07 February 2018

Northamptonshire’s financial difficulties are a warning about the sustainability of local government finances. But it’s also a sign of much deeper issues in Whitehall, argues Dr Emily Andrews.

The triggering of emergency financial measures in Northamptonshire County Council – halting any new spending beyond the staff wages and services it is required by law to provide – is symptomatic of much deeper problems in the way cuts in local government are managed from the top.

Early warning signs that the council was on an increasingly unsustainable trajectory were missed. The reaction came at the crisis point, not before.

Without a renewed vision for spending reductions, backed up by the evidence, the future is clear: more money will continue to be funnelled into expensive emergency rescues, and/or services will decline. To renew this vision, Whitehall needs more data – on service levels as well as spending – to understand what kind of efficiency plans will be achievable going forward.

The turning point for Northamptonshire was reached several years ago

Northamptonshire’s leader – Conservative councillor Heather Smith – said that the council issued warnings to central government in 2013/14. Other services, which we examine in Performance Tracker, experienced a turning point around the same time (prison violence, A&E waiting times and delayed transfers from hospital to social care started to increase too).

The Government could have intervened in these services at this stage – whether with new efficiency and reform plans, or more money – to address emerging problems and set those services on a new path to efficiency. Instead, further reductions were handed down in 2015, with the same message to the people running services: you work out how to do it, without damaging service quality. Since then, those pressures have only continued to build, leading to a series of crisis-driven emergency cash injections.

In this instance,  the council itself had to take the initial step of issuing a section 114 notice. This halts all new spending beyond their statutory (legal) duties, such as paying staff wages and providing social care to those deemed in need of it. And yesterday, as part of the overall local government finance settlement, Sajid Javid, Secretary of State for Housing, Communities and Local Government, announced an extra £150 million in adult social care funding over the next financial year. This new cash boost comes on top of the £2 billion handed over at last year’s Spring Budget.

But government doesn’t hold the right data to really know when efficiency is turning into failure

As a whole, local councils have managed remarkably well to make deep spending reductions over the last seven years, without any major public outcry over service reductions or failure.

But demand is rising. It matters that Northamptonshire is a county council – a tier of local government which is responsible for delivering adult and children’s social care. People over the age of 65 account for two-thirds of the recipients of adult social care, and they have grown in number by nearly one million since 2009. Over the same period, the number of children subject to a child-protection plan increased by more than 30%, from 39,100 to 51,080.

Spending on these statutory services has been protected compared with other local services (although spending on adult social care is still 5% lower than in 2009/10). The deepest cuts have been made elsewhere, to neighbourhood services like libraries, waste collection and trading standards.

There has been vigorous public debate around some of these issues – for example, library closures – but there is insufficient data at a national level to show just how far service reductions have gone. There will be a limit to efficiencies – but at the moment, it’s hard to tell just how close councils across the country are to that limit.

Falling council reserves are the best warning sign we have

Without better information on how services are faring, the recent fall in the level of council reserves is the best indication we have that the ability of councils to manage spending reductions is reaching the end of the road.

Local authority reserves (non-ringfenced) grew by 46% between 2010/11 and 2014/15, as councils shored themselves up for a potentially difficult future. Since then, they have fallen by 9%.

Northamptonshire has been criticised for using its reserves to fund statutory services. Yet the evidence suggests that this may be happening elsewhere. The Office for Budget Responsibility noted in its autumn analysis that reserve spending last year was almost entirely a phenomenon of councils with social-care responsibility.

For this reason, it seems likely that – whatever local issues may have triggered Northamptonshire’s crisis moment – this will not be the last council to meet a similar moment of financial reckoning.

Further information

Performance Tracker is produced in partnership between the Institute for Government and the Chartered Institute of Public Finance and Accountancy (CIPFA), both of which aim to help make government more effective.

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