Reasons to be cheerful in a time of major change for local government finance

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The message that local authority finance teams need bolstering seems to be winning a hearing, writes Alison Ring, while reform of local authority financial reporting and audit gathers pace.

For finance teams looking forward to taking a short break away from it all over Christmas, it may be tempting to not want to come back in the New Year. Rumours swirl around the potential content of the delayed levelling up white paper and how radical that might be.

Local audit continues to be in flux, as we progress towards the appointment of a new system leader and the next procurement round takes shape. The Prudential Code is being tightened to constrain the flexibility councils once had to borrow to invest, and recent scandals have put a spotlight on governance and accounting failures.

Pressures

The recent Public Accounts Committee (PAC) hearing on the local government finance system highlighted the current spotlight on the supposedly mundane world of local authority accounting and audit. Officials at the Department for Levelling Up, Housing & Communities (DLUHC) and HM Treasury were questioned closely on the financial sustainability of local authorities, getting much deeper into the subject than just talking about the potential risk of further s114 notices by councils.

While asserting that the recent settlement in the Spending Review, together with covid emergency funding and expected council tax rises, should enable the sector to meet the financial pressures it is facing, the senior civil servants appearing before the PAC acknowledged they have been engaging with as many as 150 local authorities in England on their financial positions. This is in addition to the exceptional financial support being provided to 10 councils in significant difficulty.

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After a decade of looking at local government as primarily a source for financial savings, it does appear that central government is increasingly recognising the key role local authorities have in economic regeneration and “levelling up” prosperity and wellbeing across the country—as well as in delivering net zero carbon. — Alison Ring.

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While questions from the PAC included revisiting existing concerns, such as the growth in recent years in commercial investments and much higher levels of local authority debt, there was a great deal of focus on issues that don’t normally extend outside the public finance arena. This included discussing delays in obtaining audit opinions, the upcoming PSAA procurement round for external audit appointments, and the calculation and legislation surrounding the Minimum Revenue Provision.

As the only recognised supervisory body for local audit in England, we’re keen to see improvements made, and we were pleased to submit evidence to the committee and hear this put to officials.

What is clear is that local authority finance teams are likely to be even busier in the coming year. DLUHC reiterated its commitment to the Redmond Review recommendations for a simplified summary statement and to improving the understandability of financial statements, while CIPFA is in the process of revising the Prudential Code with potentially significant implications for treasury management operations.

Independent members on audit committees could become a mandatory requirement, which ICAEW supports. Councils may also have to consider planning for a potential transition to new external auditors in 2023.

All of these developments will require support from finance teams if they are to be successful, in addition to the existing challenges facing local authorities as they seek to repair their balance sheets following the pandemic, manage tight budgets, and deliver on council priorities.

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Cheer

Despite that, there are reasons to be cheerful. After a decade of looking at local government as primarily a source for financial savings, it does appear that central government is increasingly recognising the key role local authorities have in economic regeneration and “levelling up” prosperity and wellbeing across the country—as well as in delivering net zero carbon.

And while there are many views about the prospects for the government’s plans for adult social care, there are at least now some plans to have that debate.

Of course, there remains a great deal of uncertainty, not least as none of us know what the path of the pandemic will be in 2022. In local government we need to be cautious until we see what is contained in the levelling up white paper and just how radical it might be. And further scandals or failures are always possible, with all that those entail.

The spotlight on local government financial management is intensifying. While this will increase the pressure on local authority finance teams in 2022, it also presents an opportunity to make the case for better governance, better reporting, and better audit, to ensure public money is being spent in the most effective way.

Alison Ring is public sector director at ICAEW (the Institute of Chartered Accountants in England and Wales).

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