Last year, Brendan Arnold made the news as the interim director of finance and Section 151 officer with Woking Borough Council who was obliged to issue its high-profile Section 114 notice, citing a debt portfolio of £1.8bn and such issues as under-calculating minimum revenue provision obligations trailing back as far as 2007-08.
A year on, Arnold has had time to reflect on his time as a Section 151 officer and the broader state of that role, as well as how councils typically respond to being Section 114-adjacent. But first, what can Arnold tell us of his Woking experience?
“It’s worth remarking that the experience of Woking is ongoing,” begins Arnold.
“It has excellent commissioners who are continuing to manage the impact of the losses identified, and such was the size and scale of some of those issues that I think people will be drawing conclusions from further analysis for some time. What I can say is that a district council with a very modest revenue budget ran up a deficit of £1.2bn. And of course, that suggests significant weaknesses in the control environment generally across the organisation.”
Having reflected on this, Arnold thinks one core issue is that of a power imbalance.
“Woking had the elements of good governance, by which I mean a scrutiny function, meetings of cabinet, and full council and took decisions on the key issues brought before it. But while it had the form of governance, it possibly did not have the power and grip implied by those arrangements. In other words, those functions, which are really important in any council may, not have asked some of the appropriate questions or, with the benefit of hindsight, drawn suitable conclusions from the answers received.”
It’s important that councillors and officers “do the boring stuff well,” Arnold continues.
“Colleagues will recognise sitting in a scrutiny or audit committee of an evening, engaging with an agenda and trying to help where you can. This needs to be regarded as really important work, because the questions asked – and critically, the answers given – need to be the fullest questions and answers possible, so that a viable process of challenge can take place. Where this doesn’t happen there is a risk that events will unfold as we’ve seen in Woking and other distressed councils. Investment in ‘commercial’ assets that are novel in character requires a keen view of the accompanying risks and their mitigation.
Commercial mindset
This issue of novel commercial approaches crops up several times in our conversation. Arnold has noted how, over the past 10 to 15 years, councils have sought to become increasingly commercial, with job adverts seeking candidates offering a commercial approach.
“I fear that the understanding of a commercial approach has not always included the analytical side of commercial management,” says Arnold. “It’s not simply about exploiting assets to gain income or creating assets to gain additional revenue streams; it’s about successfully managing the risks that go with that.”
“In local government we have an opportunity to strengthen our approach in terms of risk management. For years, councils have produced risk registers that have been reviewed by management teams, sometimes by cabinets, often by audit committees; and good work has been done. But where councils wish to enter commercial deals with partners that are novel in character a different approach is required. At a business case level, I don’t think many councils have historically asked, ‘What happens if a key component of this set of proposals doesn’t work?’ ‘What if a funding stream is removed?’ ‘What if an asset or a component of the governance arrangements for a particular scheme doesn’t operate as intended? How are we going to deal with that?’
“These are questions that can be framed in the preparation of business cases, and they need to be answered. It’s important in any management endeavour that you have your plan A, but also your Plan B or even Plan C. Of course, it may be that in some of these commercial deals, Plan B and Plan C might be things that cannot readily be articulated. Nonetheless they should be raised and members should be entitled to ask questions about that and receive viable answers. All of us in local government have to look to see what we can do better in this regard in the years ahead so that some of the problems we’ve seen in recent years don’t recur.”
Calculating risk
All of this, says Arnold, is not so much an issue of council capability as it is the grading of project risk in a way that forces different levels of analysis.
“I think some of this is cultural. In councils over the past two plus decades we’ve become used to reacting to events very quickly; things are often done at enormous pace. In developing novel proposals, that can be a perilous course. I sometimes reflect whether, for large schemes associated with high levels of risk, it might be better to build in more time for bottoming out the issues before proposals are considered for decision.
“I’m saying, let’s spend a lot more time exploring the risks earlier in the process and before we put proposals before Members for decision. You don’t need to buy an enormously expensive system to do that, you just need to build the time for that really critical tyre kicking to take place on the journey.”
How does Arnold see the current situation? Is a spike in Section 114 notices on the cards? We meet in late September, with all eyes on the new chancellor’s October’s Budget statement.
“We’re at an interesting point in public finance,” says Arnold of the new government, “it’s a seminal moment.Generally, councils are in a difficult position. Bread and butter services, with arguably less resource in real terms than before, have seen significant increases in demand. The age structure of the population has changed with people living longer and needing care. And in deprived communities, the care of children needs greater support.
“So, there are real calls on the financial resources of councils. Then you look at the pandemic, and I would argue the dislocation of society caused by that is only now being fully understood. Inflation’s impact on the purchasing power of the resource base has also been unhelpful. In summary, we have higher levels of demand at greater cost and lower levels of resource in real terms, as well as resources that would have been supplied 20, 30 years ago as part of the Revenue Support Grant now being presented to support an array of policy initiatives. These, while well intentioned, have diminished the flexibility councils once had in using those resources.
