Public Finance December 2018 - January 2019 Taster

Page 1


Issue 12 December 2018



Weighing the success of digital justice AMERICAN DREAM

The pursuit of universal healthcare in the US SPLITTING SIDES

BLUE NOTES Sounding out police force finances


DECEMBER 2018 • ISSUE № 12

Will Brexit bring new political divisions?

news Head start for government accounts

Council override on accounting change

Treasury officials are aiming to bring forward the publication of the Whole of Government Accounts for the next financial year, MPs have heard. The department wants to release the accounts 50 to 60 days earlier in 2019-20, the Public Accounts Committee was told in an evidence session on 14 November.

Councils have been granted a statutory override on accounting changes to pooled investments for five years, despite most stakeholders opposing a timelimited period. The IFRS9 override means that councils must still record the value of the assets but do not have to charge it to their revenue account.

An attempt to improve public finances by selling off student loans could in fact have damaged them, according to a group of MPs. The Treasury received “too little in return” when it sold off student loans, the PAC said in a report. The government sold student loans with a face value of £3.5bn in December 2017 for £1.7bn. This amounted to a return of 48p in the pound, the PAC noted. It suggested this attempt to reduce public sector net debt was “shortsighted”and that other measures demonstrate the sale worsens public finances. “For example, the sale increases public sector net financial liabilities by £1.8bn, and the impact on the department’s accounts is similarly negative, with the 2017–18 accounts recording a loss on the sale of £0.9bn.” It suggested the government’s objective to reduce public sector net debt ran the risk of “being prepared to sell at any price,” the report said.

NAO seeks assurances on academy finances £6.1bn deficit sparks fears over 'capacity and capability' to run academies well By Emily Twinch The UK’s spending watchdog has called for the government to ensure academies “can be trusted with large amounts of public money”. Given academies have freedoms that maintained schools do not, “it is vital that the department has assurance that academy trusts have capacity and capability to run academy schools well”, the National Audit Office warned in its overview of the Department for Education last month. This report followed the revelation that academies ended the year to 31 August 2017 with a £6.1bn deficit. Academies’ total income was £22.5bn in 2016-17, the annual report and accounts for 7,003 academy schools showed, compared with £20.5bn in the previous academic financial year. They spent £24.8bn, compared with £20bn in 2015-16. The £6.1bn deficit included a £8.4bn asset derecognition charge, according to the accounts. The government took land and buildings assets off academies’ balance sheets where they felt trusts were not controlling them, even though academies continued to occupy them.



and �Land buildings

assets were taken off academies' balance sheets where the government felt trusts were not controlling them

Kevin Courtney, joint general secretary of the National Education Union, suggested the annual accounts showed the academy system was “unsustainable and undemocratic”. “We need to return to the principle of local schools, accountable to local communities,” he added. In its report, the NAO said: “Academy trusts acquire substantial new freedoms and responsibilities that maintained schools do not have, including responsibility for financial as well as educational performance. It is therefore vital [to have] assurance that academy trusts have capacity and capability to run academy schools well and that they can be trusted to manage large amounts of public money.” It pointed out that academies accounted for 35% of the total spend on schools for 2016-17 (£17bn), and now teach about 47% of pupils. The annual accounts recorded that an increasing number of academy trusts (8% – from 873 to 941) were paying some staff £100,000 or more in 2016-17, compared with the previous year. The number of academy trusts paying salaries of £150,000 or more went up 3% – from 121 to 125 – over the same period. Academies’ total reserves and net assets went down from £43.4bn in 2015-16 to £42.6bn by 31 August 2017, the annual accounts also showed. Shadow education secretary Angela Rayner said: “With academies now [billions of pounds] into the red and raiding their reserves to keep going, it should be clear to ministers that their squeeze on funding has created an unsustainable situation in our schools.” A Department for Education spokesperson told PF that since December 2017, the Education and Skills Funding Agency, which regulates academies, has taken sustained action to challenge 213 academy trusts, asking for their rationale on higher salaries. They added: “All academy trusts are subject to financial and governance-related scrutiny by the department and ESFA, and must publish their end-of-year financial statements. “The majority of the sector are well managed but because of this extra financial scrutiny we are able to act quickly to tackle financial underperformance or mismanagement.”


