Magazine article Public Finance

Threat Assessment

Magazine article Public Finance

Threat Assessment

Article excerpt

Public Finance recently assembled a group of senior public finance professionals to discuss the risks they face in today's tough economic climate. The roundtable, staged in association with insurance broker Arthur J Gallagher (AJG), examined the consequences of funding reductions, service revision, outsourcing and digitisation - as well as ways to alleviate the attendant threats.

There was broad consensus around the table that the risks faced by public bodies are multiplying. "We're having to make increasingly risky decisions," said Jane West, interim bi-borough executive director of corporate services at Westminster City Council and the Royal Borough of Kensington and Chelsea. "There are some projects we wouldn't have had the risk appetite to tackle a few years ago, but now we're being forced to by the financial challenges we're facing."

Robin Powell, chair of public sector risk management association Alarm, agreed: "With all the cuts we've had to make, we're stripping out experience and starting to cut corners. It's something that I'm quite afraid of. Removing the checks and balances we've had in place for 20 or 30 years creates opportunity for fraud, and lots of other malpractice."

One outcome of austerity, according to Sue Higgins, executive leader for local services at the National Audit Office, has been the wholesale shifting of risk from central government onto local bodies. She cited the integration of health and social care. "There's no evidence that this leads to cost savings," she said. "It's all done on hope. Instinctively, everybody thinks it's the right policy but the risk of it not delivering is quite high."

She voiced concerns that the current climate is placing short-term affordability ahead of all other concerns. "A focus on cash in the immediate cycle drives out long term value," said Higgins. "That's something we have to worry about."

West agreed, citing the Better Care Fund. "We've negotiated a position with health for a year without any view as to what's going to happen in subsequent years," she said. "We've put in some very new ways of working that are dependent on BCF continuing. If it unravels, that's going to cause some grief." *

Alan Finch, principal adviser on finance at the Local Government Association, noted that devolution of power inevitably comes with delegation of risk. "That's going to have to be built into local systems of governance and control," he said. Finch also highlighted the irony: "The chancellor is quite happy to set fiscal policy to the end of the current parliament, but when things get down to departmental level, suddenly he becomes very short-termist."

Paul Woods, chief financial officer at the North East Combined Authority, said short-termism exacerbates the hazards posed by funding cuts. "We can't count on a penny of funding for next year until after the Spending Review. And three-quarters of this year's projects have expenditure in the second year. So I'm writing to civil servants to ask for an urgent release of at least a proportion of that funding for year two."

Woods also highlighted the threat of legal challenges, given the dramatic changes in policy many councils are having to enact. "A proper consultation process can mitigate that risk, but if you don't get the settlement till December, you're not even starting the consultation till January," he said. "Multiple-year settlements, which the LGA have been asking for, are absolutely critical to manage change and avoid risk."

Steven Mair, city treasurer at Westminster City Council, said councils are in a quandary: "If you consult on proposals earlier, in August or September, and then get a settlement that's different to what was expected, you may get challenged. Why did you come out and consult? So even attempts to mitigate create their own risks."

Douglas Stevenson, a managing actuary at AJG, said shortterm approaches do typically store up trouble. "There can be a significant time lag between some decisions and the evidence emerging about whether they were right," he said. …

Search by... Author
Show... All Results Primary Sources Peer-reviewed

Oops!

An unknown error has occurred. Please click the button below to reload the page. If the problem persists, please try again in a little while.