Agent 151: FDs should back Cipfa resilience index

Agent 151 argues that Cipfa’s proposals for a new resilience index could be exactly what section 151 officers need to redress a shift in the balance of power away from the finance function.

We’re all fed up with the government’s bare-faced denial of the financial crisis facing local authorities. Its position should not be tenable in light of the actual financial failure of Northamptonshire and the threatened failure of many more, nor indeed in the face of some very well evidenced work by the NAO. The government’s tactic of pointing the finger at financial management in local authorities, rather than recognising the effects of its own austerity policy, is disingenuous.

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Financial management really isn’t the issue. Accounting and budget planning in the local government arena is better than in any other part of the public sector, and if you don’t believe me you can ask the NAO or Cipfa. Despite being the hardest hit area of government, councils have managed budget cuts for years and years and largely managed to maintain and even improve services. This issue is that in spite of the heroic efforts of local authorities to become more efficient and focussed, the policy of cutting funding to local authorities continues and will continue for the foreseeable future, and local authorities are being pushed closer and closer to the precipice.

If this is the case, then one might argue that an index looking at comparative financial resilience has no relevance. As Private Fraser was wont to say in ‘Dad’s Army’, “We’re doomed.” And this is a serious point: focusing on measuring how far from the edge each local authority is distracts from the more important issue that they are all too close to the edge anyway. In such circumstances, the index might be seen as a tool that supports and gives credence to the government’s tactic of blaming individual local authorities.

However, Cipfa has been clear that the resilience index is not proposed as “a performance table of service outcomes, or quality, and is not a comment on the quality of leadership in councils”. It is, rather, “an authoritative measure” of financial resilience that uses publicly available information, which is intended to provide an early warning system. Cipfa will need to find a way to prevent its misuse.

Rob Whiteman, CIPFA’s chief executive, voices the concern that austerity has taken its toll on the financial management capabilities of councils. The index will identify where this capability has been ‘hollowed out’ and provide the impetus councils need to address the deficit. Cipfa argues that the index, in tandem with a new financial management code, will support council finance leaders by providing hard, independent evidence with which to make the case within their organisation.

There is an interesting nuance here. The code is intended to help council finance leaders. This is a reference to the internal divisions that occur when organisations are under pressure. The roles carried out by various senior staff and elected members have conflicting objectives at the best of times, but when the chips are down such conflicts can paralyse the organisation or even take it in the wrong direction. The index is designed to ensure that financial issues are visible and cannot be ignored. Its existence should help to tip the balance towards a management environment in which financial risks are recognised and addressed long before they precipitate a crisis, even in the most dysfunctional of organisations.

Chief executives, whose role it is to manage the political interface as well as the organisation, have come out against the index, describing it as ‘well-meaning’ but a “blunt instrument” for naming and shaming that could be potentially damaging: this is the same point about blaming as that made above. They also argue that the index does not reflect the complexities of local authority performance, but does their focus upon this issue disguise something else? Inhabiting the no man’s land between politics and operations, chief executives like to have a good deal of wriggle room when it comes to handling difficult issues. The index is very focussed and removes a good deal of that wriggle room when it comes to financial management, shifting the power balance further towards the s151 officer. Which chief executive is going to be happy with that? A similar point applies to council leaders, whose flexibility to manage their political group or political alliances will also be eroded by the index.

There are always pros and cons. But ideal solution or not, local authority finance directors should proactively support the discussion about measuring financial resilience, because it is the right discussion. Well done indeed to Cipfa for bringing it to the forefront! Due to the circumstances local authorities find themselves in, there does need to be a shift in power in favour of s.151 officers. Their position has been progressively weakened in recent times, for example by the removal of statutory protection, and the diminution of the role of the external auditor. An independent test of financial resilience that is publicly available is a powerful tool. Let’s put some energy into this debate and ensure it gets us somewhere!

Agent151 is a senior local authority finance director and s151 officer writing exclusively for Room151.