Why introducing a UK equivalent of the US’ National Resource Network programme will change the local authority landscape for the better – and how it could be implemented in just three months.
The system of using section 114 notices to help financially struggling councils is broken, say Christian Wall and June Matte, of independent financial advisor PFM Financial Advisors (PFM). And to make matters worse, there’s no formal process to intervene at these authorities before a s114 is issued.
“Councils are asking for help and for capitalisation directives. But what do you do? Where is the programme to get help and talk to the government? There isn’t one. It’s all ad hoc,” they say.
“Woking and Thurrock in particular have stretched the existing statutes and programmes to the limit. Government needs a mechanism it can use, short of trying to take control of the council, as well. There is no current formal means except appointing commissioners or issuing a best value direction.”
Wall and Matte think they have a such mechanism that the UK government can adopt – a solution for solving the financial issues the local authority sector is facing, if you will.
And the framework for it already exists – all we have to do is look across the pond.
Christian Wall, director at PFM UK.
A UK version of the US National Resource Network (NRN) programme, which was launched in 2013 to help US cities who were facing financial distress and to drive economic development and regeneration, could be launched in just three months, Wall and Matte say.
The idea is that a council effectively applies to what would be a UK equivalent of the NRN programme for help, and then a team is sent in to identify and then solve the problems. The scope would be far beyond what government commissioners currently do at failing councils: rather than enable a short-term recovery in a year or two, NRN-equivalent teams would “rewire a council and change the way they do things long-term”. And, crucially, they would ideally be sent in well before crisis point.
“It would be a pre-planned programme to intervene at authorities before a crisis hits. And if a crisis starts to hit, to similarly go in. It would essentially be created by the Department for Levelling Up Housing and Communities (DLUHC) as it’s got to be answerable to the government/parliament eventually. The NRN was deemed so successful that when the funding ended, it was replaced by a successor to do the same thing,” Wall explains.
“The way the NRN and its successor operates, and we’d advocate the same thing here, is that it can be approached by a council, relatively quietly, who thinks it’s in trouble and asks for help.”
There would be no requirement for a council to announce it is seeking help, lest “everyone jumps up and says it’s a failing council”.
“They would just apply to the programme or government,” Wall says. “Ad hoc interventions that have worked in the past have never been learned from and normalised. They’ve never been publicised. There’s no reason necessarily for people to know.
“If you don’t have a programme that can learn and a programme that can deliver and help the councils, you lose that experience every time. But it’s very important to make the process as pain free as possible.”
Indeed, Wall notes that any private or public sector entity at any given point in time, may or may not have people in helping it. “It could be consultants at a private sector company. It could be another trust that they’re learning from. Entities get help, and they learn from others and they pay for help all the time. It shouldn’t be any different for a council. And in this situation, it should be just seen as getting help. They are encouraged anyway to go to the government for help. This is a more formalised, better organised way of doing that. It would be under departmental parliamentary scrutiny, but what you don’t want is it to be seen as shaming.”
The earlier a council requests help under the proposed programme, the better. “If the council’s medium term financial strategy says there’s a budget gap and they don’t know how to close it – that’s when you get help,” Wall says. “If you don’t know how to fix your medium-term financial strategy, which in most cases is only three years, that’s when you go and get help. Because if you can’t fix it in the interim, you will run down your reserves, and you might need those reserves to reconfigure.”
The biggest flaw in the section 114 process as it stands, Wall says, is that it’s getting applied when the crisis has already hit. “You need to ideally be in well before the crisis,” he advises.
And when you’ve got a s114 notice, there’s only one outcome you can focus on, Wall says – short term stabilisation of the council’s finances, “because that’s what it’s designed to do”. He adds: “It doesn’t focus on the outcomes you’ve got to deliver for the long term. And that’s the worrying thing: you’ve fixed the budget, but what’s next?”
How it works
Once a council realises it could be in financial difficulty, and contact is made and help requested, NRN experts would be tasked with coming up “very quickly” with what the problem is and then identify ways to start fixing it.
“The advantage is that it’s before the crisis hits so you can actually take a better stock of the problems,” Wall says. It also means there’s a neutral body involved, “whereby you can go to the government and say that there really is a problem that needs fixing, and they need help to fix it”.
June Matte, managing director at PFM UK.
Whereas current government-appointed commissioners often have a restrictive brief and are concerned with just stabilising a council, or perhaps reorganising it, Wall says a UK equivalent of the NRN would offer long-term solutions to long-term fundamental problems and “actually gets to the nub of the problems”.
He states: “If all you’re left with is a cut back, pared back statutory service, how is the local area ever going to resolve its longer-term problems? There have to be long term solutions, or you end up with a managed decline of the whole area. You cannot just cut your way to success.”
So how does ‘rewiring’ a council happen? There are a few stages, and it will vary in each case. It may be that the way an authority works and makes decisions has to completely change.
“Most councils, by current standards for lots of businesses, are quite bureaucratic in the way they operate. There’s lots of layers of management in some cases,” Wall says. “How you operate is quite often important to making savings.”
The goal is not to reduce democratic accountability; rather it is to speed things up and get more accountability within the system, but it may require “a very different way of working”.