Student loan sale was 'shortsighted'

Universal credit ramps up rent arrears

Choice cuts

Council tenants claiming universal credit owe on average more than two-and-a-half times the rent arrears of claimants on the old housing benefit system. They owe £663 against £263 for those on housing benefit, according to Freedom of Information data obtained by BBC Panorama.

Figures highlighted by the UN’s special rapporteur on extreme poverty and human rights.

Alston: �Philip ministers are in ‘a state of denial’ about UK poverty

➊ ➋

UN report was ‘disproportionate’ Treasury minister paints different picture of ‘difficulties and challenges’ portrayed in Alston report


By Simone Rensch and Dominic Brady Ministers have condemned a United Nations report that slammed the government for pushing people into poverty through austerity. Philip Alston, the UN’s special rapporteur on extreme poverty and human rights, concluded a two-week UK mission with a statement, saying that policies, such as universal credit, had caused “great misery”. He also said that in the UK – which is the world’s fifth largest economy – “poverty is a political choice”. One-fifth of the population lives in poverty and 1.5 million in destitution – being unable to afford basic essentials – Alston said. He also cited predictions from the Institute for Fiscal Studies that said child poverty could rise by 7% between 2015 and 2022.

Ministers were in “a state of denial” about UK poverty, he added. But Treasury minister Mel Stride said the image of the UK’s “difficulties and challenges” portrayed in Alston’s report was “rather disproportionate”. “The destitution is a figure that he [Alston] has chosen to come forward with,” he said. “What is not being pointed out, for example, is that since 2010 we now have a million people fewer in absolute poverty and 300,000 fewer children in absolute poverty. We have income inequality at a lower level than in 2010.” Alston, who highlighted that one-fifth of people living in poverty are in work, said: “Austerity could easily have spared the poor, if political will had existed to do so.” He added that it was a political choice to “fund tax cuts for the wealthy” instead. A government spokesperson said: “We strongly disagree with the analysis.” They claimed household incomes “have never been higher” and that income inequality has fallen. “Universal credit is supporting people into work faster, but we are listening to feedback and have made numerous improvements to the system, including ensuring 2.4 million households will be up to £630 better off a year as a result of raising the work allowance.”

➌ ➍ ➎

Austerity overview Poverty 14 million people – one-fifth of the UK population – live in poverty.

Destitution Four million of these people are more than 50% below the poverty line, and 1.5 million are in destitution.

Child deprivation Child poverty could see a rise of 7% within the next four years, meaning that 40% of youth in the country could be living in poverty by 2022.

Funding cuts Local governments in England have seen a 49% real-terms reduction in government funding from 2010-11 to 2017-18.

Service closures Between 2010 and 2018, more than 500 children’s centres were closed, and more than 340 libraries shut, with the loss of 8,000 library jobs.

Speaking in the House of Commons, new work and pensions secretary Amber Rudd condemned the UN inquiry and slammed the “extraordinary political nature” of its language. Alston also highlighted that local government, especially in England, had been “gutted” by policies, reflecting the “dismantling of the social safety net”. Funding cuts had transferred service costs to those who are “least able to pay”. His full report will be presented to the UN Human Rights Council in Geneva next year.



cover feature

FEELING THE FORCE The police are often the first line of response, but as real-terms cuts continue, how can already ‘badly overstretched’ services possibly offer a TO ACCESS THE FULL VERSION OF PUBLIC FINANCE response that meets MAGAZINE, public expectations? SUBSCRIBE HERE


