The Lewisham Mayor's proposed Council Budget 2020/21 - A Point Of View

At the last meeting of the Council’s Public Accounts Select Committee (PASC), I made the point that, when I was Cabinet Member for Resources during the 2010-14 administration, I was sent out to defend the reserves from demands that these be used to support the Council’s day to day spending, thereby reducing the need for cuts. In those days, the use of one-off reserves which, when spent, would be gone forever, to fund ongoing expenditure on things like social services, street sweeping and bin collection was seen as very bad practice and not the kind of thing that a local authority should be doing if it wished to maintain public confidence. I said this in order to emphasise how times had changed. A report that was put before us made it clear that the Council’s General Fund had had to be bailed out using reserves in every one of the last 6 years. Why is this significant? One of the main reasons is that it means that for the last 6 years the Council has spent £100,000s of tax payers' money on the process of setting budgets that disintegrated on first contact with reality. We have spent 6 years on a pointless exercise. 

I suspect that most residents do not appreciate what is involved in a Council Budget setting exercise. All I would say is that it takes months, involves all 54 Councillors plus the Mayor and many highly paid Council Officers in hours and hours of meetings and, in some cases, expensive staff and public consultation exercises. Clearly, we needn’t have bothered. Why spend months and scarce resources in setting budgets for Children’s Social Care and Refuse Collection, for example, which were clearly unrealistic and had to be supplemented by a raid on the reserves? What’s more, why, if we have gone through this exercise in futility for 6 years in a row are we doing it a gain for a 7th year? The definition of insanity is doing the same thing over and over again but expecting different results, at least according to Einstein. On this basis we are all clearly insane. We would all be better off in terms of saved time and money if we just got a baboon to pick numbers randomly out of a hat and inserted those into the Budget spreadsheet. After 6 years of the Budget needing a bail-out from the reserves, I think that it is reasonable to say that there is evidence of systemic failure in the Budget setting process. Moreover, it is reasonable to assume that the same thing will happen to the 2020/21 Budget. The King is indeed in the all together, to quote Danny Kaye. 

This state of affairs should come a no surprise though. Last week when I met up with Barry Quirk, former Chief Executive of Lewisham Council and current CE of RBK&C, for one of our regular catch-ups over a few beers, he showed me something that he had been working on. He had looked at every local authority in the country and ranked their spend relative to their income from Council Tax and Business rates combined. Lewisham was in the second worse position in the Country. Its net revenue spend was around a third higher (32%) than its income, behind Knowsley that spent more than half its income (54%). This compares with neighbouring Greenwich which spent 11% more. In starker contrast lay our other neighbours. Lambeth spends less than its income (79%), while Southwark runs an even larger ‘surplus’, spending only 63% of its combined Council Tax and Business Rate income. Much can be said about this disparity, particularly as the current government seem to be committed to local authorities funding themselves from the income they can generate locally. How are Councils supposed to fund what should be universal services like Adult and Children’s Social Care together with Refuse Collection, which account for nearly all their General Budget spending, from localised property taxes? How can Knowsley provide the same care for its elderly and vulnerable people as Westminster can, when its income from Council Tax and Business Rates is over 12 times its spending? 

I would emphasise another point though. Cllr John Muldoon and I have been arguing since the beginning of this administration that Lewisham is going bust and the issuing of a Section 114 Notice, akin to the raising of the financial white flag to the government, is inevitable. Initially our warnings were dismissed. Latterly the messaging has changed. Now it seems to be accepted that we are going bust, but only to the extent that all local authorities are going bust due to unremitting Austerity that is cutting local authorities’ incomes to below what is required to fund basic statutory services. Politically, in Lewisham, the view seems to be, as I have said before, ‘extend and pretend’. Extend the time-frame for setting proper balanced budgets that can be delivered and publicly pretend that things will be fine. And do this in the belief that there are many authorities that will go over the Section 114 cliff edge before Lewisham. Are we being complacent? Who really knows? However, what Barry’s analysis shows is that Lewisham may be further up the peloton that is racing towards bankruptcy than The Very Serious People, to borrow a phrase from the economist Paul Krugman,  in this administration realise.

