Frequently asked questions about the new government rules for local authority accounting

 

Contents

- What is the financial situation facing local authorities, including Uttlesford?

- How has Uttlesford succeeded in managing these common challenges differently to most other councils in recent years?

- What are the rule changes and why have they been brought in?

- Is there a problem with council's property portfolio?

- So what impact will these rule changes have?

- Can the council sell off one or more of its investments to pay for services?

- Will the council be cutting core services instead?

- Will there need to be job losses?

- What are the next steps?

 

What is the financial situation facing local authorities, including Uttlesford?

Over recent years, local authorities all around the country have faced challenging financial times. A big proportion of local authority funding to spend on services used to come directly from central government, but this has very heavily reduced by successive government cuts and changes over the last decade. This means that nearly all of local authority income has to come from Council Tax and a council's share of Business Rates, whilst still maintaining services.

Where the vast majority of councils have had to make significant service cuts and savings, we have largely avoided this.

This success has been through prudent property investment and effective management of the taxpayers' money that we are trusted with.

Unlike some other councils, we are currently in a robust position and good financial health - however, our future assumptions and plans are going to need to be different because of some national rule and code changes affecting all councils.
 

How has Uttlesford succeeded in managing these common challenges differently to most other councils in recent years?

One of the largest elements that has contributed to our healthy financial position is our approach to borrowing and investment. It has largely insulated us from the financial pressures other councils have faced.

The additional income that the council needs has come from building a risk-balanced, diverse property portfolio. This investment portfolio generates income from rentals, which is used to fund a significant part of the core £16.2 million spending on public services, as well as discretionary programmes.

This additional spending is in some key priority areas, and includes a £1million fund to support the council's Climate Change action plan, £1million for economic recovery and £450,000 for sports provision, and investing in planning and development capability.
 

What are the rule changes and why have they been brought in?

They are financial accounting rules that relate to how councils borrow and invest. CIPFA (the accountancy body for local government) and the government consulted on these changes last year.

The reason for the changes is that the government wants to put more controls on councils to make sure they don't get into financial difficulty. This is the result of a few councils getting into trouble because they have borrowed to invest in a risky way, for example, with a high proportion of investment in a single asset.
 

Is there a problem with council's property portfolio?

Although it is certainly the case that as a result of the application of these amended national rules and codes, we will as a result have up to £4 million per year less available to spend on public services, this is not because the property portfolio is under-performing.

Indeed, in terms of value, the portfolio has grown very substantially in its underlying value. In the latest independent quarterly external valuation, the portfolio was worth an estimated £40 million more than the council paid for it - and it is still returning at or above the levels of predicted rental income from the various commercial tenants.

More information about our investment portfolio.
 

So what impact will these rule changes have?

Although quite complicated and technical, the changes have a very sizeable impact as they essentially mean the council is required, as part of Minimum Revenue Provision planning, to put more of the income away in the bank and not spend it. Effectively, we can only use about half the amount of income from the asset portfolio to pay for services.

These changes will reduce the use of this income by about £1m a year over four years, up to 2027 - and this is what we are now planning for.

This will not be felt until the 2023/24 financial year and no alterations are therefore proposed in the draft 2022/23 budget. We have some time to adjust and over the coming months will be exploring different options and solutions to minimise the future impact.

Rest assured, councils have managed their way through many years of financial planning, management and even austerity, so this kind of challenge is not new to us or other authorities.
 

Can the council sell off one or more of its investments to pay for services?

No - if we chose or were forced to sell one or more of the investments, this would be a capital receipt and capital monies cannot be used to cover revenue shortfall.
 

Will the council be cutting core services instead?

Whilst it is too early to say at this stage exactly what the scale and type of impact these changes will have, residents can be assured that we are committed to living within our means while continuing to deliver high quality public services that are valued and needed by residents.

Irrespective of the changes, we will continue to do that.
 

Will there need to be job losses?

With about 25% less money to go round and more pressure on services, there will be fewer jobs in the council by 2027.

It is too early to say whether, let alone where and when, redundancies will be needed. We will take the approach in the strict order of using vacancies and redeployment first before even considering redundancies as a last resort.
 

What are the next steps?

The impact of these rule changes is not imminent.

We will be taking time over the coming months to look at everything we do and how we do it, before making some initial decisions on priorities for exploring opportunities in greater depth. This programme of work will fall under the themes of sustainable income maximisation, cost control, how we work, shared services opportunities, and demand management.

We will provide further updates in due course.