Present Tense

Renewing and reforming local financial governance

Author: Joe Fyans and Callin McLinden   |  

Present Tense

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Present Tense

renewing and reforming local government finance

In English local government, the ‘golden triangle ‘of chief executive, monitoring officer and chief finance officer – who exercise their leadership responsibilities to own and champion good governance and effective financial management in local government – is a well-established model. Beyond the functional corporate responsibilities, the culture for ensuring financial sustainability across local government requires the constant vigilance of strong governance and effective scrutiny. Present Tense looks to assess the current state of local government financial governance and sustainability to ask what the case for reform might be.

The overall narrative for this pamphlet is derived from a series of expert roundtables and research interviews conducted with leading stakeholders from across the world of local government, audit, and scrutiny. The research scope included a focus on examining systemic governance issues, understanding the implications of austerity, and exploring necessary reforms for both financial resilience and transparency. The pamphlet concludes with a set of recommendations to central and local government for renewing and reforming local financial governance towards long-term resilience and sustainability.

Key points

Primary challenges facing local government

The challenges facing the system which these reforms seek to overcome must be understood in their stark totality. The research for this pamphlet identified three primary challenges facing local government as they pertain to governance and oversight:

  • Erosion of governance structures and capacity.
  • Inadequate and unsustainable funding models.
  • Lack of local accountability, transparency, and public engagement.

Addressing these interdependent challenges will require a deep understanding and a multifaceted approach that encompasses governance reform, sustainable funding models, and a renewed commitment to open, transparent governance and a reinvigorated public sector ethos.

Prerequisites for reforming governance

Any attempt to reform, renew or revitalise local government must begin from a standpoint of shared understanding between local councils and the central state. Key insights gathered from our evidence-taking process form the basis of the following prerequisites for reforming local governance:

  • Defining the purpose and expectations of local government: There is a need for mutual agreement between central and local government on the purpose of local government and what it can realistically be expected to deliver.
  • Understanding what is wrong with the current system: The research engagement for this project saw several key flaws in the current system repeatedly identified by stakeholders, including governance erosion, high-risk commercialisation and a lack of transparency and public trust.
  • Recognising the changes in context: When appraising the need for reform of local governance, it is important to take stock of how different today’s world is from the one in which the system was designed.

Principles for a renewed system of governance

The research discussions held revealed a litany of areas where governance and scrutiny could be strengthened through focused and targeted reform. Based on the prerequisites for reform, the list below summarises some principles for a renewed system of governance:

  • Defining institutional roles and responsibilities: Local authorities need clearly defined roles and responsibilities, both in relation to central government and to other local actors.
  • Supporting strong leadership and professional development: Strong leadership is essential for good governance. Connected to this is the importance of professional development for both elected members and officers.
  • Strengthening oversight and scrutiny: With a sizeable ‘audit gap’ in local government and a proliferation of governance concerns, there is a clear need for a strengthening of both internal and external oversight mechanisms.
  • Balancing the need for more funding and the need for better governance: There is no denying the need for increased funding for local government. However, improved governance is also essential to ensure that funding is used wisely and effectively.

Recommendations

Recommendations to local government

It must be acknowledged that the stripping out of funding has played a major role in the baleful proliferation of governance issues, and that ultimately local government must reckon with the cost of providing vital local services whilst also engaging in placemaking. Across the sector, many councils are already actively engaged in reform and organisational development to respond to the many challenges identified in this report. Many of the recommendations below are drawn from this best practice. Some specific recommendations for local government are listed below:

  • Councils should seek to reinforce ethical leadership and transparency by embedding the Nolan principles of standards in public life as a matter of organisational code, seeking to proliferate accountability and integrity as a matter of day-to-day practice.
  • Taking advantage of the multi-year settlement, councils should begin to adopt a paradigm shift towards long-term financial planning, including replenishing and maintaining adequate reserves for protection against economic shocks and investing in sustainable, resilience-focused projects.
  • Councils should create an organisational culture that embraces challenge and criticism, valuing diverse perspectives and holding leaders accountable. This could be achieved by formalising checks and balances, establishing channels for open communication, and encouraging a culture of learning from past mistakes.
    • As part of this, across the sector, statutory monitoring officers need to be given more support and protection to effectively perform their duties. These officers must be given the necessary resources and authority to challenge potentially risky financial decisions without fearing repercussions.
    • Authorities should review whistleblowing policies to ensure that they reinforce a culture that welcomes challenge and accountability, ensuring governance structures remain transparent and robust.
  • Internal audit functions should be strengthened. Local authorities need to provide internal audit departments with sufficient resources and skilled professionals who can assess and mitigate critical financial risks. Internal audit teams should proactively identify emerging threats and have the authority to challenge senior management and executives.
    • To further strengthen internal reflection processes, councils should review public interest reports and auditor annual reports to identify common pitfalls and best practices. They should also implement recommendations from these reports and conduct post-implementation reviews to ensure that lessons learned are embedded into decision-making processes.
  • Cross-sectoral efforts should be made to attract and retain experienced officers. Local authorities are facing difficulties in attracting and retaining qualified staff, which further undermines their ability to ensure good governance. Pooling funds for investment in recruitment strategies that prioritise integrity, competence, and cultural fit is crucial.
  • Councils must work to improve transparency and public engagement. Residents need to be able to understand and participate in decision-making processes. Local authorities can foster transparency by making financial information easily accessible and communicating clearly with the public.
    • Local authorities must take it upon themselves to further develop accessible financial reporting systems with plain language summaries, visual aids, and digital platforms to enhance public understanding and engagement with financial decision-making
    • Councils and relevant partnerships should consider developing digital and public-friendly communication and information tools to simplify reporting on budgets, planning, and service delivery, further encouraging public participation and understanding.

Recommendations to central government

The government should look to shift from a centralised, adversarial approach to overseeing local government to a collaborative model, empowering local authorities to make financial decisions based on local needs and priorities. Some specific policy recommendations for central government are listed below:

  • The government should provide a framework for local government that establishes a clear definition of good governance and outlines the different roles and responsibilities of local government. The framework should move away from the current centralized approach to local government financing and empower local authorities to manage their finances and think strategically.
  • The new multi-year settlement and accompanying review of the funding formula provide an opportunity for government to better align revenue support with the statutory duties of local authorities. The new funding formula should be based on demographic factors directly linked to service demand and geared towards funding preventative measures and long-term resilience projects.
  • To ensure robust government, government should reinstate previously eroded legal protections for statutory officers so that they can challenge potentially risky financial decisions without fear of repercussions.
  • To help bolster the governance and scrutiny workforce across councils, government should support recruitment efforts to attract and retain experienced officers. This could involve providing funding or working with professional organisations to develop new, or scale up existing, programmes.
  • Policies like statutory deadlines for audit must be matched with investment in the audit sector, to help clear the backlog of audits and improve their quality.
  • The government should commit to reviewing and renewing the standards regime for local authorities, potentially reinstating a national code as was in operation from 2000 to 2012.
  • As a way of combatting governance erosion, government should consider either empowering an existing or establishing a new national body, or a set of local bodies, to oversee the local government audit system. This body could be responsible for setting standards, managing contracts, and ensuring the quality of audit, as well as overseeing the strategic functions of the local state.

Research kindly sponsored by:

Grant Thornton UK LLP - pro-manchester

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Present Tense

renewing and reforming local government finance