ICAS responds to Scottish Parliament inquiry on the financial sustainability of local government
ICAS comments on Scottish Parliament’s inquiry on the impact of COVID-19 on local government
The Scottish Parliament’s Local Government and Communities Committee is reviewing the impact of COVID-19 on the financial sustainability of local government in Scotland.
ICAS raised the following messages in our submission.
COVID-19 impact on local government
The services provided varies across local authorities however those with a heavy reliance on trading income from market services e.g. fees and charges, or where there is reliance on a trading arm/ALEO have experienced a greater impact on their operating budgets.
The risk exposure is greater for authorities with group structures, commercial and investment activity which can perform well in good markets but struggle in poor markets. These need to be supported by contingency plans and an appropriate buffer of financial security and risk management to protect public funds.
The financial challenge will be more acute for those authorities who have had to use their reserves or are planning to rely on reserves to fund future expenditure. Reserves are not a recurring or sustainable source of funding, nor are they a substitute for making difficult spending decisions/ savings.
Whilst the impact on the 2019/20 financial statements is likely to be very limited given the timing of the lockdown across the UK, a much bigger impact is anticipated on the financial statements from 2020/21 and beyond.
A long tail of increased cost and demand is expected to particularly affect a range of services including social services, with (for example) elderly and looked after children potentially needing greater support, but also education, leisure services, transport and cultural activities which could take a long time get back to pre-virus levels of activity.
Additionally, financial and operational pressures are likely to affect the delivery of prior efficiency savings plans, which risks compounding budget difficulties. There is still some uncertainty around additional funding and financial settlements. Establishing certainty about the longer-term financial support and use of scenario planning for informing decisions on service options is key to effective planning.
The additional costs of and risks to third-party service providers (e.g. care homes and charities) needs to be factored in, as well as service users ability to pay. The sustainability and equity of social care funding needs to be reviewed.
Regarding governance arrangements and maintaining process efficiency during the pandemic, our members found that performance is variable. Some authorities have done well re-establishing governance (council and committee meetings), updating members, redeploying staff and delivering “business as usual” as well as additional activities. A review would help identify what has worked well and lessons for the future.
An ICAS members’ survey on COVID-19 measures found inconsistencies in delivery processes and outcomes across different local authority areas. Comments highlighted a need for clarity on why applications were refused and greater flexibility so that payments reflect need, rather than applying a fixed grant amount whatever the size of business was suggested.
We also note that some local authorities were proactive, engaging with central government to achieve clarity on eligibility conditions to maximise their ability to make needed payment.
What help will councils need in future from the Scottish Government or others to overcome the ongoing financial strain?
Given the challenges for authorities to meet the balanced budget requirement and deliver services, further innovation in how to deliver services, the role of technology and how to meet any financial gaps is needed. The significant interaction of some services between local and central government and the high relative contribution of central government funding means this is unlikely to be resolved in the short term and by looking solely at additional local taxation and commercial revenue at a local authority level.
What can the local government sector do to manage the financial impact of the crisis?
Creating resilience is key. For example, setting a culture for incentivising and accelerating transformation, more digital capable service provision; assessing risk exposure of market-led activity and third party service provision; appropriate reserve levels; borrowing alternatives and restructuring of debt; determining the most appropriate structure and organisation to meet service needs and a review of what constitutes an essential/statutory service in today’s world.
Considerable change and improvements have already taken place – much to the sector’s credit. This should be a platform for further improvement in a “new normal” environment. Emerging themes include technology, data, resilience, innovation and improvement, tackling inequality and driving through the culture change to make it happen in an appropriate timescale.
Opportunities include rationalising space and property, sub-letting, partnership working across different sectors, shared office space, shared back-office services and more joint provision of services across different council areas.