Five warning signs of council financial stress

The Chartered Institute for Public Finance and Accountancy (CIPFA) is urging councils to watch for five warning signs of financial stress.

The institute’s new report, Building Financial Resilience, has identified five key symptoms of financial stress, which includes: a rapid decline in reserves; a failure to deliver savings in service provision; shortening of medium-term financial planning; firm objectives missing from savings plan; and a tendency for unplanned overspends.

The report also outlines the steps towards building better financial resilience, encouraging councils to ensure that the right financial management systems are working effectively and use benchmarking data. Councils should also manage reserves effectively, avoiding dipping in to reserves to pay for services or postpone necessary cuts.

Sean Nolan, director for Local Government at CIPFA, said: “In the face of growing demand, tightening funding and an increasingly complex and unpredictable financial environment, councils must be financially resilient; meaning they must remain viable, stable and effective in the medium to long term.

“Austerity has battered the sector for close to a decade, while increased demand and cost pressures have left some councils at the brink. Other, more positive changes, such as a trend towards greater self-sufficiency and local leadership has allowed some areas to flourish, while others have struggled to reap the benefits of these reforms. What we are seeking to do now is to help councils spot the warning signs of financial stress and take the right steps towards resilience.”