How can local government professionals rise to meet future challenges? | Iain Murray, Director of Public Financial Management, CIPFA
By Iain Murray, Director of Public Financial Management, CIPFA
When I was approached to write this piece my initial thought was “2030, that’s a long way off!”. Having started to think about the question in greater detail, I had the dawning realisation that it really wasn’t very far away at all. Through its Sustainable Development Goals (SDGs), the United Nations set humanity some ambitious goals about how the world should be different in 2030. Events during the first part of the current decade highlight the need for these changes but have also acted to hamper progress towards them.
Closer to home there’s an emerging sense we are approaching a series of watershed moments which could define the shape and nature of society in the United Kingdom. The UK is routinely presented as a divided country, with the Brexit vote in 2016 being the defining example of this division. Whether the UK is truly divided or not, there is an acknowledgment that inequities exist that need to be addressed. They hold back the overall prosperity of the country and impact on the quality of outcomes for some of the population in a way that should not be tolerated.
Both the government’s levelling up agenda and the increased role for towns, cities and regions set out in the Labour Party’s Report of the commission on the UK’s future means devolution remains a significant opportunity in the future of public service delivery. The hope would be this renewed focus on place survives beyond the upcoming general election and goes hand in hand with a much-needed conversation on fiscal freedoms for local areas.
At the moment, many local services are funded centrally. The current government has exacerbated this by placing a burden on local areas to bid in piecemeal fashion for relatively small amounts of funding. Those elements of funding which are raised locally are also in need of at least reinvigoration, but preferably reinvention. The fair funding review and the rebasing of national non-domestic rates were paused during the pandemic. There is reluctance to reform council tax because of the impact it could have on bills for individual council taxpayers, particularly those on fixed incomes. These are understandable and laudable decisions, but they mean the funding for key local services increasingly fails to reflect the demands and needs of local populations and, perhaps more importantly, does not provide local areas with the scope, incentives or accountability to make long term decisions.
This is compounded by the current referendum cap on council tax that acts as a barrier to local discretion and accountability. Let us assume that the inadequacies inherent in the current local fiscal systems are addressed and local areas are allowed greater discretion to determine how they raise funds within their area. This presents a new challenge for those in finance roles in 2030. With these freedoms will come increased complexity and more accountability. Local decision makers will need to model a greater variety of scenarios and engage their populations with these in a way that currently does not need to happen.
As well as the potential for fiscal reform, by 2030 it is very likely we will see further structural reform of public services. In local government we continue to see reorganisation, with a move away from two tier county and district systems to unitary councils, an increase in combined authorities and the creation of the Office for Local Government. So what might the next seven years hold for us in respect of further changes?
The 2021 census confirmed the population of the UK has continued to age with the average median age in England and Wales increasing from 39 in 2011 to 40 by 2021. The ONS projections for 2030 and 2045 show an increase in the number of people reaching pensionable age. This trajectory presents us with a series of challenges that, when oversimplified for our purposes here, can be boiled down to: what will it mean if less of our population is economically active? What will be the needs of an ageing population and how can these best be met? It strikes me that the aspiration to have people living healthier and longer lives should be front and centre of our policy agenda.
There are two aspects of this policy agenda one would hope to be part of future reform and will have significant impact on those of us working in public finance. There is a general sense services are focused on meeting the needs of our population when they reach their most acute phase and opportunities are not realised to identify and meet needs through preventive action. While broadly supported as a ‘good idea’, prevention is inherently a difficult sell for a number of reasons. The first is proving the absence of something is difficult to do, but proving that actions taken have resulted in the absence of something is even harder.
The long lead-in time required for these preventative interventions to have an impact on demand means the benefits from these investments are so far in the future they often won’t have an effect on the political imperatives of the day. The demands on public services in the here and now are often so pressing that capacity and resource has to be focused on them at the expense of longer-term outcomes. By 2030 it will be essential we are able to better articulate the case for prevention, but we cannot wait for 2030 to bring about this change.
