2015 Review: Finance goes strategic and the significance of flood defences

Stephen Fitzgerald looks back at the year and finds that heading finance is becoming strategic while the headlines made by flooding and child protection reveal the diversity and challenges of running local government.

Another year draws to a close and it’s time for some personal reflections. The first thing that strikes me is that those in local government have continued to deliver a professional job.

The advice that finance professionals have provided their organisations helped to ensure that the books continued to be balanced and financial sustainability maintained.  This is in marked contrast to the wide-scale deficit budgeting in the health service and some persistent governance issues within the private sector.

Against this attacks on the levels of professional remuneration have continued on the basis that if only public sector executives were payed less the world would be a better place.  In fact, what needs to be done is a development of attractive futures for public sector managers to ensure strong leadership of large public organisations. But more of this later.

Microcosm

At the start of the year I was working in support of a finance team in a unitary authority. Inevitably, activity focused on the annual budget and the setting of council tax.  As a side show I watched with interest while the police authority tried to convince their local taxpayers that a precept which proposed crashing through the government’s 2% council tax ceiling was a desirable thing. It failed.

This relatively minor, but symbolically important, piece of public sector history demonstrated in a microcosm how the public views deficit reduction; largely as a necessary evil.

Additionally, it demonstrated the lack of enthusiasm for large council tax increases.  We have to remember that council tax is essentially regressive imposing the greatest burden on low income households. Any council tax increase, therefore, must be considered carefully.

This is why, it is important that those whose professional role is to advise council’s on financial policy should offer a range of options for the setting of the council tax rather than present one position for council members to accept or reject.

Election battle

So, if this minor skirmish demonstrated that there was passive support for the government’s deficit reduction, and a lack of enthusiasm for an increase in taxation, this was widely reaffirmed by the results of the greater battle that was the general election.

It is hard to believe now that it was considered a possibility that Ed Miliband would remove David Cameron from Number 10.  Indeed the Liberal Democrat claim that they had mitigated the worse effects of the Conservative right, while in coalition, was rewarded by the party being swallowed up by the Cameron juggernaut.

The argument has been made that Conservative policies towards the public sector have been unpopular but if so, it has clearly not had a significant impact in terms of the electoral outcome.  From where Cameron sits now the only thing he may be regretting is the statement that he would only stand for two terms.

However, in the fall out from the election there have been some changes in the public sector approach which can be seen as a demonstration of a new less defensive, confident approach in Conservative policy.

On a personal level the grizzled local government warriors Eric Pickles and Bob Kerslake were replaced by the fresh faced Greg Clark MP and Melanie Dawes (as secretary of state and permanent secretary) at the Department for Communities and Local Government.  Clark, who is generally considered to have scored some significant successes as minister for cities, presents a rather more measured approach to local government to that of the determined Pickles.  This can only be welcomed.

Careful what you wish for

In policy terms there have already been some important developments.  The full localisation of business rates gives the local authority lobby something that it has been asking for. However, as I stated in some previous comments in Room 151, you have to be careful for what you wish for.

This policy will have the advantage for government of removing the need to fund local authorities through block grant and will potentially give them more ability to influence their financial futures.

But I struggle to see how it will represent a good settlement for those authorities that have a low local tax base built from business and domestic taxation.

The government will be announcing transitional arrangements, but the days of attempting equalisation at the national level are over, which is also potentially bad news for local authorities.

Soundings suggest that some councils will be awash with cash where they have a buoyant business rate base. Others will be left behind if they are unable to improve their local economic circumstances.

Applause and a soft approach

Following this was a change in approach on council tax.  In the spending review the government enabled local authorities to increase tax by 2% to assist with meeting the increasing costs to adult social care.

The interpretation of this policy is that it is in addition to the 2% allowed for the general council tax increase before the referendum requirements are enabled.  That said, we do not yet know the future of the council tax freeze grant for next year, though there does appear to be a change in mood which suggests that some discretion on council tax increase is seen as desirable – the new softer approach from central government.

The creation of super councils pioneered by the initiative in the Manchester was a further positive development that can be applauded.

Finally, in this section the government has rattled its sabre over the holding of local authority revenue reserves, though ultimately taken no action.

My personal view is that, as the legislation stands at present, government could not remove money held by local authorities unless there is a new act of parliament.  Alternatively, stepping back from the raid on reserves, may be a sign of the more enabling partnership approach that central government appears to be adopting.

Managerially, a moment that struck a chord with me was a session given at ACCA’s Local Government Summit in the autumn.  John Dennis of Insight Management Solutions gave a thought provoking session about the strategic role of the finance manager.

As finance professionals it is important that we are on top of the detail and provide processes that support the organisations that we work in.  However, if finance professionals wish to contribute at the strategic level they need to  to develop an overview and step out of the detail to contribute to corporate strategic vision.

This means that in finance teams, managers must empower their staff to take on more operational responsibility to enable those in leadership roles to operate in a strategic fashion.

The theory of this is straight forward but the implementation is not as easy as the management text books suggest.  Particularly for finance leaders, this is about delegating responsibility for process work and thinking more creatively about how they can help steer organisations.

Limelight

As we come to the end of the year, two particular services that local government provide are being thrust into the limelight of publicity.  Few would have identified flood defence as one of the most high profile local services.  But with the impact of global warming and recent localised freak weather events, flood defence and its management has become one of the most critical public services.

Secondly, child protection is once more in the forefront of the news with the Prime Minster threatening intervention where the service is perceived as underperforming.

For me the focus on these two service areas sums up the spread and importance of local services.  One is a universal service that protects the health, safety and livelihoods of all in a local community while the other is a service that most of us will, thankfully, have no contact with but provides for the safety and very existence of some of the most vulnerable members of our local communities.

Does this not sum up the huge diversity of local services and why local government is one of the most rewarding but challenging parts of the public sector?

So, as the year draws to a close those working in local government can look with some satisfaction on a year that has been successful for the sector despite the financial challenges.  The future can still be positive and decline is not inevitable.

In the New Year it is important that all of us focus on the positives and put the case for the development of the local government service and its staff for the long term benefit of the country as a whole.  Happy Christmas to you all.

Stephen Fitzgerald is a management and financial consultant in local government.

@SHJFitzgerald

Flooding photo (cropped): Defence Images, Flickr.