£17 . 3bn Total expenditure Source: CIPFA

total employee expenses*

total premisesrelated expenses

transportrelated expenses

total supplies and services


total 'third-party' payments**


* including salaries ** e.g. third party insurance, contribution to National Police Air Service

before – net expenditure in the past financial year was £11.2bn compared with £11.1bn in 2016-17 – a rise of 1% (see the pie chart above to see where the police are spending money). But this minimal increase in expenditure could be as a result of the efficiencies that forces are making. Paul Grady, head of police and engagement lead at consultancy Grant Thornton, tells PF: “Forces are looking at innovative ways of doing things. This includes working collaboratively with other forces, as well as with other parts of the public sector.” For example, forces are sharing staff and services, and using data analytics to predict demand on their services, Grady explains. Durham Constabulary is often cited as a force that is dealing creatively with the loss of hundreds of officers and a relatively high crime rate. Gary Ridley, Durham Constabulary’s assistant chief officer and CIPFA member, tells PF: “We’ve had to act in a more business-like manner and have adopted a stricter approach to managing people.” The force has set up three severance schemes, allowing it to replace staff who

leave with people on lower pay grades, which has saved the force about £6m over six years, Ridley adds. It has also tightened up on procurement, increased the use of volunteers and is selling training to neighbouring forces. It has invested in staff training – so staff can be “omnicompetent”, Ridley explains – and heavily in IT. He says the constabulary prefers continuous improvement and marginal gains rather than transformation, as it is “easier to manage and less unsettling for our staff ”. Of course, other forces have also been shedding numbers. Winton Keenen, chief constable of Northumbria, announced in an open letter published in October that his constabulary had been forced to make efficiency savings of more than £142m since 2010-11, with the loss of 1,000 jobs. “Our financial reserves are now not only at the lowest they have ever been, they are the lowest of any force in the UK,” he said. But efficiencies can only go so far. Alison Dewhirst, police advisor for CIPFA’s local government faculty, tells PF: “The days of quick wins for police forces on efficiencies are long gone. Some smaller


Cops in the capital The force that gets by far the largest chunk of government cash each year is the Metropolitan Police. In 2018-19, it was awarded £2,553.6m. Greater Manchester, which gets the next largest slice of funding, received £555.8m. The London mayor is responsible for police funding in the capital, and last year gave £110m extra to the Met from council tax and business rates. Of this, £20.2m was for the 2% police pay increase and £15m for knife crime. The number of offences involving a knife or sharp instrument in England and Wales in the year to March 2018 was at an 18-year high, and London had the highest rate, with 168 offences involving a knife per 100,000 population. The Mayor’s Office for Policing and Crime in its 2017-18 statement of accounts noted it had been “a difficult year for London”, with terror attacks in London Bridge, Finsbury Park and Parsons Green, the Grenfell Tower fire and rising knife crime. A spokesperson for the mayor of London told PF: “Government cuts have made the complex causes of knife and violent crime far worse.” “We’re facing unprecedented challenges, with officers working longer and harder to respond to TO ACCESS THE FULL evolving crime trends,” said a VERSION OF PUBLIC FINANCE Met representative. MAGAZINE , £730m of The force has made SUBSCRIBE HERE gross savings since 2012, by “transforming how we support the front line,” they added. WWW.PUBLICFINANCE.CO.UK 25




nnual income twenty pounds, annual expenditure nineteen, nineteen shillings and sixpence, result happiness. Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery”. Mr Micawber’s lines from Dickens’s David Copperfield show that the basics of debt remain unchanged over the years. Over-indebtedness continues to blight lives and although debtors’ prisons are a thing of the past, debt collection can still be a rough, misery-laden business. At this time of year in particular, debts can haunt the festivities: parents may go into debt to fund present buying as a “coping mechanism”, says Peter Saddington, a counsellor in Nottingham and Derbyshire with the relationships charity Relate. And, according to the charity’s recent report, In Too Deep: An Investigation Into Debt And Relationships, debt generally is one of the most common contributors to stress within families. One of Relate’s clients, Lyndsay, ran into difficulties soon after she remarried. She owned a house and her new partner put a lot of pressure on her to put this in joint names. As the small business he ran struggled, he began surreptitiously to divert funds from their mortgage to keep the firm afloat. She only awoke to the problems when



