Medium term financial plans demand a ‘refresh’, despite uncertainty

Medium term financial plans demand action.

When it comes to medium term financial planning, Tracy Bingham observes the only thing that is certain is that there’ll be uncertainty. But that’s no reason to avoid preparing.

All local authorities will have by now a good understanding of the significant funding changes currently on the horizon in the form of fair funding and business rates reform. Two and a half years have passed since I last developed my district council’s medium term financial strategy (MTFS). It’s as relevant now as it was then following two deferrals of review; the first, as a result of Brexit and more recently, Covid-19.

Throw into the mix the (still emerging and evolving) impact of the pandemic and it’s easy to put off reviewing the MTFS until there’s more certainty. But when, if indeed ever, will that come?

Many of us now anticipating the outcome of the spending review and forthcoming white paper on devolution. We’re also still reeling from the impact of the pandemic so far. So, how can we plan in the absence of any real certain fiscal policy?

Understand the fiscal landscape, even if it is uncertain

We continue to manage our revenue accounts within an out-of-date funding system, the consequence of which is a business rates system that is years passed its reset sell-by date and a funding formula based on historical data (and which as a consequence is wreaking havoc with funding for social care amongst other issues).
Understanding where your authority is in this context, and how the current out-datedness impacts your funding position, is key to developing a financial strategy that will manage the changes when they do happen.

It’s good to get this understanding from a range of sources including funding advisers, minutes of the review working parties and, of course, central government announcements.

Ultimately, what you assume in your plan is up to you (aside from what’s in black and white from Westminster), and striking a balance between prudent thinking and optimism is something that only you can gauge.

If something’s uncertain, make that clear—decision makers need to know whether they’re making decisions based on hard fact, speculative or well-informed assumptions. Giving those in power the choice of “getting ahead” can be no bad thing. As someone recently said to me: Sometimes it takes hard work to be lucky!

Outcomes

One of the most obvious ways of managing expectations around financial planning is to remind your management and administration that there will never be a perfect financial plan. You know only too well that it’s as accurate as the moment you develop it and will change at any given hour, but other’s often need reminding.

Presenting a range of scenarios for each key issue in isolation is a good way of presenting the potential funding reform outcomes. By keeping the scenarios and sensitivity analysis at high level, you’ll be able to broaden understanding of the issue itself as well as the associated risk of making different assumptions and taking different courses of action.

Don’t put it off

Now, more than ever, section 151 officers need refreshed financial plans to navigate and weather the financial storm created by the pandemic as well as the potential disruption on its way through funding reform.

Uncertainty around the future of fiscal policy is not a reason to leave the plan on the shelf in favour of waiting for more information. If nothing else, by reviewing and updating your plan you will raise awareness and deepen the understanding of your management and councillors of the potential scale, magnitude and range of outcomes. This will help you to formulate your strategies and understand what your members’ no-go areas are for making changes, should that be necessary.

Tracy Bingham is head of finance and section 151 officer at North West Leicestershire District Council.