Technological developments have always been a catalyst for change in the world of finance. Whether the emergence of the abacus, the modern numerical system or papyrus, accountants have always been the beneficiaries of technological advances. The debits and credits first set out by Luca Picoli are now almost entirely automated by modern accounting systems. There are already examples in the world of public finance where machine learning and robotics are used to deliver efficiencies in the systems and processes which produce information. This has the benefit of allowing finance professionals to focus on how this information can be used to inform and make better decisions for the communities they serve. This trend is set to continue and with it will come an increased shift in the expectations of public finance practitioners to move beyond the ability to provide and interpret information to using it to design and solve problems.
The increase in the use of machine learning is a product of the increased digitisation of our existence. This impacts on almost all our interactions, including those with public services. As a society we are generating vast amounts of data, most of which is now captured by digital means. This, coupled with the increased processing power now available to us, means we can model the current and future needs of populations. As these models develop we may be able to predict how actions or interventions will impact on those needs. Along with the intuition and reasoning of public finance professionals, we might now be able to prove the absence of demand and the correlating actions.
Technology and data could provide us with the pathway to better articulation of the benefits that could be realised from a focus on prevention. If so, public finance professionals need to be at the forefront of a mindset that starts to break down many of the silos that are inherent in the way public services are delivered. Financial elements of decision making can often be characterised as the balance between costs and benefits. Often these questions are framed from the perspective of the organisation that is incurring the cost or making the investment. If the perceived benefits do not flow to the organisation then the financial case is lost. In a delivery landscape that is heavily siloed the benefit to the citizen can be easily lost.
I think as public finance professionals we need to encourage an analysis that asks “who benefits?” in the broadest possible terms. The analysis must also support the answer that should be “the citizen first, the organisation second.”
Sustainability reporting is another opportunity for public financial professionals to demonstrate their value and lead the way. It is still in its relative infancy and the public sector is lagging behind our corporate cousins when it comes to external public reporting. While it would be easy to chastise ourselves for this, instead we should focus on the important role of finance professionals in readying their organisations for this change.
By 2030 it’s inevitable annual reports will include large amounts of non-financial information that demonstrates the value an organisation creates. This opportunity is profound. A shift away from measuring only financial capital will allow for a better demonstration of the true value of public sector bodies and their impact. The systems, processes and controls used to create and assure the traditional measurement of financial capital are well established and have been in place in one form or another for millennia. The same cannot yet be said for those required for the information that will support sustainability reporting. We should remember the skills needed to design, operate, control and assure these kinds of systems and frameworks are those that are already the core part of the public finance professional’s toolkit. While often misused, Drucker was right “If you can’t measure it, you can’t manage it.” Maybe accountants really can help save the world!
Much will change and, like all professions, public finance will need to move with and adapt to change as it happens. Some of the changes that will take place in the next seven years will have a profound impact and one hopes this results in improvements for those in the profession and the citizens they serve. However, some things won’t change, and neither should they. For public finance professionals, this means the key principles that underpin the way they approach their role. At CIPFA ,we set out these principles in our Statement of principles of good financial management, and I believe whatever the future holds these will still hold true.
- Organisational leadership – demonstrating a clear strategic direction based on a vision in which financial management is embedded into organisational culture.
- Accountability – based on medium-term financial planning that drives the annual budget process supported by effective risk management, high quality supporting data and whole life costs.
- Financial management is undertaken with transparency at its core using consistent, meaningful and understandable data, reported frequently with evidence of periodic officer action and elected member decision making.
- Adherence to professional standards is promoted by the leadership team and is evidenced.
- Sources of assurance are recognised as an effective tool mainstreamed into financial management, including political scrutiny and the results of external audit, internal audit and inspection.
- The long-term sustainability of local services is at the heart of all financial management processes and is evidenced by prudent use of public resources.
Although the future may be incredibly uncertain at the moment, we know that technology will have a significant role to play in it. Whatever that role is, the public finance professional will be key to harnessing its power to improve lives and outcomes.