Scottish audit chief warns on ‘increasingly fragile’ council finances

21 Sep 18

Scottish councils are facing “increasing fragility” in their finances, according to the head of Scotland’s local government watchdog.

However, the risk of a Northamptonshire-like crisis north of the border has been diminished because of the distinct structure of local government in Scotland, Accounts Commission chair Graham Sharp (pictured below) said.

Sharp told PF that although he would not rule out the possibility of a Scottish council following Northamptonshire in being forced by a budgetary shortfall to strip services back to the legal minimum, he did not see it as an immediate threat.

“I think the situations in Scotland and England are rather different,” he said. “You’ve got different tiers, different functions and a different regime of financial pressure that’s impacted on different types of councils in different ways, so I don’t think Scotland’s been in that position.”

Graham Sharp

That said, the commission found last year that over half of Scottish councils had been obliged to draw on reserves, and warned that if three – Clackmannanshire, Moray and North Ayrshire – continued to do so at the current rate, they would exhaust their reserves within two years.

“There is an increasing fragility,” said Sharp. “For one council [Clackmannanshire], we did say it needed to embrace the transformation plans and move forward, because they couldn’t keep putting things off, they had to take action.”

The alarm bell sounded for Clackmannanshire, Scotland’s smallest mainland authority, as part of an overhauled system of audit. Over the last 18 months, this has seen a far greater emphasis on performance and improvement within annual audits.

The plan is to create a culture of continuous assessment around performance, rather than it being principally the focus of the best value report carried out intermittently by auditors into each council.

“The aim is by making it annual, it becomes less of an event that needs to be thought about and managed, and much more in the regular work of a council,” he said.

In another significant shift for the sector, the original risk-based schedule of best value reports has been replaced by a rolling programme that will see all 32 councils examined over five years.

Sharp said he was hopeful the new approach would provide a more accurate reflection of how councils are faring across the board, as well as making it easier to pick up and share best practice.

Two years in to that programme, it is clear that in Scotland, as elsewhere in the UK, the biggest single challenge to councils is financial, driven by demographic change and the pressure to do more with less resources.

“We’ve got the demographics of an ageing population, we have people living longer and the need for social and health care increases with age,” Sharp said.

Because demand for public services is heavily influenced by levels of prosperity, he said economic development was critical to boosting wealth within an area, improving quality of life for residents and, ultimately, easing pressure on services.

So far, councils in Scotland have been less active in this area than their counterparts in England, but there are increasingly positive examples such as West Dunbartonshire Council’s joint venture to redevelop the former John Brown’s shipyard.    

The other major challenge is Brexit, and specifically the ongoing uncertainty over whether or not a deal will be struck.

Sharp said his personal view was that the range of possible outcomes on Brexit is as great now as it was when the process first started, making it a “hugely difficult” issue for public bodies to grapple with.

This year’s audits will be assessing councils’ preparedness for Brexit in three areas – financial consequences, regulatory consequences and implications for workforce planning.

“But you can’t prepare for absolutely everything – you’ve got to try to make sure you’ve got sufficient flexibility and resilience built in to cope with the uncertainty,” he told PF.

He strongly believes in the need for councils to transform in the face of today’s rapid change, arguing that staying still is no longer an option.

“The challenge facing a council won’t be met by incremental improvement, it needs transformational change,” he said.

“In a stable environment, doing things as they’ve always been done and making incremental change might work, but that’s not the world we’re in anymore.”

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