In its response to CIPFA’s consultation, the Society of Local Authority Chief Executives and Senior Managers (Solace) suggested “a more sophisticated approach” was needed if financial resilience was to be gauged effectively.
An open letter from Solace to CIPFA chief executive Rob Whiteman highlighted “serious misgivings about whether a simple set of scoring metrics can produce a meaningful assessment of an authority’s financial health”.
Solace said that the role of the chief executive was to balance risk across multiple domains like finance, legal, service quality and public impact.
The membership organisation is concerned a negative assessment in one area would impact councils’ wider resilience rating.
The letter, written by Solace president Jo Miller and the group’s local government finance spokesperson Martin Reeves, said: “There is a risk that single-issue based assessments distorts council governance.
“Over-emphasis on financial considerations is as big a risk to corporate governance as any other imbalance.
“It would be better if any resilience tool helped challenge and support a balanced view within the council across multiple domains and all statutory duties.”
Solace highlighted three concerns about the indicators CIPFA plans to use to judge local authorities:
- no indicator to measure foreseeable future spending pressures;
- an over-emphasis on reserves. Councils with a lot of reserves could appear strong but may be susceptible to other financial risks;
- no reference to borrowing in the indicators, which “can be one of the factors that limits councils’ flexibility to adjust future spending.
The group also expressed concern over the way the financial assessments will be presented. It suggested giving a council a ‘poor’ rating could lead to recruitment and retention problems.
CIPFA chief executive Rob Whiteman said: “CIPFA welcomes all responses to its consultation.
“The institute will use the feedback it has received to inform the index’s methodology and design, so we can create a genuinely helpful and useful tool for the sector.”
The consultation on the financial resilience index closed on 24 August.
