Guy Clifton, director, Local Government Value for Money, Grant Thornton UK LLP looks at reorganisation lessons from recently established unitary councils.

Local government reorganisation (LGR) provides an opportunity for the new council to realise financial benefits, improve service delivery and support the financial sustainability of local government. These benefits can take several years to be fully realised and will require sustained commitment from senior stakeholders. Our report “Learning from the new unitary councils” provides lessons drawn from our Value for Money reviews of the most recently established unitary councils and highlights some of the key challenges that need to be overcome throughout the reorganisation process, to realise the planned opportunities.

During the transition period

Appointing the new council’s senior management in the shadow period, so they have time to build their leadership team is critical, as is getting the governance arrangements right. Having the right capacity and capability is also key and this includes establishing a programme management office to support the transition and transformation required by the new council and having an appropriately resourced finance team. Whilst priority must be given to a successful day one and a safe and legal transition, failure to agree the operating model during transition will delay the realisation of any benefits. The Government should look to agree a realistic transition timescale for a new unitary and recognise that councils may need support through this.

Financial sustainability

Council leadership should ensure that there’s sufficient focus on financial culture and communication before and after the transition period. The amount of work required to consider the financial accounting implications of unitarisation cannot be under-estimated. Financial sustainability is a function, at least in part, of the inherited position from legacy bodies. This assurance can only come from high quality audited accounts, so the finance team must have the capacity to be able to work with external auditors.

Where LGR involves a legacy county council, constructive relationships with the other shadow councils in the county geography should be built. The disaggregation and aggregation of resources needs to take place as early as possible, including careful consideration of how social care budgets are allocated. The estimated balance sheet split should be agreed during transition, including reserves, capital financing and minimum revenue provision. Harmonising council tax can also be a political challenge and needs to be tackled early.

Medium-term financial planning must be supported by a robust transformation and savings programme, limiting the dependency on the use of reserves – and so understanding the legacy reserves position early will be key. The capital programme must also be considered alongside revenue budgets. Too often capital programme delivery isn’t sufficiently resourced in the early years of LGR.

Governance

The leadership of the new council must understand the value of strong governance and risk, to support effective performance and financial sustainability. A corporate risk strategy should be developed, ensuring strategic and directorate registers include corporate priorities, risk prioritisation and mitigation.

While there are numerous elements to consider, the new council must prioritise the production of legacy accounts. We have identified examples where a lack of investment in legacy accounts has meant that, to some degree, the new unitary is reliant on management accounting numbers which may differ materially from statutory accounts and have not been subject to any form of audit challenge. The new council must also ensure it has the capacity for internal audit and counter-fraud work, and that legacy audit recommendations are reviewed and, where appropriate, acted upon.

Economy, efficiency and effectiveness

The new council should develop its performance management framework early and ensure that KPIs are aligned to this and not to legacy council arrangements. As part of this, data underpinning performance should be validated and reliable. A clear IT strategy and transformation plan should be agreed that removes duplicate systems within three years and puts in place appropriate cyber security and data recovery arrangements. Data controls should also be put in place to minimise data breaches.

The council’s key strategic partners should be mapped and partnership governance arrangements developed and agreed, along with a procurement strategy and appropriately resourced procurement and contract management teams.

Local government reorganisation is complex, time consuming and provides some significant challenges and new councils will have significant decisions to take post-vesting day. But it is here to stay, and the lessons learned and identified in our research should help councils to prepare for any future changes.