Member Article

North West councils face budget ‘tipping point’

Councils across the region have more financial resilience than other UK regions, but are still facing a significant risk of financial failure, a new study warns.

The research has been conducted by the accountancy firm Grant Thornton UK LLP. It examined the financial health of 138 local authorities in England, including Manchester City Council and Liverpool City Council.

The report rates local authorities in four areas - financial performance, strategic financial planning, financial governance and financial control. It also identifies a series of potential ‘tipping point scenarios’ such as local authorities no longer being able to meet statutory responsibilities to deliver a range of services.

Other North West councils in major study include Wirral MBC, Halton BC, St Helens MBC, Warrington MBC, Cheshire West and Chester Council, and, Cheshire East Council, Salford City Council, Tameside MBC, Trafford MBC, Rochdale MBC, Wigan MBC, Oldham MBC, and Stockport MBC.

The findings show that the North West as a whole is the best performing region nationally. The 35 North West local authorities have the highest national ratings for strategic financial planning (94%) and financial governance (94%).

North West councils also have the second highest level of ratings for key indicators of financial performance (91%) and financial control (86%).

But the report also reveals that despite meeting the challenges of the deepest cuts in public spending since the 1920s, which began with the Government’s 2010 spending review, local authorities are still facing a fiscal crisis. In 79% of cases, Grant Thornton found that councils in England anticipate reaching some form of financial tipping point in 2015/16 or 2016/17.

Mike Thomas, a director of Grant Thornton’s North West public sector audit team, which operates from bases in Manchester and Liverpool, said: “Funding reductions will bite even harder and deeper in 2015 and it’s clear some councils will be pushed right to the edge.

“We think that will happen in 2016. By and large local authorities have done a good job of managing profound budget reductions but the pressure of further cuts and rising demand for services is unrelenting. It was once hard to imagine the spectre of a city effectively going bust, as happened in the US with Detroit’s bankruptcy last summer. But that’s no longer such an outlandish idea here.”

“To manage within available funds, councils will need to think less about doing the same things for less money, and more about doing different things. It is likely to mean more emphasis on preventing the need and demand for services, and on getting the public more engaged and involved in taking ownership of their own health and well-being.

“Clearly, councils will still want to protect the most vulnerable and this then comes down to having clear priorities and innovative forms of service delivery.”

Councils will also need to have a ‘relentless focus’ on generating additional sources of revenue income.

“The more councils can attract inward investment and economic growth, stimulate employment and encourage development in their areas, the more capacity and funding they can generate to meet the needs of the public,” added Mike Thomas.

“These revenues can range from investments in the commercial property portfolio to regeneration and inward investment and the skills agenda to boost local economic activity.

“Equally, councils will have to continue to improve efficiency through shared services, strategic partnerships particularly with health and consider wider re-organisation. Even after all of this, the public will need to understand that service quantity will need to be reduced and may never return to their pre-2010 levels.”

The report, the third annual report Grant Thornton has produced into the financial health of local authorities, shows that county and district councils have performed well, whilst unitary authorities have the lowest ratings of all council types, with 40% fearing a tipping point in the short term compared to 20% for other local authority types.

Metropolitan districts generally scored strongly on their financial performance around strategic financial planning, financial control and financial governance.

This was posted in Bdaily's Members' News section by Simon Malia .