Improvement needs strong financial management: Local Government Chronicle

Council improvement rests on strong financial management

by Paul Gosling

Moving from crisis management to strategic management can be worth a lot – going from being in the highest 2% to the lowest 20% of council tax charges in the case of St Helens MBC.

For years members and senior officers believed that St Helens council provided good services, but was given too little Revenue Support Grant. Their reality check began with the election of a Labour government that initially maintained Conservative levels of grant support and only offered more if the council would improve its service standards.

This was when St Helens found that it services were nowhere near as good as it thought – and were more expensive than those at many councils whose services were better. It was recognised that an essential requirement for improvement was to overcome an ongoing £11m deficit and end the crisis management responses, such as recruitment freezes.

To provide a structure for service improvement and cost reduction, the council decided to adopt a medium term financial strategy that was based on CIPFA guidance for MTFSs. Adopting the MTFS began with a zero-based budgeting exercise, through which each department had its costs and outcomes examined through a peer review process involving officers from other departments in the council. Using CIPFA statistics, the peer reviews benchmarked services with comparable authorities. In many cases they were shocked by what they found, with external inspections reinforcing the criticisms of service standards.

Services’ unit costs were examined, along with cost drivers. In the case of children’s care, for example, the council found that not only were unit costs higher than elsewhere, but that the council had above average numbers of children in care. The council then addressed both the mechanics of bringing down unit costs – including through outsourcing – and also how cost drivers could be reversed. All high cost services were reviewed under the Best Value programme.

The exercise led councillors to recognise that they were spreading resources too thinly, trying to do too much, but in the end not doing most things sufficiently well. Aspirations were checked and new objectives agreed. Economic regeneration of St Helens – where the largest company, Pilkington Glass, had cut thousands of jobs – was agreed as the over-riding priority and all services and policies should contribute to this. Where service subsidies were in place that failed to help with this objective, service charges were increased.

A key element in stabilising the budget was a commitment to asset rationalisation, which meant that the council no longer needed to make contributions to its capital programme from its revenue budgets. As buildings were sold, so maintenance costs were cut. A more affordable capital programme was instigated, funded from the capital receipts.

Following the zero-based budgeting exercise, the council’s funding gap was reduced from £11m to £2m, without cuts to services. While councillors agreed they should reposition the council from a high to a low council tax levying authority, they decided that initially the funding gap should be covered by a one-off 5.5% tax rise to pump-prime an ongoing strategy of service improvements and cost reductions. Subsequently, all tax rises have been limited to 2.5%, bringing the tax level down from the fifth highest in England to one of the lowest 20%.

The medium term financial strategy became the means by which the stronger financial management could be maintained. St Helens has adopted a three-year rolling MTFS. Elsewhere, some councils have taken up MTFSs to project spending and revenue figures as far as 10 or even 15 years into the future, to help them plan for known long-term contingencies, such as major new residential expansion.

A principle behind St Helens use of the MTFS has reversing the structure of decision-making, providing greater political and managerial control of services. In the 1990s, councillors agreed the budget and services were provided within those boundaries. Now the council defines its affordable service priorities and this determines the budget. But this approach can only be successful where it is accompanied by an effective system of performance management – there was none prior to St Helens financial management reforms. Key performance indicators are monitored monthly, with some critical data (such as on housing benefits claims and payments) produced daily.

As well as the overall three year MTFS, each service department produces annual and outline rolling three year service plans. Together the service plans produce the council’s rolling three year corporate plan, which must complement the 10 year plan set by the local strategic partnership (St Helens Partnership). In addition to the costings of service plans going forward, the MTFS also contains prudent forecasts of future pay and price movements, levels of precepts and levies and likely Revenue Support Grant. Assumptions are backed by risk assessments.

St Helens’ adoption of its MTFS has been central to its ability to improve services, as well as cutting budgets. Inspections have shown dramatic improvement, with four star ratings from the Audit Commission for the CPA and corporate assessments. Unit costs have fallen substantially and there is no longer any need for crisis financial management, such as the freezing of posts. Service managers have been given much greater freedom to manage, with looser controls on recruitment and virement providing they operate within strict cash limits.

St Helens’ assistant chief executive with responsibility for finance, Ian Roberts, says: “This type of change can only be achieved if there is a change management plan. The upheaval if not managed properly could be destructive, not constructive. This issue was identified by St Helens in advance and has been avoided.

“You can do a zero base budget review in nine months. You can do a change of structure in six months. It will not work without strong and committed leadership from both the chief executive and the council leader and the overt recognition of the need to make difficult and unpalatable decisions. It has to be signed-up to in the medium term, not just the short term. This can only be achieved by brave political decisions to focus on core financial and policy objectives.”

• St Helens use of a Medium Term Financial Strategy is one of a series of good practice financial management case studies published by the Audit Commission to coincide with CIPFA’s annual conference. It can be accessed at the Audit Commission’s website, www.audit-commission.gov.uk.