Town halls ‘facing Detriot scenario’ says Grant Thornton

THE region’s councils have more financial resilience than other UK regions, but are still facing a “significant risk of financial failure”, according to accountancy firm Grant Thornton.
 
The firm examined the financial health of 138 local authorities in England, including Manchester City Council and Liverpool City Council.
 
The report rated them across four areas – financial performance, strategic financial planning, financial governance and financial control. It also identified a series of potential ‘tipping point scenarios’ such as them no longer being able to meet statutory responsibilities to deliver services.
 
Other North West councils in major study included Wirral, Halton St Helens, Warrington, Cheshire West and Chester, and, Cheshire East, Salford City Council, Tameside Trafford, Rochdale, Wigan, Oldham, and Stockport.
 
The findings show that the North West as a whole is the best performing region nationally. The 35 North West local authorities have the highest national ratings for strategic financial planning (94%) and financial governance (94%).
 
North West councils also have the second highest level of ratings for key indicators of financial performance (91%) and financial control (86%).
 
But the report also reveals that despite meeting the challenges of the deepest cuts in public spending since the 1920s, which began with the Government’s 2010 spending review, local authorities are still facing a fiscal crisis.

In 79% of cases, Grant Thornton found that councils in England anticipate reaching some form of financial tipping point in 2015/16 or 2016/17.
 
Mike Thomas, a director in  Grant Thornton’s North West public sector audit team, said: “Funding reductions will bite even harder and deeper in 2015 and it’s clear some councils will be pushed right to the edge.

“We think that will happen in 2016. By and large local authorities have done a good job of managing profound budget reductions but the pressure of further cuts and rising demand for services is unrelenting.  It was once hard to imagine the spectre of a city effectively going bust, as happened in the US with Detroit’s bankruptcy last summer. But that’s no longer such an outlandish idea here.”
 
“To manage within available funds, councils will need to think less about doing the same things for less money, and more about doing different things,” he adds.

GT argues that councils will also need to have a “relentless focus” on generating additional sources of revenue, such as from inward investment in job creation and economic development.

Mr Thomas said: “These revenues can range from investments in the commercial property portfolio to regeneration and inward investment and the skills agenda to boost local economic activity.

“Equally, councils will have to continue to improve efficiency through shared services, strategic partnerships particularly with health and consider wider re-organisation.”