Like you all, I do not know what will result from the pause in LGR.
The test for the Ministry of Housing, Communities and Local Government in the coming weeks is the 1948 Wednesbury case where unreasonable decisions occur when: 'So outrageous in its defiance of logic or accepted moral standards that no sensible person who had applied his mind to the question to be decided could have arrived at it'. Either way what happens next, this news moves some issues from the 'clarified' column to the already large list where ending uncertainty will help the sector.
We know the Government's response to the anticipated Casey Review before the next election will likely result in more resources for elderly care, a material local government financial pressure. In recent years, some councils have received help from Fair Funding redistribution. We also know that 90% of the accumulated Dedicated Schools Grant (DSG) deficits will be written off by DfE to reduce insolvency risks presently covered by the statutory override.
The Government has also written off some excessive and ill conceived debt associated with a handful of failed councils in order to assist local government reorganisation in some areas, and before the summer recess we were expecting targeted revenue and capital support for around ten authorities in receipt of Exceptional Financial Support (EFS) caused by cost and demand pressures to help to reshape their position through transformation. We hope to see this proposal survive the change in government and shortly come forward.
But it is not all bright confident upland for the sector's finances given the wider pressures of other adult care (also the subject of Baroness Casey's work), home school transport, underlying spending pressures in rebased DSG, temporary accommodation, the council tax referendum cap, and the rising costs of borrowing. For councils covering their revenue gap via EFS, the awful prospect looms of the associated borrowing in itself becoming a major revenue budget pressure in time.
Then an added complication and risk to throw into the mix will be the outcome of local government reorganisation when the pause is worked through..
At the heart of the business cases approved by government, now being reassessed, is a blueprint that economies of scale will save money from present district council services whilst, in most cases, more targeted place work where county services are replaced by new unitary councils will see better management of neighbourhoods to deliver prevention and both demand and cost improvements. The theory has supporters and detractors, but all would agree that savings are not immediate. And for me this creates a problem where some new councils will quickly find themselves in need of EFS. Why is this?
The disaggregation of counties will see assets and reserves aggregated with districts' assets and reserves to form new balance sheets for vesting day. Property assets, useful to generate receipts to mitigate the need to borrow, will by their nature fall unevenly.
Disaggregation is itself a huge and time critical task, and so understandably it means that much service transformation is likely to follow vesting days rather than precede it.
So put all this together, and some areas being reorganised will see their present service models carried over to councils that may not have scope to successfully cover transition and transformation. We can see a scenario developing where a number of new unitary councils will need to apply for ESF soon after their creation.
This worries me about the difficulty of getting the right culture in these new councils. Where we have seen councils in recent years materially improve their financial standing, for example Newham LBC , Dudley MBC and Southampton City Council, it has been the result of taking financial accountability seriously and the generation of savings needed to balance the books. There is no single magic bullet but ongoing hard graft. My advice to these councils was to 'be bilingual' and understandably lobby for resources externally whilst internally being clear that there are adequate resources for the council to put its house in order. Remember: If you tell an organisation it does not get the resources needed, I promise you it will believe you and give up trying to succeed! Well done to these councils, and the many others too, that in recent years have taken grip on their finances in the best traditions of the sector's good budgetary management.
But objectively, internal financial accountability is a hard message to land if a new organisation feels its holed below the waterline from the outset. That's not to say they must not try to do so but it is a challenge.
Being optimistic, the drive for mayors, combined authorities, and strategic authorities for national growth to be driven locally by improving skills, infrastructure, housing and health delivery is an exciting agenda. But a new sub-national tier will need resources and new capabilities to be effective. MHCLG and the Treasury will face many calls for investment. Councils working with Mayors and the NHS will play a pivotal role in leading places. And though local government reorganisation will in time conceivably better equip the sector to meet these exciting challenges, optimism alone is not enough. Some new unitary councils will face material pressures from the start that could see a greater number of councils require EFS in the meantime of transformation. They will need committed leadership from within, but I would argue help from the sector and indeed government too to get through the challenges they will face from the start.
Rob Whiteman is director of Lilliput Advisory
An earlier version of this article was published on Tuesday 8 September and has been updated in the light of the Government's decision to pause local government reorganisation on Monday 7 September