Wall continues: “A lot of organisations focus on process; they don’t focus on the outcome. And that’s a very big cultural change. And it’s one that challenges lots of the private sector too, so it’s not unique to councils. But you can’t do that overnight, and you can’t just replace leaders. You’ve got to have a much more considered programme of change, and that’s a glaring weakness at the moment.”
One of the things that NRN does well, Matte says, is that it is able to identify the underlying problem. “Is it an economic development problem? Is it a systems problem? Is it just a revenue problem? And NRN really helps authorities work through what the appropriate solution is,” she says.
Indeed, there are lots of things that can be done to help councils under a UK equivalent NRN programme. “Even someone who knows how to go about building an outcome-based budget from scratch would assist lots of authorities because if you don’t know how to do it, it is a very hard thing to learn quickly and do it effectively,” says Wall.
“It may be a very hard thing to negotiate with councillors that a programme they see as precious isn’t so important and it’s got to go. But you’ve got to focus on the outcomes – what you are trying to really deliver. And it’s got to be a much longer-term thing.”
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Councils are currently being restricted, Matte says, because “their focal length is really short, and so they’re only trying to solve the problem in front of them, which means you’re not solving economic development issues. You’re not solving longer term, systemic problems, or a huge built in budget gap that’s going to show itself over the next five years, not necessarily this year.”
They’re not being allowed to take the long view because of the way the system is focused on new revenue budgets and balancing them, and on one-year settlements. “You really do need to step back, and they’re not incentivised to do it,” Matte adds.
The result is that many authorities struggle to do medium- and long-term planning, and they need help.
The programme must also be able to transfer skills, and not be like “what happens with most consultants at the moment”, as Wall puts it. “It’s not in most consultants’ interest to skill transfer in most cases, because otherwise they’d run out work.”
Instead, the teams under the new programme will need to “sit down alongside the staff, show everyone how to do it, and get them to the point they can do it themselves”.
Sometimes the teams might have to stay embedded. Wall gives the example of Pittsburgh, which “had help over 10 years, and that was partly because it had more freedom around taxes than it would otherwise have had in its own redistribution of taxes. But the fundamental thing was to make sure that it was fully able to look after itself and manage itself while it transformed the city, which was in 2003 pretty much bankrupt. It couldn’t borrow short term to fund its payroll. Swimming pools were kept open on donations. Amid a huge economic downturn, the city had to both reinvent local government and reinvent itself.”
New Orleans is another example, and PFM is still working with the city having had staff embedded there. “People talk about the hurricanes, but the problems in New Orleans were very long standing. Local government was actually quite corrupt: you had police officers having to issue tickets to ensure they got paid, for example, because the whole income in the police force was largely dependent on tickets. So there you’ve had to totally rebuild the way local government works pretty much from scratch.”
The time is right
So how close is such a programme to being implemented in the UK? Wall and Matte are “hopeful” it will happen.
“We’re breaking cover because we want to try and get the government to engage and to listen, and at the moment I think the government’s getting battered with problems. It needs a bit more focus to get out of that. The definition of stupidity is a well-known one and there’s no stupidity here, but government doesn’t know what the answer is. It’s got limited statutory powers to intervene, which I think has been the biggest problem with places like Woking,” Wall says.
“It’s very hard for the government to justify intervening before the crisis hits so it needs a mechanism that enables it to help authorities before the crisis.”
A council with a financial issue could apply to the NRN equivalent programme for help, with a team then sent in to identify and solve the problems. Photo: Shutterstock.
He is keen to stress that the state of the current system should not be made party political or seen a failing of the government or the civil service, but rather “a function of the way we’re set up”. The government simply “needs a tool in the toolbox to help with this”.
Wall adds: “Much of the debate at the moment is purely centred around funding on the one hand, or governance on the other. And they’re not helpful if you want a long-term solution to a problem. So we’re hoping government will listen and engage.”
Their proposed solution is timely too because it appears to complement the conclusions of the Levelling Up, Housing and Communities (LUHC) Committee’s recent report into financial distress in local authorities, which was written following a parliamentary inquiry.
Wall and Matte are “very supportive” of the LUHC Committee report because it “calls for potentially fundamental reform of the local government finance system”.
But they state that the government will need to resist tinkering with one part of the system and instead take a holistic view. “If you’re going to start fixing it, fix it. You have to do a proper revamp of the system. You can’t just tinker; people have to understand it’s a heavily interconnected system. And I think the committee nearly got there, but there’s a danger you get knee jerk or ill thought-out responses to its findings. Ministers need to resist the urge, whoever the ministers are at a given point in time, and go for fundamental reform of the finance system. Fix it properly and focus on much wider finance reform.”
In helping to achieve that goal, Wall and Matte believe that implementing a UK equivalent of the NRN programme would change the sector for the better and give it its own formal mechanism to help councils before they reach crisis point.
“Beyond that three months while it’s set up, it should give councils a trusted way of getting help before they need it,” Wall concludes. “And it should give councils and government a more trusted and more effective way to work alongside commissioners and fix the problems for the long term.”
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