Headlines: December 10th, 2012

There has been a fall in confidence that all councils will meet the challenging budget cuts and a fear that some will reach a tipping point.

The tipping point warning comes from Grant Thornton’s report on the financial health of English councils. It follows an earlier report by the Audit Commission which predicted that many councils will struggle to get through the final two hears of the four year Spending Review.

The Chancellor’s announcements in the Autumn Statement revealed that councils are facing a funding reduction of 2% in 2014/15. The Government’s deficit reduction programme will be required for a further year (2017/18) which means that the financial challenges facing the sector remain considerable with the outlook from 2015/16 particularly challenging. This may lead to some councils being financially unsustainable.

The Grant Thornton health check found that risks were increasing because of weaknesses in strategic financial planning and particularly in scenario planning. With an increasing level of uncertainty, effective and robust scenario planning is more critical than ever.

The analysis underlying the report indicates that a potential tipping point is on the horizon, for instance where a council can no longer meet its statutory responsibilities to deliver a broad range of services within the funding available. This could occur when a budget cannot be balanced or when there is a decision paralysis.