News analysis Auditor praises improved financial management

18 Jan 07
What a difference a year makes. Twelve months ago, the then Audit Commission chair James Strachan was reserved in his praise for councils' financial management. Shortly afterwards, he unexpectedly left his post, and the two events were widely assumed to be connected.

19 January 2007

What a difference a year makes. Twelve months ago, the then Audit Commission chair James Strachan was reserved in his praise for councils' financial management. Shortly afterwards, he unexpectedly left his post, and the two events were widely assumed to be connected.

This time around, the Audit Commission is making clear that its findings on local government's use of resources are definitely good news. The commission praises councils for big improvements, emphasising that every unitary, metropolitan, London borough and county council has met the minimum standard for financial management.

Whereas in 2005 just four councils achieved the top score of four, last year it was 15, according to the commission's analysis, published on January 11.

'The key point is the level of improvement,' says Gareth Davies, interim managing director for local government at the commission. 'About a third of councils achieved a better score than the year before, so by any measure that's a significant improvement. We are pleased with the results. They reflect well on local government.'

Despite the praise, Davies also stresses that improvement has to be maintained. 'Clearly, as good auditors, we are always keen to see further improvement,' he says.

Although the use of resources assessments are only in their second year of publication, they have already proved their worth.

'This has been a really important tool for authorities to benchmark where they are and where they can make further improvement, and these results prove that this works well,' explains Davies.

But he adds that the value for money element of the assessments, in particular, still has scope for better performance. 'That has improved over the year before, but not as fast [as the overall use of resources assessments],' says Davies. 'Given the tight financial environment local government is heading into, there's still more to do.'

Naturally, councils – and the Local Government Association – are happier with the Audit Commission's 2006 verdict than the 2005 one.

Sir Simon Milton, leader of Westminster City Council (one of the top performers) and chair of the Local Government Improvement Board at the LGA, says what happened in 2005 was 'extraordinary'.

'Lots of discussions took place between the LGA and the Audit Commission, and there was an understanding about what the commission would be saying – and without warning, the commission line was changed. In 2006, we had similar discussions. The difference is that the people at the commission this time said what they promised they would say.'

Milton is as happy with the report's content as with its presentation. 'Local government is now the most effective part of the public sector, and when you combine the use of resources results with the over-achievement of Gershon efficiency targets – unlike the rest of government – then we can see local government pulling away from the pack.'

Steve Freer, chief executive of CIPFA, gave the report a more cautious welcome. 'It obviously signals that financial management in larger local authorities has improved significantly since the 2005 assessments,' he says. 'The results are very encouraging. The challenge now is to keep the momentum going. There is some good progress, but there is a great deal of scope for further improvement.'

Authorities rated as top performers defy obvious stereotyping. They include the East Riding of Yorkshire, the City of London, Kent County Council, the London Borough of Newham, Rotherham Metropolitan Council and Shropshire County Council.

Those likely to be embarrassed by scores of just two out of a possible four are also diverse and include York, Brighton & Hove, Harrow, Cornwall and Bedfordshire. Directions of travel go in both ways, with Bedfordshire improving from one in 2005 and Cornwall going down.

Tony Travers, council finance expert at the Greater London Group at the London School of Economics and a former audit commissioner, says close analysis of the data underpinning the analysis shows other interesting facts.

Not least of these is the speed of improvement at some of the most notorious councils – particularly Hackney and Lambeth – which are both ranked at two, despite their past years of perceived mismanagement.

'They are the most impressive in some ways,' says Travers. Not so long ago, both councils were among the pariahs of the local government arena, and subject to outside intervention. Now both have achieved mainstream status.

'In other areas you can almost guess the best results, for example, in the Southeast,' says Travers. Yet, he suggests, while there is an apparent association between affluence and good council financial management, there is also a correlation between the type of political control on a local authority and its financial management.

'The less a council has changed political control, the better it seems to be doing. If you look at places that were rock solid for Labour or Conservatives – or for independents, in the case of the City of London – they are almost without exception the best performers. You might say this is logically going to produce consistency, but it would be a fantastically interesting finding [if supported by more detailed research] that if there was less risk of changing political control this was associated with the best financial management.'

The pressure will now be on councils to make further progress, predicts Travers. This is true not only of those few authorities that have performed worse than last time, but also those whose performance has remained constant or that have already improved.

'Over a wide range of performers there will be pressure to move from twos to threes, and from threes to fours,' he says.

But, he adds, many councils will have already made the easiest improvement steps, and further progress will be more difficult. After all, he points out, 'it should be easier to direct resources [more effectively] than it is to improve services'.

The full Comprehensive Performance Assessment results for 2006 will be published on February 22

The commission's key findings

  • Marked improvement in single-tier and county councils' use of resources
  • Almost a third of councils achieved a higher score in 2006 than 2005
  • No councils now rank as below minimum standards, compared with three in last report
  • Number with top mark of four rises from three to 15
  • Only East Riding achieved score of four for each of five 'use of resources' themes
  • Best performance is in managing spending within available resources
  • Least good performance is in value for money


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