Recent reports that many local authorities have raided their reserves to balance their budgets for 2011/12 and, in some cases, to avoid deeper cuts than they are already making, should give deep cause for concern.
Now, being an optimist, it could be that this use of reserves is part of a longer-term strategy to re-profile expenditure, reshape the authority, and fundamentally change services and relationships with local citizens or to prevent disastrous redundancies (but the reserves can only be used once). After all, major transformation and new relations with partners and suppliers take time to achieve and often requires transitional funding.
Sadly, I fear that in most cases the use of reserves and the decision to take them to very low and in some cases ‘dangerously low’ levels has in fact been tactical and not strategic in the slightest. Next week’s council elections may in some cases have been a driver for this approach.
We ‘know’ in some cases, and ‘suspect’ in many others that budgets have been set with significant savings ‘still to be identified’; others with ‘optimistic’ assumptions on increased revenue from charges and/or contract re-negotiations; and many with major change programmes including large-scale redundancies for which timing can be, shall we say, ‘unpredictable’.
On 5 May, many council administrations will change political control and it will not be unreasonable for a new leader and new administration to want to ‘pause’ the implementation of some budget decisions pending a review and possible changes of direction. However, if reserves are very low and the 2011/12 budgets very tight and with little room for slippage or overspends or reviews of previous decisions. This will be a real test for new leaders.
There is now a ‘serious’ risk that some councils will find themselves in deep financial trouble later this summer whether or not there is a change in political control. These councils will then be forced to make still further ‘in-year’ cuts, just as they are considering their 2012/13 budget strategies and identifying further cuts for next and future years. Bluntly, the result for those local communities affected could be catastrophic.
Local authorities need to have three-year budget and operational plans in place ‘now’ – not later in the summer or autumn. These must include a reserves strategy, and indeed, in some cases we know that authorities have added to their reserves in their 2011/12 budgets.
If I were the leader of an opposition group in a local authority where I had any expectation or chance of becoming council leader, I would have pre-booked an urgent appointment with the chief executive and finance director for early on Friday 6 May. And my agenda would be focused and simple. I would want to consider (and actually, would expect this information/analysis or most of it already be on hand for my meeting):
- a review of the current financial health of the authority
- an honest and realistic forecast for 2011/12 and the implications for 2012/13
- a comprehensive risk and stress analysis of the existing budget, identifying the key areas of greatest risk
- a review of operational performance and outcomes for core services
- a risk mitigation and management strategy
- a review of the reserves strategy
- given the imperative to implement the new administration’s manifesto commitments and its values, an honest report on the opportunities to review and possibly alter budget decisions taken by the outgoing administration for the 2011/12 budget (I would know which areas, politically, I would wish to review and/or reverse; and would know what my and my group’s priorities are)
- a plan for a wider review of the strategic policy and financial options for 2011/12 and more importantly for 2012/15, with a timetable with a stakeholder engagement programme and the involvement of the overview and scrutiny committee
- a series of early meetings with chief officers; trade union representatives; the local voluntary and community sector; local business leaders; public sector partners (e.g. health and police); and key suppliers/contractors from the business and third sectors
- an options appraisal of the opportunities to pool, align and share budgets, people, assets and systems with public sector partners and potential new partners to make scarce resources go further and secure better outcomes
- a review of the HR strategy identifying available talent and skills and what additional or specialist resources we may require to undertake the necessary action
My aim as a new leader would be able to make an informed statement of the future of the authority before the summer recess.
Time will be of the essence. Taking over control this May will likely be very challenging but it is vital that leaders remain optimistic, focused, and ensure that everything is driven by the values, principles and policies on which they were elected.
This is a time for strategic leadership – not tactical, short-termism. This is the time for bold new leadership and honest effective financial management.
John Tizard is director of the Centre for Public Service Partnerships (CPSP@LGIU)
