THURROCK Council has said “absurd” media reports that it is struggling financially has led those making decisions on loans and inward investment to question doing business with them reports the Local Government Chronicle.
Thurrock was one of 11 councils named as rapidly exhausting their reserves by the BBC. The corporation decided to look at the speed with which councils were depleting their reserves after it was identified as a sign of potential financial failure by the Chartered Institute of Public Finance & Accountancy in its controversial ‘resilience index’.
The council’s chief executive Lyn Carpenter, director of finance Sean Clark and leader Rob Gledhill (Con) told LGC using changes in levels of both earmarked and general fund reserves between specific financial years as an indicator of financial resilience in isolation was flawed as it did not account for any wider context.
“Our view would be the people they have in Cipfa have not necessarily had success running local authorities themselves,” Lyn Carpenter
Between 2014-15 and 2017-18, Thurrock says its general fund and earmarked balances fell by 56%, from £30.05m to £13.33m. The BBC’s analysis found the reserves had fallen by 58%, the fourth highest drop among all councils.
However, Thurrock said the reduction was due to £13.4m spent on insourcing services previously provided by Serco, of which £6.7m was funded from reserves. This, the council says, was to deliver £4m of savings a year.
Other reductions were largely caused by a fall in the dedicated schools grant, and a reduction in schools balances due to academisation.
Savings from ending the Serco contract and the council’s commercial strategy have contributed to general fund and earmarked reserves being increased in recent years, Thurrock said.
The current general fund reserves are about £11m, with a specific £4m financial resilience reserve allocated to deal with interest rate risks and potential funding changes.
The depletion of reserves was one of a number of measures proposed by Cipfa in its resilience index that would have been combined to give each council a score for their fnancial health. The institute held off publishing the results of the index last year following an uproar in the sector but plans to do so later this year after refining the methodology.
Mr Clark said most section 151 officers believe Cipfa “have got [the resilience index] totally wrong” as it is based on “broad brush assumptions” and does not reflect the context in which spending decisions are made.
He said: “They took usable reserves at single point in time and another point in time. If they have gone down, they make an assumption that you are using them to prop up your day-to-day expenditure and as such you are going to go broke. That is flawed in so many ways.”
Mr Clark said reports casting doubts about Thurrock’s financial resilience have had a serious “smoke and fire” effect.
He added: “This is actually causing practical problems now. All local authorities, public bodies, borrow and lend to each other so I am already getting comments back saying we are not sure we can lend to you anymore because you might go bust – that is the real impact.”
Ms Carpenter said annual external audits and a recent specific LGA peer review of Thurrock’s finances would have raised a “big red flag” if there were concerns about the council’s reserves.
She added the reports had been damaging and “the only people that will lose out are our residents and our businesses.”
Ms Carpenter said while Cipfa had a role to play, “our view would be the people they have in there have not necessarily had success running local authorities themselves”.
She said Thurrock is “probably the financially strongest local authority in the country at this moment in time” but has been judged as “in great risk”.
”The message that sends to residents and businesses, those we are pitching to improve the place is really damaging, unfair, unfounded and not accurate,” Ms Carpenter added.
Thurrock has a balanced medium-term financial strategy up to and 2022-23 which includes annual surpluses. An ambitious commercial strategy, which includes planned investment in renewable energy, with a focus on how this will benefit residents has contributed to an end of what Ms Carpenter described as a “really painful, inward-looking” approach involving top-slicing funding from services.
Cllr Gledhill, who leads a minority administration says financial stability means members from all parties can have constructive discussions about what surpluses should be spent on and how services can be improved.
But he added the “absurd” claims about Thurrock’s finances has caused problems when seeking inward investment.
”[The perception created by the reports] extends to government,” Cllr Gledhill said. “There are a significant number of special advisors in government. That thought is there and it only takes one comment and a very good application [for funding] gets turned down.
“It is unfair not just for the residents of Thurrock but it is unfair for everybody who might want to invest in Thurrock on the back of government investment.”
Cipfa chief executive Rob Whiteman, who was chief executive of Barking & Dagenham LBC from 2005 to 2010, said the resilience index was not intended to be “a predictive model but is expected to help CFOs to assess financial sustainability”.
“The financial resilience index is based on a variety of indicators of which reserves are just one. Other indicators include overall expenditure, ability to generate income, and the local cost of demand pressures including social care,” he said.
“We continue to work closely with senior finance professionals from the full range of councils to develop this tool ahead of its release to ensure it meets the needs of the sector.”