The next government has a “window of opportunity” to reform local government finance before the whole system falls over, the sector’s most senior accountant has warned.
In an interview with LGC to mark his retirement from the Chartered Institute of Public Finance & Accountancy after 11 years as chief executive, Rob Whiteman said local government was “a few years off being in a very dangerous place”.
He said the extra one-off resources secured for councils in recent years by communities secretary Michael Gove, who he described as a “big hitter secretary of state”, had “staved off the worst that we feared” of significant numbers of councils being unable to balance the books.
If as expected local government gets “another big hitter” in cabinet in Labour’s Angela Rayner, there are likely to be more one off cash injections but there would soon come a point when this approach would be insufficient to deal with the baseline cost and demand pressures in the system.
Referring to the 19 councils that received so-called “exceptional financial support” earlier this year, allowing them to capitalise revenue spending, Mr Whiteman said: “[Those] local authorities would have gone bankrupt but for being able to capitalise their revenue gap, that’s a lot.
“When you look at people’s medium term financial plans, a lot of the sector will survive the next year or two, not many in the sector will survive three, four or five years time.
“So there is a window of opportunity for a government to look at local government finance, prop it up in the meantime, but have something that replaces the current system in say three years’ time, otherwise the whole sector starts to fall over.”
Mr Whiteman, who trained as a Cipfa accountant and was chief finance officer at Lewisham LBC in the early 2000s, said the system of exceptional financial support was “heinous” in accounting terms.
“That you by law, say you can break every accountancy rule in the book, and use capital resources to stop you going bankrupt is terrible. It’s unimaginable to me. But that’s where we are.”
Mr Whiteman said “most” of the councils that had received support had “made some mistakes along the way” and were “not as well managed as the rest of the sector’s been”.
“But we are at the point where a good authority like Havering has already needed help,” he added. “In the next year or two, there will be more good authorities that need help.”
Havering LBC was awarded £54m in exceptional financial support after warning it simply did not have enough funding to meet demand for services.
Mr Whiteman, whose stint at Cipfa completes almost 20 years in chief executive roles, suggested a “basket” of reforms were needed such as the abolition of the council tax referendum cap, and “some new sources of income, whether that’s tourism tax, city taxes, or the government finds a way of funding social care.”
However, he also said more funding was needed as the sector was “so distressed” a new government would have limited scope to redistribute between different kinds of authorities, as political parties have typically done in the past with Labour favouring urban areas and Conservatives rural ones.
“I can remember when I was a CFO, many, many years ago, arguing on behalf of London that we were getting a bad settlement compared to some of the other Mets because they were getting 9% growth and we were only getting 7%.
“It was a different era. And now I don’t see how anybody can lose. And so redistribution, which doubtless the [next] government will want to do, becomes all the harder because the sector is about to fall over.”
Asked if he thought a new government might be tempted to look at local government reorganisation to save money, Mr Whiteman said it would be a “good idea”.
Though he personally is in favour of large unitaries, even covering a county the size of Essex which has a population of 1.8 million, he said any future reorganisation would likely be looked at through the prism of combined authorities.
“I think the biggest show in town is going to be wanting all areas to have a combined authority in order to drive economic growth through transport, infrastructure and housing.
“If in five years time, every part of the country has a combined authority, does that become a unit of devolution? Or does that become a unit for aggregating services to manage the market in, say, foster care?
“But the traditional argument about should counties and districts be combined, I’m not sure that will be the debate we’ll be having in the next five years.”