NB I have added a copy of Barry's analysis here.  I'm afraid that it is very small.  I'll see if I can get a larger version.  Lewisham is in red.

The Lewisham Mayor's proposed Council Budget 2019/20 - A Point Of View

Below is the text of an email I sent to Cllr Jim Mallory, the Chair of Lewisham's Public Accounts Select Committee, of which I am a member:

There are two elements to the proposed 2019/20 Council budget about which I have expressed concern. The first is the proposal to set the base budget for Children’s Social Care (CSC) at £45.7m, some £7.5m less than the forecast spend for the current financial year. There is a proposal to top this up with a ‘once off’ additional sum of £5.4m. But this still leaves a shortfall of £2.1 between the total budget and this year’s forecast spend. The broader context is that last year, when the service overspent by £12.6m, we still spent £2.9m less on the service than we are estimated to spend this year. It is reasonable, therefore, to assume that the service faces budget pressures that will push spend even higher than the £53.2m expected to be spent this year. It was this background of ever-increasing demand led spend outstripping inadequately set budgets that led Bill Root, commenting in a report commissioned by the former Chief Executive and received by the Council’s Public Accounts Select Committee (PASC), that it was inappropriate to describe the situation as an ‘overspend’. Yet given this state of affairs, we are being asked to believe that we will actually spend £2.1m less this year than last and, on top of this, we will be able to take out a further £5.4m from the service next year. This, to my mind, is unrealistic. To provide £5.4m on a ‘once off’ basis merely pushes a budget pressure down the road to next year. It is akin to planting an unexploded bomb in the budget. Under questioning, we were told that in fact it may not actually be a ‘once off’ provision. It may have to be reprovided the year after next. This raises more questions than it answers. Why carry forward this destabilising budget pressure to future years when recognition that it will have to be met will generate the need for further cuts? Surely it would be better to put the £5.4m into the base with the hope that, if its provision does turn out to be ‘once off’, then the Council can realise a very welcome saving? What is the process and timeline by which it will be decided whether this £5.4m is ‘once off’ or will need to be reprovided? The truth is, I suspect, that funding has been provided in this way to avoid the £5.4m showing up an ‘overspend’ in next year’s budget monitoring, while side stepping the need to make the cuts necessary to fund it if it was put into the base. This is bound to give cause for concern. 

By way of reassurance, we are told that considerable effort is being made to transform the service so as to drive down the costs of placements. This is nothing new. Although I didn’t shout about it quite so loudly, we attempted to do this for every one of the 4 years that I was Cabinet Member for Children & Young People (CYP). This administration may succeed where I failed. But if we assume that if we did nothing then CSC spend would be around £56.2m next year (£53.2 from last year plus £3m of assumed budget pressure) then by agreeing this budget, we are being asked to accept that the service will find £10.5m of savings next year (56.2m less £45.7m). This surely is a heroic assumption. To be frank, it’s fanciful. 

My second area of concern relates to the reserves. We are told that the reserves have been prudently husbanded through the better years to help us in time of greatest need. Now that day has arrived due to unremitting Tory Austerity. So now is the day when we must draw them down to fund vital services for our community. When I was Cabinet Member of Resources our non-earmarked, rainy day, ‘in case of emergency break glass’ reserves stood at £15m. We were told at the last PASC meeting that they now stand at £13m. This year the Council, if memory serves, is expected to overspend its budget by about £10m. Last year it overspent by about £15m. The year before it overspent by about £12m. We have overspent by about £37m in the last 3 years. Where has this money come from? Clearly not these ‘rainy day’ reserves. The answer appears to be the earmarked reserves. The report says that we have used £20.3m of these reserves to fund the General Fund this year and plan to use £15.9m next year. Again, this raises more questions than it answers. As these are earmarked reserves, what were they earmarked to fund? If we spend these earmarked reserves on funding things for which there were not earmarked, what budget pressures are we storing up for the future? What is the opportunity cost we are being asked to bear? What risks are we exposing ourselves to? On these matters the report is silent. 