Dickensian debtors’ prisons are a thing of the past, but outdated debt collection practices still risk driving the most financially vulnerable into further difficulty



bailiffs from her North London council arrived to claim back council tax arrears and threatened to seize a car that in fact belonged to her neighbours. Eviction notices soon followed. “There was a lot of male bravado with my then husband – he wanted a high life style for the family and wouldn’t face reality. It was terrifying when the bailiffs arrived and the children witnessed everything. I still feel really ashamed,” she says. Lyndsay ultimately took herself and the children out of the relationship, slowly rebuilt her credit score and regained control of her finances. A recent survey by the Financial Conduct Authority reported that no fewer than 4.1 million people in the UK are “in difficulty” in paying domestic bills or credit commitments. The introduction of universal credit has created significant financial challenges for many, owing in part to delays in transition from legacy benefits and an increase in rent arrears for social tenants increasing their debt. A rise in gambling, especially online, has also been blamed. In particular, there has been a marked shift in the type of common debts. Joanna Elson, chief executive of the Money Advice Trust, which runs the popular National Debtline service, says: “Ten years ago, our typical caller was struggling to pay credit debts such as loans, credit cards and overdrafts. Today, we are increasingly hearing from people unable to cover the costs of everyday bills such as council tax, energy and rent. More of the people we help are now faced with small, but trickier, debts.” Around £19bn is owed in everyday bills, according to Citizens Advice. Of that, £3bn is council tax unpaid to local authorities in England, meaning that council tax arrears are set to become the single biggest source of debt. A further £1.3bn is owed to local authorities in Scotland, though only £87m to councils in Wales. One or two councils, including Hammersmith and Fulham, have abandoned what it describes as “the cruel, medieval” practice of calling in the bailiffs. But Money Advice Trust found that between April 2016 and March 2017, council tax

debt was passed on to bailiffs for recovery on 1.38 million occasions. Parking notice cases were handed on to bailiffs around 810,000 times, and there were around 50,000 referrals for housing benefit overpayments. The Treasury select committee has severely chastised government, both central and local, for resorting to bailiffs so readily. A recent report stated: “Debt collection practices of public authorities have been described as ‘worst in class’; debts are often pursued over-zealously, uncompromisingly, and with routine recourse to bailiffs. This approach risks driving the most financially vulnerable people into further difficulty. The public sector should raise its standards to the level of industry best practice.” Critics say that bailiff enforcement action has become more a default approach than a last resort, and that councils are not taking into account clients’ circumstances – particularly where they might be vulnerable. Neither are they passing them on to the many providers of debt advice. ►






? E E FR

TO ACCESS THE FULL Healthcare was a big driver VERSION OF PUBLIC FINANCE in the outcome of the recent US mid-term MAGAZINE , SUBSCRIBE HEREBut could the Democrats’ vision of a truly elections.

reformed healthcare system ever become a reality?


There are US states that have a worse maternal mortality rate than Sri Lanka and Kazakhstan… because their health system does not meet women’s needs



Robert Yates, Chatham House

niversal healthcare has long been a holy grail for the progressive American Democrats. The late Massachusetts senator Edward Kennedy dubbed healthcare reform the “cause of my life”. As First Lady in 1993, Hillary Clinton spearheaded an ultimately doomed plan to introduce universal health coverage. By Simone And while former president Barack Rensch Obama made significant progress with his Affordable Care Act, introduced in 2010, it cost him much political capital. The Democrats’ Republican opponents are determined to repeal this landmark reform, although have yet to alight on a way to do it. In this context, it is unsurprising that healthcare reform was one of the big campaign issues for the Democrats at November’s mid-term elections. The press has attributed the party’s call for ‘Medicare for all’ as a deciding factor in its solid victory in the House of Representatives election – Democrats took 225 seats to the Republicans’ 197. Polling has shown Americans are dissatisfied with health policy in their country. Despite its great wealth, the US is an outlier among developed nations when it comes to healthcare. The majority of advanced economies – for example, in Asia Pacific and Europe – have some sort of universal healthcare coverage, but the US doesn’t. In the summer, a Reuters survey found that 70% of Americans supported the universal rollout of Medicare, a national health insurance programme currently only available to people over 65 or those with disabilities or end-stage renal disease. Prior to the ACA, or Obamacare as it is widely known, many Americans didn’t have access to affordable healthcare insurance and so met any costs upfront. Expensive medical bills are consequently the biggest source of personal bankruptcy in the US. A 2015 poll involving Harvard University and National Public Radio found 7% of respondents had declared bankruptcy because of healthcare costs. One-fifth took out costly high-interest loans to cover medical bills, while 23% piled on credit card debt. Now, under Obamacare, citizens are required to take out insurance, while insurers are regulated so that ‘affordable’ polices are on offer. But the system as a whole remains a very costly and complex one, especially when benchmarked against international comparators. In 2017, the US spent about $3.5trn – 18% of GDP – on health, more than twice the average among developed countries, according to the independent Committee for a Responsible Federal Budget, which addresses fiscal issues. Of this, just under half (45%) was publicly financed by the federal, state and local governments – equivalent to around 8% of the economy. The rest of the

