A tale of two sustainable Cities

Today Bradford City and Swansea City meet at Wembley in one of those rare and romantic sporting occasions on which the underdog is bound to win.  Neither club has a glamorous name or a trophy-rich history, but each has built up a deserved reputation for financial sustainability, especially Swansea, which has matched its fiscal rectitude with more than the usual degree of success.

Football and local government have a lot in common.  Both are businesses in which there is an imperative for quick success and where the current year or two often seems to looms much larger in planning than the next ten.   Both are largely driven by cash expenditure and income while long-term investment can be a bit of an after-thought.

The National Audit Office’s recent report ‘Financial sustainability of local authorities’ is the central government watchdog’s contribution to the West Somerset Question. West Somerset, it will be recalled, is the tiny District Council which was the first to admit that it might not have a future if funding cuts go much further.  It is an episode that has left many in local government asking who is next?

The NAO is in a difficult position when it talks about local government.  It is responsible for auditing the distribution of grants to local authorities but doesn’t have a role in what happens when the money reaches local level: that was the job of the Audit Commission, of blessed memory.   As such, the report is understandably limited in scope but nevertheless it is an interesting and worthwhile bit of number crunching which ends up exhorting the DCLG (if I can paraphrase) to have a little bit more thought before it acts.

What the report doesn’t contain, to my surprise, is a definition of financial sustainability.  To fill the gap, here then are my suggestions for five defining factors. 

1.            Where are we?

It helps to start from a good place.  The strength of the balance sheet, and in particular for the medium term the level of reserves is a signal of how well set up an authority is to suffer the slings and arrows of the next Spending Review.   Authorities also need to understand what their costs are and how these are affected by events.

2.            What happening? 

The external environment is also important.  There are many strands to this but a key one is the growing gap between those authorities where the local taxbases are growing (which is rewarded under the new system) and those where it isn’t (which is punished in relative terms).  The other side of the equation is the demographic time bomb as exemplified by the Government maligned Graph of Doom.   There is a limited amount local authorities can do to alter these trends, and nothing at all in the short to medium term. 

3.            How do we know?

It is necessary for every organisation to have a good early warning system.  The obvious manifestation of this is good information management- not just a good financial information system but people who know how to turn data into knowledge.   Good governance is also an aspect, reflected in transparency and trust: if decisions are made behind closed doors on the basis of no business case, the chances that one will turn bad are that much higher.

4.            What do we do?

Planning, in a word, is the key.  Knowledge of where we are and what is happening out there is one thing, but a sustainable authority needs to have a sense of how it will respond. That involves everything from a vision of where we want to be, the route we will take, the ‘business architecture’ we will need to make it happen and the detailed plans that will get us there.   To be truly sustainable an authority needs to have its eyes on the short term, the medium term and the long term simultaneously.  Not easy; order the special glasses.

5.            How do we make it happen?  

Finally, financial leadership will be the difference between authorities that look sustainable on paper and those that are still actually thriving in ten years time.   In local government we look to elected members for leadership but in difficult times Members look increasingly to officers too.  The reality is that everyone, from the leader to the most junior manager with a budget, needs to understand the problem, the solution and what it takes to move forward, and act every day in the interests of delivering that outcome.

I think there are two lessons from this; firstly, number crunching is not the whole of the answer, but what you do with those numbers is just as important; secondly,  whilst the Government can make things a whole lot worse by getting  the distribution of grants wrong, a big part of the outcome rests with local authorities themselves.  The Local Government Association’s sector-led improvement programme will have a big role to play,  but for most authorities – those not doomed by their circumstances – the path to survival and being in good shape once they have survived will depend upon what they do. 

As to whether financial sustainability should be put ahead of short term success, local government may want to have a word with the supporters of Portsmouth and Glasgow Rangers about that.