Mike Thatcher: constructing a new role for local government

In his first monthly viewpoint, Room151’s new editorial director reflects on what has changed and what remains the same for local government finance over an eventful seven years.

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Having spent the last seven years working in a different field of financial journalism, it is reassuring to find that some things haven’t changed in the world of local government.

The people are still friendly, open and welcoming. Since joining Room151 as editorial director at the start of January, I have spoken to a range of Section 151 officers, and also to local government auditors, pension fund advisers, treasury advisers, asset managers and regulators. Each has given their time freely and spoken frankly about the environment in which they work.

S151s are still fulfilled by what they do and are proud of the influence that local government can have on health, employment and prosperity in their locations. They truly believe that public services can change lives for the better and that good financial management helps to achieve this.

Many of the issues that kept council FDs awake at night seven years ago still have the same effect today. First and foremost, this involves financial pressures, particularly in areas such as social care, with continuing calls for reform of local government funding. But it also includes recruitment problems, spats with central government and pressure from local politicians.

Many of the issues that kept council FDs awake at night seven years ago still have the same effect today. First and foremost, this involves financial pressures…

Perhaps what is different now though is that these issues are more extreme. According to the Institute for Fiscal Studies, local authority spending per person has fallen by 25% since 2010. The impact has been uneven—with metropolitan and less well-off areas often bearing the brunt of the cuts. Fairness has been hard to achieve given that allocations are still based on 2013 data.

Some solace has been promised through the Fair Funding Review. However, to nobody’s great shock, this has been a promise undelivered. First launched in 2016, the review has suffered multiple delays and implementation is now not expected until at least April 2023. Similarly, the Levelling Up white paper has been postponed several times, but could provide some support to “left-behind” areas in the North of England, South Wales and the West Midlands.

22 March 2022
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The entrepreneurial council

Increased funding pressure has forced councils to be more entrepreneurial. This is not to say that commercialism is a new concept for councils, far from it, but using commercial activity to generate income has become more and more common.

Some of this has been hugely successful. Undertaken properly, commercialism can deliver benefits to both councils and the communities they serve. The return of councils to house building—aided by the lifting of the Housing Revenue Account borrowing cap in 2018—is a case in point.

As Professor Tony Travers—the guru of local government finance then and now—has demonstrated, some upper-tier councils appear to be moving from being “predominantly welfare state actors to disproportionately tilting the other way towards being investment and regeneration companies”. This is a significant change and one that provides local government with the means literally to rebuild towns and cities.

It does come with additional risk though, as some councils that have launched local energy companies or purchased large shopping centres have found to their cost.

Concerns remain on the Prudential Code

This has all led to a heated discussion about the role of CIPFA’s Prudential Code amid concerns that it would be tightened to force the sale of council commercial investment properties. It does seem that good sense has prevailed, and the revision of the code in December 2021 has left some room for compromise. However, views are still mixed, so expect this to be a recurring point of debate, not least at the Room151 Local Authority Treasurers Investment Forum North conference in March.

Other issues that were not so prominent seven years ago include: the threat from climate change and the race to net zero; the lack of capacity in local government audit; the creation of pension pools in the Local Government Pension Scheme; and the politics of levelling up. And, of course, dealing with the Covid-19 pandemic, which has tested every finance department with a range of additional funding measures to help councils support individuals and businesses affected.

The year ahead promises plenty of ups and downs on all of the issues mentioned above, new and old. Look out for extensive coverage on Room151 with a wider range of contributors and formats. Feel free to send any suggestions for news stories, interviews and articles to mike.thatcher@room151.co.uk.

Mike Thatcher is the editorial director of Room151. He was previously associate director for content management at EY and the editor of Public Finance magazine.

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