total cost of healthcare in the US comes from private sources, such as insurers, companies and households. The US is the only G7 country where less than half of healthcare expenditure is financed through government (via taxation) or compulsory social insurance schemes. Robert Yates, project director of the Universal Health Coverage Policy Forum at think-tank Chatham House, tells PF the American healthcare system is “so bad”. It’s “a joke in the international set-up”, he says. “There are some US states that have a worse maternal mortality rate than Sri Lanka and Kazakhstan. It’s extraordinary that so many American women die in childbirth, because their health system does not meet their needs,” he says. A 2017 OECD report found that life expectancy in the US is slightly lower than average for the forum’s 35 members. Usually, the more a country spends on its citizens’ health, the longer their life expectancy, according to the OECD. Not so with the US, where health spending has increased much more than in other countries since 1995, but where life expectancy gains have been smaller. The Commonwealth Foundation, a US NGO, last year ranked the US the worst of 11 advanced economies on safety, affordability and efficiency of healthcare. It highlighted that the US spent $9,364 per person on healthcare in 2016, whereas the UK, which ranked first on health performance overall, spent just $4,094 per person. Problems identified included time wasted with insurance claims and restricted access to primary care, which led to delayed diagnoses and poor prevention and management of chronic diseases. Meanwhile, there is “wasteful ► overuse of drugs and technologies”.



christmas quiz ► 2018



In January, the commentator and free schools champion Toby Young resigned from a public appointment after a string of lewd social media posts were uncovered. Which quango board had he been appointed to? a) The Equality and Human Rights Commission b) Ofsted c) The Office for Students d) Education and Skills Funding Agency At the sta start a of February, Northam Northamptonshire p County Council iissued s a Section 114 notice on n the basis of a permane permanent en unbalanced budget. Approxim Approximately m how long had it been sinc since c this last happened? a) 10 yea years ar b) 15 yea years r c) 20 years yea a d) 30 yea years a The Beast Beasst from the East brought a blast off snowy weather in late Febr February u and early March. Accordin According ng to the Office for Budget R Responsibility, what did the cold ssnap do to the economy? a) Growt Growth h contracted to 0.1%

b) There was negative growth of -0.3% c) It made no difference d) Growth picked up to 0.6%, driven by demand for wellies and woollies

04 05 06 07

Academics staged several days of strike action across the country earlier this year. What was the dispute about? a) Research demands b) Pensions c) Teaching hours d) No platforming “A series of delusional characters maintained that everything was hunky dory until it all went suddenly and unforeseeably wrong.” Who or what were senior MPs talking about? a) The government’s Brexit negotiating team b) Carillion’s directors and senior management c) The rollout of universal credit d) England’s progress at the World Cup From April, all larger employers were required to publicly report their gender pay gap. According to CIPFA analysis of the data, what is the median gender pay gap in local government? a) 4.3% b) 5.5% c) 7.7% d) 9.4% And in which type of authorities is the gender pay gap narrowest?


Test yourself on the events of 2018 with our annual festive quiz! The first prize is a £150 M&S voucher

Top tips… Do ➊ Take a long, hard (and ➋ ➌

objective) look at where your organisation is at Make sure you can justify your investment by setting clear performance measures Learn from others and potentially cut costs with cross-organisational training

Don’t ➊ Be afraid to recruit for soft

➐ ➋ ➌

Pick the right metrics According to McKinsey, while most organisations place a high priority on building capabilities, only 25% believe that development programmes make a measurable difference. And fewer than one in 10 actually track their return on investment. You’ll inevitably be asked to justify any expenditure, so setting clear performance metrics before and after training – whether quantitative or qualitative – will help you to measure success and tweak future programmes to make them more effective.

skills over technical ability

➋ Underestimate core

commercial and digital skills

➌ Stop evolving your training

gaps, according to a Local Government Association survey; they are evolving fast, and both are key to unlocking efficiency and performance. CIPFA’s commercial skills training offers a wide range of courses – from our five-day ‘mini MBA’ to one-day tasters – that are delivered around the country, and can also be run in-house or online.

