A view from our partner: CIPFA

We must invest to manage demand and relieve future pressures to break the cycle of crisis management.

Article written by Rob Whiteman, Chief Executive of the Chartered Institute of Public Finance and Accountancy (CIPFA)

While we all know the old saying that prevention is better than cure, prevention in a public service context is not just about health services.

Wider services such as education, employment, social inclusion, housing and the built environment can have greater impact on health and wellbeing than health services alone. Many public services have a preventative function, either through maintaining the health of the population or averting the need for more costly acute interventions at a later stage. Greater focus on prevention across organisations, on a whole systems basis, could not only improve population health, but also provide better value for money, manage future demand for services and support public sector financial sustainability.

Few will argue against prevention. It has widely been identified as a national policy priority. However, when times are tight, investment in long-term initiatives can be seen as an easy tap to turn off. It has long been the case that a lack of funding certainty, scarce resources, existing pressures and a tendency to focus on political priorities mean that the emphasis is on finding short-term fixes – and in the current economic climate, this is amplified. However, while long-term investments may be perceived as easier to defer, such disinvestment has an associated opportunity cost, both in terms of finance and impact on services.

Continuing on this current trajectory will mean the need for yet more short-term fixes in the future unless we transform services and invest to manage demand and relieve future pressures. There is a need to take a ‘twin track’ approach to ensure that public services are adequately funded to deal with the existing pressures they face, as well as making these long-term investments to ensure public services are cost effective, achieving best value and are financially sustainable to meet future needs.

For local authorities, the release of the local government finance settlement is a key date in the financial calendar frequently arriving just before the Christmas holidays. The settlement funding broadly represents the amount of money allocated to local authorities.

While we can all contest the fact that the amount contained in the settlement is insufficient, it is also important to raise the issue that the short-term nature of the settlement runs counter to sound financial management and is not conducive to good value for money. The lack of financial certainty for a local authority impacts on decisions being made that results in an understandable resistance to make long-term commitments.

It's not just the settlement where a short-term vision impacts financial stability. Any uncertainty around policy direction that filters into financial decision making requires a chief finance officer (CFO) to protect the organisation from risk. This could take a number of different forms, including the creation of a savings programme to balance a budget gap during local budget negotiations which fails to materialise when funding streams are finally confirmed.

Other examples include the continuing delays in the implementation of the government’s long planned reforms to business rates or social care charging, each exacerbating risk and uncertainty and are likely to increase the need to hold reserves to strengthen financial resilience. It is perhaps no coincidence that the last time total reserves fell (in 2016-17) it followed the introduction of four year financial settlements for local authorities.

A long-term outlook is absolutely critical in a local authorities’ finance functions such as treasury and asset management. The most high profile local authority failures of recent times have often been due to a lack of a long-term approach.

It’s possible to fall into the trap of seeing treasury management as being no more than an hour spent each day squaring up the daily cash position. But treasury management is about much more than just counting the cash.

The activities of the capital and treasury teams are intertwined – one cannot function without the input of the other. The capital plans of a local authority drive the activities of the treasury function and in turn the treasury position of the authority dictates the viability of capital projects.

In the latest iteration of the Prudential and Treasury Management Codes, CIPFA introduced the liability benchmark as a statutory prudential indicator to be monitored. This indicator brings capital and treasury elements together. It looks at an authority’s capital plans, considers the cashflow and financing impact of them, taking into account the authority’s reserve position, and then alongside the existing debt schedule determines the gap between an authority’s actual debt profile and its need.

When an authority knows what it needs to finance its capital programme, it can determine its revenue needs over the medium term. It can then determine how to manage its estate with a long-term view. Knowing this in advance means an orderly sale at the best obtainable price and the authority can proactively manage its estate in an effective and reasonable way.

When an authority has full visibility of the cost of its existing capital programme, it is in the best possible place to determine what new projects are viable and avoid those that are unaffordable or inappropriate for its risk appetite. Having this long-term outlook is vital if we are to avoid more section 114s being issued.

Another high profile issue is social care which is a long-running, unresolved policy conundrum. At some point, most of us will either need to use these services in some capacity, or those close to us will. While social care is often portrayed in the media as supplementary to the NHS, this is not the case. Social care is about enabling people to live their lives with improved wellbeing and greater independence in a place they call home close to the people and things that matter to them.  

Unfortunately, a sticking plaster approach has become the norm in funding the sector. Short-term cash injections to firefight current crises have taken precedence over a serious commitment to long-term investment to make services fit for the future. One-year funding settlements hinder investment and prevent councils from being able to effectively plan for care.

Efforts at reforming the system have been decades in the making but successive governments have not taken the bold action needed to transform the sector.

By not investing in a long-term plan to address issues such as increasing demand, an ageing population with ever-more complex care needs and unmet need, there is the risk the social care sector will become unfit for purpose, and this will be to the detriment of us all.

It is important for government to recognise that when organisations look forward and manage over a long-term horizon, they will have more financial stability and can deliver better outcomes for users, tax payers, customers and clients. But long-term policies do not deliver immediate results, and so can be unattractive to politicians who have only a few years to make an impact if they are to survive the next election.

Short-term wins do not have to come at the expense of long-term planning and reform. A twin track approach can be perfectly deliverable, one that recognises the immediate challenges that the public sector faces today and also invests to bring about substantive and effective change in the long-term.

Until long term perspectives are prioritised over short term gains, the persistent issue of crisis management will continue to hinder effective public policy.  

I urge the government to prioritise long-term funding for local authorities and health services to give them the certainty in their decision-making they so badly need.

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