Duncan Whitfield on financing frontline services

Duncan Whitfield is strategic director of finance and corporate services for the London Borough of Southwark. He became finance director in 2005 and before Southwark was at Westminster for 18 years.

Room 151: You lost £6.1m from your Early Intervention Grant – how is the council coping with that?

Duncan Whitfield: As an organisation we see a lot of cross-cutting activities between different departments and services. So as you cut into Early Intervention Grant you are creating pressures in all sorts of other parts of the system. So we have tried to protect the loss around Early Intervention Grant. We had a financial strategy which aimed at a level of savings around children’s services in 13-14 which did not account for that loss of grant. As we moved into 13-14 we stuck at that level so as an organisation we put some level of protection around early intervention by going deeper into other services. That is because we recognise the importance of protecting children of that age.

It’s a bit misleading to try to relate individual grant cuts to individual cuts within the organisation – we need to look at the big picture caused by EIG loss, which did come as a surprise to us, particularly by way of its scale. It was a large number and we couldn’t just directly pass that on to those children and to those who supplied services to them. We had to find other ways of protecting the service through bigger cuts elsewhere and other ways of doing things like buying our town hall.

In 12-13 we leased our building but then it came up for sale and because we could make a sound economic case for doing it we bought the building. That is £1.5m in annual savings that we reported through our 13-14 budget which will probably become double that as we move into 14-15. Those kind of actions are the kind of things we are looking to do to protect our frontline services.

Room 151: You have a £24.9m efficiencies, income generation and savings target. What does that cover?

DW: Income generation is a small proportion. Strategically we have a view of the 25% cut that we needed to make back in 2010. We needed to sit down and have a think about how we might achieve that but what came as a surprise to us was the frontloading of the cuts and the need to deliver up front.

We prioritised back office cuts. It’s easy to say that back office cuts are efficiency savings but there comes a point where cuts in the back office start to impact on the efficiency of the front line. So there was a heavy loading of savings from back office in the first year that gave our front line services time to reorganise the way in which they deliver services to minimise the impact of the cuts.

Politically there is a dynamic that means we would rather tell the world we are working more efficiently, but the scale of the cuts that local government is taking means that there really are some stark choices to be made about what services we can continue to provide and at what level.

The net impact of our savings over three years has been £90m and to say that we can just be £90m more efficient is kind of stretching it. If it was that easy we would be doing it anyway.

So, things like transforming day centres for the elderly is the kind of thing we are looking at. It’s finding different ways of providing that support through different models. We have capitalised in the programme for 14-15 to go and build new amenities for those with learning disabilities and for the elderly. That will mean that we can focus our resources into a smaller number of locations while hopefully providing a better service.

Room 151: You talk about strategic finance initiatives – what are you doing there?

DW: One thing that local authorities are seeing at the moment is a boom in cash balances and that was of great assistance to us in buying our headquarters. We had cash resources earning under 1% on the market and we were looking at comparisons of borrowing at 2.5-3% and the lease that we were paying on the building. So what we found was that by releasing cash, at least temporarily, we made far bigger savings on the acquisition of the building than we would have done had we borrowed.

This may be a temporary measure and we are continually tracking the markets to see when we need to borrow to recoup the cash that we outlaid – it was more than £170m. As we speak now we are looking at other opportunities of where we can use cash to invest in big services to make longer-term revenue savings. Possibly for example, around our PFI schemes. If we can find a mutually agreeable resolution with our partners we will do so and we will seek to make revenue savings as a consequence. That would be by using our cash and our borrowing capability to reduce revenue costs. Using these strategic finance models helps at least delay the impact on frontline services.

As we were operating at a level of cash balances above those we needed we have temporarily removed them to buy the building and when we need the cash back to build schools, houses etc, we’ll borrow.

Southwark is a very big landowner and owns about half of the borough, which is principally a function of our housing stock, so we are always looking to see how we can use our asset management strategy around property and land to generate some kind of revenue stream to sustain a capital programme.

We’re one of the few authorities to be building libraries rather than closing them. We opened Canada Wharf library at the beginning of 2012 and that was a £6m investment, which kind of goes against the grain when others under pressure are being in a position where they have to close. We’re building another library in Camberwell in the next 12-18 months and we’re building a new leisure facility in Elephant and Castle. All of these things are functions of our ability to carry out land and property transactions to generate wealth to put back into the community.

As we build these amenities we’re hoping to make a better place for those who live and work there, it is a priority to us to try to keep that wheel turning even though we’re in a bad time financially.

Room 151: Children and children’s services is mentioned a lot in your reports, including things like free school dinners for all primary age children. Does Southwark have particular strains on the budget in this area in terms of deprivation etc?

DW: We still have deprivation issues, I think we’re in the top six in London and there is something quite strange about the grant settlement in the last three years inasmuch as the biggest loss of spending power has taken place in the more deprived boroughs. That is partly a function of our being the bigger boroughs, so as well as us there is Newham, Tower Hamlets, Hackney, Islington. We’re big and so naturally take a bigger cash hit. But in proportional terms it has been bigger than the average as well.

There are pressures across all the services and it is interesting that with something like local council tax benefit schemes, the elderly have been protected. So we may be putting a disproportionate impact there on younger people and families. So in that context, as the current administration entered power they had a manifesto commitment to free school meals and the total cost of that has now ramped up to around £5m per year. The reason they committed to that was because of things like obesity and because Southwark has one of the biggest obesity problems in London if not the country. Diet is linked to ability to concentrate in the classroom so there is an aspiration that it helps feed educational results.

Room 151: You have a business support grant scheme. What is behind the decision to provide that?

DW: One thing the administration has done over the last three years which has been a protective cushion to the cuts is create a number of funds which the voluntary sector or community could bid into. Some were a consequence of civil disruption from a couple of years ago for example.

So in the context of having to make £90m in savings the administration has put money back into the budget to protect those who need protection and those who are able to transform and work in a different way to survive.

We have had a £2m voluntary sector fund over two to three years and now there is a business support fund which is for the high street in particular. It’s £1m to be allocated over three years on the basis of how do we help sustain high street businesses as they come under increased pressure during the recession.

We had the floods in Herne Hill and that is the kind of event where we need to put money into places to keep them alive. If we’re talking about businesses of course they generate business rates and with business rates retention that has become an increasingly important part of our business. We need to keep that revenue stream alive. From my experience a little bit of help can go a long way and if you can put criteria around how you allocate support to make sure it is going to the right place it is even more useful.

The government hoped that the voluntary sector was part of the solution to some of the cuts but they had to take cuts themselves so to see the voluntary sector coming together and work in a different way with our support through grants is really helpful.