Don’t neglect soft skills

Vocational training is easy for everyone to understand. After all, you can’t really progress in finance without specific qualifications and continuing professional development. By contrast, it’s harder to see the immediate value of investing in ‘soft’ skills such as decision-making, communication and teamwork. Yet these skills are widely sought after today and often rated ahead of technical competence. ACCA reports a study showing that more than 50% of chief finance officers would hire someone with fewer technical skills if they had stronger soft skills than other candidates. These skills help build the robustness and resilience that is so important to the success of local authorities.

Go strategic If it’s appropriate to your organisation, finance business partnering has the combined benefits of placing finance departments at the heart of decision-making while ultimately improving overall performance. Training in this area is proving very popular across a range of organisations and enables finance practitioners to develop skills and gain the experience to advise and guide decision-makers and give them a better understanding of the financial implications of any strategic or operational decisions that they make.

Share the experience

Build in commercial and digital competencies

There could be both savings and opportunities for greater learning if training and development is shared with peer teams at other organisations. So give careful thought to collaborating and linking up with your counterparts to boost skills across organisational boundaries.

Whatever a training-needs analysis reveals, commercial and digital skills are likely to be fundamental to future performance. These are the areas with the biggest skills

found at



numbers game Held to account Public Sector Audit Appointments revealed that 64 local authorities out of 495 missed the July deadline for publication of their 2017-18 accounts. Just 25 bodies missed the deadline the previous year. Of those that were late, 50 were councils, 10 were police bodies, one was a fire authority and three were other local government bodies.

Public sector net borrowing: October versus March Borrowing forecasts

£ bn

30 20


10 0 -10







2023-24 Source: ONS, OBR

Loosening the purse strings £


Almost two-thirds of governments around the world will shift to accrualbased accounting within the next five years, an index issued by CIPFA and the International Federation of Accountants predicted. By 2023, 65% of governments will be reporting on an accrual basis – an increase from just one-quarter of governments that have so far made the transition from cash. The International Public Sector Financial Accountability Index looked at information from 150 countries around the world and was launched at the World Congress of Accountants in Sydney in November. Accru al




March 18



Source: OBR, 2018


Ca sh

Accru al

itioning trans sh ual Ca accr to

Percentage change on previous year

G Growth expectations for 2019 have been revised up from 1.3% to 1.6%, b tthanks largely to giveaways in the Budget. The OBR dubbed the growth B ttrend “relatively stable but unspectacular”. It noted that growth u tthis year had been suppressed by ssnowy weather in the first quarter of the year, with growth expectations for 2018 y llowered from 1.5% to 1.3%. The OBR caveated its prediction about the future c path of GDP, noting that a range of p outcomes were possible. These could o ssee the economy swell by almost 4% or contract by 1.5%. The most immediate c rrisk is a disorderly exit from the EU.

in the index that currently use each reporting basis

ual c cr

GDP growth in 2019

Percentage of countries captured


Room to grow

25% Cash t ran sit i

The autumn Budget revealed that the public finances are in a healthier state than predicted in March, but the government has chosen to spend the fiscal windfall rather than save it. The Office for Budget Responsibility’s latest Economic and Fiscal Outlook showed a steady fall in borrowing until 2022-23. However, this has been largely cancelled out by government decisions to increase spending on the NHS and other public services and raise the income tax personal allowance threshold to £12,500. “This is the largest discretionary fiscal loosening at any fiscal event since the creation of the OBR,” it noted.

Dash from cash



oa gt in

March forecast October forecast (pre-government decisions) October forecast



17.5% Percentage of countries captured in the index projected to use each reporting basis by 2023


Source: International Public Sector Financial Accountability Index