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Is there opportunity in austerity?

Despite the recent claim from the Chancellor that austerity is coming to an end, financial uncertainty beyond 2020 remains for local government. Simon Fletcher, Head of Transformation Strategy Practice, asks what skills local government needs to harness in order to manage reduced funding and provide services that deliver positive outcomes for citizens.

According to the Local Government Association, we’re now on the event horizon of an £8 billion budget black hole. By 2020, central government funding will have been reduced by almost £16 billion—roughly 60p of every £1 previously spent. With the Chancellor’s pre-Brexit Autumn Budget last week, many in local government were hoping for good news, especially after Theresa May’s recent declaration that “austerity is over” and “there are better days ahead”.

Mr Hammond said: ‘Local government has made a significant contribution to repairing the public finances.’ But it’s worth considering the impact austerity has already had. Many, including outgoing Solace president Jo Miller, have rallied against the government’s apparent failure to support sustainable public services, arguing that austerity is steadily eroding local government’s capabilities and capacity, potentially undermining community wellbeing.

Seeking to balance budgets on an almost annual basis, some councils are either ‘salami-slicing’ services or digging into cash reserves to make it through one spending review after another. Those lobbying for more funding are right to say these short-term fixes are unsustainable: many organisations are no longer cutting away fat, they’re cutting away meat and bone.

However, some councils have fared better than others under austerity, even to the point of becoming financially independent in a few cases. You might argue these organisations have simply had greater reserves and were therefore better able to withstand the impact of austerity. But that’s not the whole story. Some local authorities have approached austerity as an opportunity to rethink their raison d'être and reimagine how best to support and interact with citizens in the 21st century. Their mindset didn’t focus on getting by in the present, but on building a better future - asking how things can be done differently to improve services and cost-effectiveness.

With some local authorities showing they can cope with austerity, the underlying issue may not be one of funding, but of the sector’s skills as a whole. Local government has traditionally been orientated to spending money wisely and well, be it from central government or council tax revenues. This careful stewardship of public funding is deeply ingrained, as are the skills it requires. The question is, how do these traditional skills meet today’s needs?

One example is ‘commercial thinking’, where many councils simply aren’t geared up to generate new income streams or plug funding holes. The sector is still developing its business management expertise, even though many modern councils are finding they are increasingly resembling a collection of small businesses. Each service head needs the commercial knowhow of a managing director, while council directors need to act like CEOs, overseeing many different operations at once.

By attracting a new blend of people and skillsets, local government has an opportunity to become more commercially savvy, opening the ability to see opportunities and make the better long-term decisions.

Many people hate the term ‘austerity’ and all the associated connotations—but hanging on and hoping for a change in government policy isn’t a viable strategy. Even if the Autumn Budget does result in a bolster for local government funding, the impact may not last or be entirely positive: with ‘the pressure off’ local authorities may revert to old ways of doing things, while a key driver for evolution and innovation vanishes.

In the long-term, changing demographics, rising demand and new technologies all make a stronger commercial mindset in local government essential. By introducing bold reforms and innovative approaches to traditional service provision, local government can radically broaden its options.

One thing is certain: councils that try to get by with existing skills and cost-cutting will whittle down their options every year. Eventually, they will find themselves with no more salami to slice.

For actionable insights from our transformation consultants who share experience of designing programmes that deliver lasting change, read our latest 'Rethinking digital transformation' article.