Third of councils ‘at risk of financial failure’

Grant Thornton has teamed up with CIPFA to develop a financial foresight model to help local authorities understand and test their long-term financial sustainability

It found that a third of councils in England are at risk of financial failure over the next decade.

The model shows 36% of all councils in England are at risk of financial failure in the next ten years, with one in five (17%) at risk of financial failure by 2021. 

London boroughs are the most exposed with 78% (25) forecast to be at risk of financial failure over the next decade, along with 49% (27) of unitary authorities and 50% (18) of metropolitan councils.  Meanwhile 44% (12) of county councils are forecast to be at risk over the next decade, with three likely to be at risk in the next three years. By contrast, only 21% (43) district councils are set to become at risk – reflecting the fact that these councils do not have statutory responsibility for demand-led social care services.

The model also shows that in 66% of local authorities, spending on services is outstripping income.  Based on current per capita expenditure, population growth alone could increase the costs of delivering demand-led services by £1.6bn.  Grant Thornton says the imbalance between expenditure growth and income growth will see local authorities reducing their reserves by 84% by 2028.

Phillip Woolley, partner and head of public services insights and consulting at Grant Thornton UK, said: ‘Almost all councils now have financial resilience challenges, driven from rising demand and falling income levels. To move forward effectively, local authority leaders need to have an in-depth understanding of their own place and be able to develop robust plans against this local context.

‘Financial Foresight not only provides information on current financial trajectory, it also helps map an alternative financial path through to a sustainable longer term position. For example, assessing the financial impact over five years of increasing council tax, reducing spend on specified services and capturing a financial return from local business growth.’

In addition to demand, income, expenditure, reserve and borrowing level projections, the financial foresight software can be used to benchmark spend between authorities, and apply socio-economic and service outcomes to understand the nature and effectiveness of spend. It provides a dynamic projection of every English council’s financial trajectory over a 20-year horizon.

Rob Whiteman, chief executive of the Chartered Institute of Public Finance and Accountancy , said: ‘In these uncertain times, Financial Foresight can provide significant value to local authorities in their strategic financial planning. It can be adapted and updated over the medium term and gives council leaders the means to understand where financial pressures lie and the ability to craft solutions to ensure long-term financial sustainability.’

Financial Foresight - Current insights on local government financial sustainability report

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