Sleepy treasurers must change before councils go bust

Steve Bishop is Strategic Director for South Oxfordshire and Vale of White Horse District Councils

In my professional career in local government finance, there has never been a more exciting time. Gone are the days when we used to simply tell our politicians what the grant from Government was each year and how much we needed to spend or cut. We’re now living a world of City Deals, New Homes Bonus, Tax Increment Financing, business rate retention, earn-back, LEPs, the Community Infrastructure Levy; a web of intricate and interrelated Government schemes which bring with them two things in spades: opportunity and complexity.

For any council that has a handle on all of these schemes there is a real opportunity to make things happen by picking and choosing which ones suit you best. For any old-fashioned treasurer who sits back and reacts to what he/she is told, and fails to go out and proactively research these schemes, his/her council is going to come a cropper sooner rather than later.

These new funding schemes are replacing a fast-disappearing Revenue Support/Formula Grant.  The Government is basically saying, look, these are all the games you can play – if you choose not to play that’s entirely up to you but if you don’t, you are going to lose out financially. It has therefore never been more important for the S151 officer to get to grips with the wide range of schemes out there, some of which are contradictory, and explain them to politicians. There’s no way S151s alone have got the authority to take some of the resulting large scale, high-risk decisions so, sleepy treasurers of the past have suddenly been called upon to wake up and become much more savvy with what’s out there so that they can bring politicians along with them.

And it’s not straightforward stuff even for the finance officer, much less the politician. Understanding these schemes in isolation is hard enough – take business rate retention for example, no one has really got a clear view of whether they’re going to be winners or losers in the next five years, let alone in the next year which we’ve only recently had to make some quick judgments about. So to understand how all of these weird and wonderful schemes work and how they interact is a massive challenge. You’ve then also got to build a pitch in laymen’s terms, which sets out the risks as well as the opportunities, to coax politicians into taking some tough decisions.

It’s not easy for S151s to stomach that risk either. S151s who have generally been taught to be as cautious as possible are now having to be braver than ever. It’s very easy to say to your members, don’t touch this or that because we could get into trouble further down the road – and you’ll always be able to defend the risk-averse position – but your council will lose out.

The management teams who embrace this challenge will be worth their weight in gold because they’ll have taken the risks, got the message across and pushed their politicians hard to seize the opportunities that Government are giving them. As for the management teams who fail to meet these challenges, well, their days are numbered. Formula grant is reducing across the board and when the money dries up politicians are going to want to know why their officer teams didn’t grasp the nettle, even in councils where members and officers currently share the same cultural resistance to change.

So the Government is saying, if you build houses, you’ll get New Homes Bonus; if you grow businesses, you’ll get business rate retention; if you bid for City Deal status,you can ask for anything you want (as long as it’s not money !) In coming years the Government will look at those councils which have relied too heavily solely on the Revenue Support Grant and will feel justified if some of them go to the wall. And that’s where some councils are heading. Small to medium sized district councils with a few million pounds of reserves (or less !), where net budget requirements well exceed reserves are feeling the pinch, facing mounting medium term budget deficits. To compensate for that they’re getting more and more optimistic about the level of savings they’ll make in the coming years. The longer you delay making cuts, the closer you get to the point where that un-prudent optimism gets exposed and the savings-slope gets steeper and steeper until suddenly you’re teetering over a cliff face.

You’ll get to the stage where you’re not trying to figure out how you can spread £1m cuts over the next five years but how can you save it all next year. That’s when front-line services get hit hard and that’s when councils start falling over.

There is a significant shift of importance and control underway towards management/officer teams and councils, of which the S151 officer is a key figure, and the councils that don’t seize that control run the very real risk of going under. Similarly, if there are politicians who are ready to take opportunities and do the unthinkable but they work with sleepy officers who never recommend new options, then those councils will go backwards too.

Finally, at some point the Government is going to have to realise that despite some really exciting initiatives that hand power over to local government and a very radical rethink of the way local government is funded, which was needed, there are still forward thinking councils out there who just can’t take advantage of the schemes as they’re currently set up because they’re geographically in the wrong place. You can’t build houses in national parks or in areas where people don’t want to live. You can’t grow businesses where business don’t want to operate.  And yet councils in such constrained areas, often in the north, are still losing core government funding so there are real issues there for some councils who would love to create more enterprise in their areas.  Currently there is all the makings of a growing gulf between rich councils getting richer and poorer councils getting poorer.

So, having said it mostly comes down to the quality of your officers and your politicians, it also comes down to geography as well and I think the Government is going to be forced back to the table at some point when they realise that you can’t have constrained councils (in the north) go to the wall simply because housing and business are located elsewhere (in the south east).

In any event, local government is going to look very different ten years from now and it’s the politicians and officers who get their heads around the complex financial changes going on today that will be around then to tell the tale.

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