6 reasons why this financial challenge requires a different mindset

Over the past week, I have read an increasing number of stories about the alarming financial impact of Covid-19 on local authorities, bringing home to me the real threats to future sustainability and councils’ ability to deliver outcomes for residents. For those grappling with the numbers, the situation is exacerbated by all the unknowns in terms of impact, timescales and the scale of the community crisis that will follow the direct medical crisis. But what is clear is that the financial legacy of Covid-19 will last for years.

The majority of  local authorities will not be able to individually resolve the financial impact of this crisis. The gap it will create is too large and the impact too fundamental. But whilst the sector anticipates a longer-term response from central government, it must be proactive in its financial management amid the crisis and in preparing for recovery. This is being made even more critical by the government appearing to backtrack on the scale of its commitment to support local government through emergency funding.

Local authorities face the triple challenge of remaining resilient, ensuring they are financially sustainable and protecting outcomes. Although they have been through tough times before, not least through a decade of austerity, they need to approach the financial challenge resulting from Covid-19 with a very different mindset.

1. Local government will need to act as an enabler and influencer of system outcomes. Not only does local government have to achieve its own financial sustainability, it also has a crucial role to play in supporting the resilience of its communities and the local economy. The crisis has rightly made local government more vocal about its pivotal role and need for greater recognition. But the sector must also change the way it approaches financial management and decision making to reflect its role as a systems leader. Local authorities must avoid the often embedded approach of focusing solely on what they directly control, and think about how resources can be used to influence wider outcomes – including supporting local business or the voluntary and community sector (VCS), empowering communities, stimulating the economy, and shaping and supporting markets.
2. Covid-19 has highlighted the need for a systems-led approach. Councils have had to work across organisational boundaries and in partnership with health, local business and the VCS. The sector should avoid a return to identifying savings in service-based silos or seeking only to work with controllable elements of the system.
3. There is unlikely to be a simple transition from crisis response to recovery. Local authorities will need time to recuperate, re-set and transition between crisis response and recovery, and different parts of the organisation will have different trajectories. The journey ahead is unlikely to be linear. To weather the storm effectively, councils must put organisational resilience front and centre – staff wellbeing is pivotal to delivering significant change.
4. There is a need to act now – there isn’t time for bureaucratic MTFS processes. As councils are mobilised into action, we are seeing shifts in culture that could mean they approach change differently in the future; not least with quicker decision making and prototyping of new ways of working. This must support effective management of resources.
5. The challenge from the pandemic is acute and yet the full scale of the impact (and the financial gap that needs to be closed) remains uncertain. There is a need to invest time in understanding the potential scenarios at a local level, recognising local variability. The sector needs to look forward and forecast demand and wider economic and market impact – a big change from traditional financial monitoring.
6. There is an opportunity to intervene early and prevent emerging needs from escalating. The scale of emergency funding is limited and there is minimal flexibility in many local authority budgets. However, when prioritising resources (and before the full local economic crisis and community demand surge hits) local authorities should think about proactively investing to protect against a deterioration in outcomes and the costs associated with this. The mindset must absolutely be about protecting outcomes and not services.

This crisis has highlighted the complexity of public services, and the fact that they are delivered within systems that are subject to shocks and disruption. Organisational resilience is therefore crucial. As councils look to increase resilience and begin to recuperate, they should steer clear of the traditional financial approaches usually taken in local government. It is time for a different mindset and approach.