’ for this spring that ‘could not be worse’ for finance officers to deal with.
Delivering budgets that involve major organisational and service changes will be the real test. Levels of risk are shooting up, said Freer. ‘I imagine this is the thing that is keeping finance people awake at night,’ he said. ‘Lots of things could blow us off course. Many key proposals are not yet fully tested. For example, how will our organisations respond to public opposition – will we stay on track or cave in to pressure?’
To avoid meltdown, we need top-quality management performing at its very best. A shame, then, that ministers seem to routinely caricature management and back-office staff as a luxury that cannot be afforded. Freer called on the coalition to stop the relentless bureaucrat-bashing. ‘Let’s have a more honest discussion which recognises that, in order to protect councils’ most sensitive services, we need excellent leadership and management of authorities and high-quality support services.’
There are, he added, ‘serious issues’ about whether budgets can be delivered – and attempts to minimise that uncertainty could do yet more damage to public bodies.
Stephen Brown, director of business services at arm’s-length management organisation Northwards Housing, agreed. ‘The sad truth is, our responsibility is to deliver a budget that balances,’ he said. ‘In order to do that, we go for those things that really will bank the savings – which are generally going to be people. There’s no point doing things that might deliver.’
Paver, who has to save £110m in 2011/12, will have to lay off 2,000 workers, at a cost of £60m. He can fund the payouts from the council’s reserves – but had hoped to use these to smooth some of the effects of the front-loading. Many of his fellow treasurers are less fortunate, and will be forced to fund redundancy settlements from their 2011/12 revenue budgets – meaning still deeper cuts to services.
However unpalatable that might be, the possibility of guaranteed savings through job and service cuts is still more attractive than the alternative of trusting untried service redesigns. That pretty much leaves the agendas of efficiency and transformation on the back burner, suggested Stephen Brown.
‘The kinds of things we’re going to have to strip out are the very sorts of resource that might make us better and more efficient and be transformational into the future,’ he said. ‘We have a large business improvement team, which will be very seriously constrained... the potential for making housing in north Manchester better in five years’ time is being sacrificed on the altar of one year’s savings.’
But Andrew Bedford, strategic director of finance at Rotherham Metropolitan Borough Council, cautioned against becoming too risk-averse, saying the danger was that chances to save money and improve services through innovation could be missed.
However, councils that have tried to cut costs without slashing capacity have hit obstacles. Owen gave the example of a job-saving package, including unpaid leave and pay increment freezes, which was rejected by workers – who wanted to preserve terms and conditions for when the council starts hiring again.
Unions who take that line have missed the point of this coalition government, according to Colin Talbot, professor of public policy at Manchester Business School. Ministers are trying to bring about a smaller state, and a smaller public services sector, permanently, he said.
That means councils doing less, said Suffolk’s Geoff Dobson. ‘Members are facing up to the fact that some things we do are not that important and that we can stop doing some things… that starts to take costs out of the system, and bureaucratic costs out of the system.’
But Angela Brown, from the Society of District Council Treasurers, said the non-statutory services were among the most popular services that councils provide. ‘There’s a real risk that knee-jerk reactions to the cuts will come in the easiest places to cut. The things people are talking about stopping – libraries, leisure centres – are the things people want. What is local government for if not to provide these services?’
Social housing was also identified as a potential flashpoint. Many of the tenants likely to be hit by rent rises and lower capital investment will be the same people affected by council service reductions, increased charges, benefit cuts and constraints on policing. Owen believed benefit cuts could become a ‘poll tax issue’, saying: ‘They’ll be trying to get small sums off very poor people who have been hit in a whole raft of other ways. It beggars logic.’
Rents could become uncollectible, warned Stephen Brown, while Ken Lee, chair of CIPFA’s local authority housing panel, said: ‘Council tenants are facing 7% increases in rents. To start slashing their services in a ring-fenced account [where services are paid for by rent receipts] is really something you need to be asking if you can justify.’
Talbot expects the tension will spill over into more public protests. He argued that British people become ‘teed off’ when they are not consulted about changes on the scale we’re likely to see. And, he added, the whole reason the 2011/12 settlement was so harsh was because the government knows it has no mandate and is trying to do as much as it can, as fast as it can.
Anger and confrontation might be on the cards, but demonstrations will be no more than a sideshow if ministers are committed to their plans to eradicate the deficit by 2014/15. Freer believes that in the event, the government will want to be seen to be flexible on the most sensitive decisions – because ‘these are precisely the issues that are most likely to create tensions between the coalition partners’.
Talbot predicted another Spending Review in 2012. ‘The idea that this government is going to maintain a four-year spending plan in the current [economic] situation is cloud-cuckoo land.’
But even if that does happen, there will still be cuts to impose in the meantime. So can localism save the day? Tizard was tempted to answer with ‘a two-letter word, beginning with N’. But, he said, the truth was that giving councils more freedom, while not a panacea, could play an important role in the medium to long term.
Grahame Lucas, president of the Society of District Council Treasurers, said councils could still make big savings through working more closely together. ‘I might be shot for saying this, but in two-tier areas there is still a lot of work to be done. Two-tier areas should wake up to the fact that there is an opportunity to cut back costs, to be more efficient through sharing and collaborative working… that doesn’t necessarily mean the abolition of districts as a political unit. There is a reluctance to grasp that our council as a district will not look like this in future, but our services will.’
Freer argued that the government’s espousal of localism gives councils the chance to make the case that: ‘Localism cannot be simply about empowering local communities. You also need powerful public institutions to make things happen.’ He added that the willingness of ministers to change and simplify existing public sector structures could also open the door for councils to take on new responsibilities.
‘There will be a moment when local government can argue for the expansion of its remit to take on more responsibilities that are currently located in single-service structures.
That moment is some way off yet. Paver said that ‘it’s no good’ thinking beyond year two. ‘We don’t know quite what we’re going to look like in year three.’ Meanwhile, many are disappointed by the government’s less-than-full-throttle commitment to the ‘Total Place’ approach to area budgeting. ‘Community budgets [as outlined in the CSR] are interesting but a poor cousin,’ lamented Tizard.
Owen reported difficulties in getting partner organisations round the same table to talk about sharing services, while Stephen Brown added: ‘My colleagues don’t have time to be meeting police, schools, social services and doctors. This is a huge industry of talking that does bugger-all else.’
Worse still, several described the government’s thinking in this area as ‘incoherent’. Talbot pointed out that in the two biggest areas of spending, where councils could have most impact – health and education – the government is moving away from strategic co-ordination, preferring to make services more fragmented.
Some councils are already embracing the coalition’s ‘Big Society’ take on localism. Late last year, Suffolk revealed its ‘new strategic direction’, which will involve widespread outsourcing, linking up more closely with second-tier authorities and parish councils, working more closely with community groups and giving more power to councillors.
But Dobson acknowledged that Suffolk’s plan was for the medium term, with limited potential for producing savings in 2011/12.
And Tizard’s view was even more cautious. ‘For most local authorities, one of the first cuts will be to community, voluntary sector and infrastructure organisations,’ he concluded.
‘The short term is forcing us to undermine what it might be necessary to do over the longer term.’
Tizard’s statement neatly encapsulates the central dilemma for local authority managers in early 2011 – that crude cutting is the wrong thing to do but the safest bet financially. Councils are being pulled in two directions: they are being forced to plan instant savings and long-term efficiencies simultaneously.
The urgency to find huge cuts, fast, is clashing with the need to plan ahead.