CIPFA highlights signs of councils’ financial stress

6 Jul 17

CIPFA has called on local government to be alert for five warning signs of financial stress and has set out how it can build resilience into plans and operations.

Financial planning meeting

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Its survey of English local authority chief financial officers’ confidence in authorities’ continued ability to deliver public services revealed serious spending pressures, particularly for children's social care and education.

CIPFA said this survey showed there were five key symptoms of financial stress: 

  • a rapid decline in reserves, as using these to avoid cuts will only provide temporary relief;
  • failure to plan and deliver savings in service provision, so that councils are not living within their resources;
  • shortening of medium-term financial planning, which could indicate a lack of strategic thinking and an unwillingness to confront tough decisions;
  • firm objectives missing from savings plan, such as a tendency for over optimism in timing and scale of savings
  • a tendency for unplanned overspends, creating the need for greater cuts in subsequent years.

CIPFA’s director for local government Sean Nolan said: “Austerity has battered the sector for close to a decade, while increased demand and cost pressures have left some councils at the brink.

"Other, more positive changes, such as a trend towards greater self-sufficiency and local leadership has allowed some areas to flourish, while others have struggled to reap the benefits of these reforms.

“What we are seeking to do now is to help councils spot the warning signs of financial stress and take the right steps towards resilience.”

Meanwhile, in a new report on local government financial resilience, Building Financial Resilience, published today, CIPFA said there were four essential factors to have in place. These were:

  • ensure the right financial management systems are working effectively and that senior managers and political leaders understand the financial strategy;
  • use benchmarking data for costs, income and activity levels with similar authorities;
  • create a single, consolidated, living document that tracks saving plans;
  • manage reserves effectively but avoid dipping into these to pay for services or postpone necessary cuts.

More detail from the CFO confidence survey will be shared at CIPFA conference in Manchester next week.

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