“It makes the life of council leaders, cabinets and council management teams very challenging. So, while some of the financial failures we’ve seen have been based on poor risk management, many are associated with the pressures I’ve described. We wait to see what the chancellor’s proposals are.”
“It’s also worth paying tribute to councils that have taken active steps to review business models, pursue value for money and reach for technology as a driver of transformation in service delivery. Local government remains active and successful; we need to hear more from councils that have surmounted the challenges that lie before the sector.”
In it together
During his numerous appointments, many as Section 151 officer, Arnold has developed a geographically varied CV (he believes he has driven at least 800,000 miles during his career) and come to several conclusions about what councils need to consider when sailing close to a Section 114 notice.
“Being a Section 151 officer can be an extremely lonely place and I think it’s important that the head of paid service, Section 151 officer and monitoring officer work closely in general, but particularly where financial stresses are bearing down.
“I also think that if there’s an opportunity for people to be worried about a Section 114 notice, that implies there’s still time to do something about the underlying problem. The first thing is to take some advice; there are Section 151 officers out there who have found it necessary to issue Section 114 notices and I’m confident they would happily share their experiences. I know I would, and indeed people sometimes do contact me for confidential advice.
“Too often the Section 114 notice is seen as a negative thing, as a penalty. I see it rather differently. It allows a breathing space for the council to stop and reflect on how things are going”
“Second, I see CIPFA as an enormous source of advice and support for the Section 151 community, and I want to pay tribute to the quality of its support. But ultimately, if you think you are heading for a Section 114 position, the key thing is to set down for the council, in a timely way and in discussion with others, what you think needs to be done. This needs to be shared and developed with the other statutory officers in the first instance, working together with members so those messages are heard within the organisation and taken forward through the channels that exist within that particular council.
“One more point,” adds Arnold. “Too often, the Section 114 notice is seen as a negative thing, as a penalty. I see it rather differently. It allows a breathing space for the council to stop and reflect on how things are going, adopting responses to begin turning the ship onto a course that will moderate any negative impact for the council or its services. There is always the prospect that some of the negative impact might be avoidable by taking certain decisions and taking them early.
Taking it to the top
Has Arnold ever felt held back in his work? Are there elements of the Section 151 role he’d like to see changed?
“There is an issue here,” he suggests. “The Section 151 role is more important now than it ever has been. Personally, I think it’s important that the role is set in council structures at executive director level. Some councils set it as a third tier service director level, some even at the fourth tier as a head of service. I don’t think that maximises the benefit the Section 151 role can bring. Setting it at executive director level will, in most cases, be best to ensure the voice of the post holder is heard fully.
“I’d add that while Section 151 officers are employees of their councils, they are also office holders under statute which implies accountability to parliament. Given the difficult times we continue to live through, I sometimes reflect on whether there might be a case for strengthening that accountability to parliament in some way.”
More broadly, Arnold believes now is the time for a national debate around what it is local government needs to do – “not necessarily in terms of its functions, but the extent to which services need to be provided,” he explains.
“The Section 151 role is more important now than it probably ever has been… I think it’s essential that the role is set in council structures at executive director level”
“Clearly, it’s infeasible to continue to provide services in a way which is arguably not fully funded and has not kept up in real terms with the declining value of money. That would imply to me that we need to moderate what we’re demanding from that expenditure base in order to make delivery to budget a viable proposition. Because these pressures are not going to go away, I think it is inescapable that this debate is needed and that decisions are made on the financial liability that communities and taxpayers are asked to assume.”
As to what he’d like to see from such a debate: “I think I’ll leave that conversation to those qualified to undertake it.”
People at the centre
Recently, Arnold became a CIPFA lead reviewer, working on reviews of several councils. “I like helping to unlock their issues and find solutions,” he says. “It’s extremely rewarding. I’m enjoying my work at the moment more than I ever have, and I think I’m doing the best work I’ve done. I’m not looking to finish any time soon.
“Over the years, I’ve come to understand that, in the public sector, an accounting qualification can take you into many interesting places. The variety of places and number of people I’ve met – government ministers, permanent secretaries, leaders of councils, TfL’s management team, the Metropolitan Police, and most importantly the thousands of dedicated public sector team members I’ve worked with who undertake the daily hard graft to deliver services – has been a huge privilege; none of it would have been possible without my CIPFA qualification. It’s been a joy.
“I’ve come to understand that while you might initially think of this work as principally about assembling the nuts and bolts of accounting practice, in fact you must put people at the centre of such work in the best way you can while at the same time achieving the business objective. That presents an intellectual and a practical challenge, and sometimes an emotional one too. Surmounting those challenges to help communities and organisations and to help people achieve; that’s where I get my job satisfaction.”
