Resilience index shows 10% to 15% of councils at risk of financial instability
0CIPFA has today published a summary of the key results from the ‘beta’ version of its resilience index, which was released to the finance directors of English councils earlier this month.
CIPFA says its initial findings back up the conclusion of the National Audit Office report on local authorities’ sustainability, published in the wake of the failings at Northamptonshire County Council.
That said that there is a heightened risk of more councils falling into special measures over the next four years.
“Aggregated results of the Resilience Index show the majority of councils are in a stable position and not showing significant signs of financial failure.
“However, there is a tail of 10%-15% of councils where there are some signs of potential risk to their financial stability in the short term.”
Christian Wall, director at PFM told Room 151 that there is inevitably a degree of subjectivity in the index and that there is a danger of the figures providing spurious accuracy.
With regard to the number of councils at potential risk he said: “You could make a strong case for it being higher or lower; the number reflects the methodology used.
“Like similar tools, the index has it flaws.
“It could be improved and without a lot more contextual information there is a danger it will be divisive and less useful than they [CIPFA] think.”
The version published today is intended by CIPFA to provide a base from which to assess councils’ financial resilience in the future.
Councils are not named, but are broken down into counties, unitaries, London boroughs and metropolitan districts.
The index is designed to allow authorities to view their relative positions on a range of measures related to financial risk.
The briefing note contained the latest version of the index, which was modified after consultation with local authorities, and is a test version.
CIPFA will run a series of meetings with finance directors in 2019 before releasing the final version.
The index will made publicly available online after the publication in November 2019 of official outturn data on local authority revenue and expenditure.
At the same time, CIPFA aims to publish a new Financial Management Code.
One aim of the index is to support section 151 officers in their annual report to the council presenting the proposed budget for the coming year and the medium-term financial strategy.
The briefing note contained four measures of resilience. The first is reserves depletion time, which shows the number of years it will take for a council to deplete its reserves if it continues to use them at the same rate as in the three years to March 2018.
The level of reserves shows the proportion of reserves as a proportion of net revenue expenditure.
The change in reserves shows the average change in reserves over the past three years.
The final measure, council budget flexibility, is the proportion of net revenue expenditure accounted for by social care and interest payments, which are less under a council’s control than other areas of spending.
