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English councils fear ‘tipping point’

By Vivienne Russell | 6 December 2012

English councils have coped well with shrinking budgets so far but some are worried about whether they will be able to sustain their financial performance in the medium term, accountancy firm Grant Thornton has found.

In its second annual health check of local authority finances, the firm praises councils for improving their reserve levels but highlights weaknesses in planning for potential crises.

Towards a tipping point
sets out situations that would take councils to the edge, such as being unable to meet their statutory responsibilities to provide a broad range of services and Section 151 officers being unable to set a balanced budget.

Guy Clifton, local government advisory lead at Grant Thornton, said: ‘The challenges facing the sector remain significant, confidence for the medium term is understandably generally weaker than a year ago with the majority of the government’s fiscal consolidation plans still to delivered over the next two and a half years.’

He added that not all authorities faced the same level or type of risk or would have to confront a ‘tipping point’. ‘We are, however, engaging with the sector to explore the concept, what the consequences would be for stakeholders, and what mitigating actions are required.’

Grant Thornton’s report comes the day after Chancellor George Osborne used his Autumn Statement to announce that councils will have to grapple with extra cuts of 2% in 2014/15, although no additional cuts will be demanded in the next financial year.

Clifton told Public Finance: 'The Autumn Statement very much reinforces our findings. The overall picture is more gloomy than it was. That’s not a complete surprise, but there is some clarity now.
 
'Those tipping point scenarios that we mention could now be more likely for some local authorities. There is certainty on the headline cut, which is that additional 2%, but of course the finance settlement hasn't happened yet so the detail is still not there.'

He added that it would be interesting to see whether Grant Thornton's next round of financial reviews would reveal whether councils' scenario planning had assumed that there would be further cuts in the Spending Review period.



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