The broader context to all this, of course, is that Tory Austerity is driving local government into the financial buffers. Some time ago, I wrote that every Council in the country is like a car that is heading towards a cliff edge. Every car is desperately trying to slow down as they approach the precipice. They know they will not be able to stop in time. They just hope that they will not be in the first group to go over the edge in the hope that the sight of some cars plunging to the rocks below will somehow be enough to get someone to see sense and bring the whole ghastly situation to an end. In this story, the cliff edge is going bust, a section 114, and the deceleration is the implementation of the cuts. It seems to me that, although we all accept that local government generally is eventually going to run out of money to fund its statutory services like social care and waste collection, if the announced programme of Austerity is implemented, no one wants to accept that their own Council is actually going to do so. What we appear to want to do instead is to kick the can down the road and just hope that something turns up to save the day. Or, to borrow a phrase from the former Greek Finance Minister, Yanis Varoufakis, which he used to describe the policy of the Troika to deal with a bankrupt Greece, we extend and pretend. In our case we extend credit to ourselves from our reserves and pretend that everything will be all right in the end. This policy was understandable in the run up to the 2015 election when it was reasonable to assume that there was a strong possibility that Labour at the very worst would emerge as the largest party in Parliament. It was not after this and was even less so after the General Election of 2017. 

How can we expect to generate the outrage and alarm amongst our residents to generate the kind of protest that has any hope of stopping Austerity, unless we tell them the truth about the Council’s financial position and what this means for their services? Extend and pretend are antithetical to this. In order to tell the truth to the people we represent we first need to face up to it ourselves. The truth is that we are running out of money. Even if we closed every library and leisure centre, cut all the third sector grants and ended the Assemblies and the Young Mayor programme, we would not make the cuts we need to set a balanced budget in 2021/22. Failing to be honest about this merely serves the Tories’ interests. 

Yet a concentration on Austerity, though entirely justifiable, shifts the focus away from our own internal failings that also need to be addressed as we seek to modernise the Council. I have already mentioned the £37m recent overspend. At the end of the last administration I was invited, along with the Mayor and the rest of the Cabinet, to brief the consultants who had been engaged to help us recruit a new Chief Executive as to the kind of candidate we were looking for. Some colleagues talked about the need to appoint someone who shared the vision of the likely new administration and would lead on building the new partnerships required to deliver it. I said that this wouldn’t be my priority as there would be no money to invest in this. I argued that what the Council needed was a new Chief Executive who could get to grips with the parlous state of its finances. The Council had a track record of setting budgets that contained savings that proved to be undeliverable, witness the recent large overspends, and that this was evidence of management failure that was in urgent need of being addressed. 

One of the reasons that I regretted the early departure of the new Chief Executive who was subsequently appointed was that it represented a lost opportunity for a fresh start. A new senior leader would have brought a valuable new external perspective on an organisation that had been run by an Executive Management Team (EMT) that had seen little change in many, many years. There is no agreed time frame to recruit the next Chief Executive. The existing EMT will probably be in place now for the rest of this year. We will be expecting them to deliver savings and service transformation that they have not previously been able to achieve. 

At the beginning of this financial year it was reported to PASC that the overspend in Children’s Social Care had doubled. The report said that this was due to a big expansion of expensive placements in the final quarter of 2017/18. Under cross examination, it was conceded that this was implausible. It was subsequently admitted that reason for the massive increase in the reported overspend was the fact that it was under reported in the previous quarters because of inaccurate financial reporting due to inadequate financial management systems. My understanding is that, in consequence of this intervention by PASC, an addendum had to be added to the report that went to Mayor & Cabinet. At a subsequent meeting of PASC the weaknesses in financial management that led to the under reporting of the CSC overspend was explained more fully. The explanation relating to the big increase in expensive placements hasn’t been spoken of again. It seems to have disappeared from our collective corporate memory, although it is probably still in the original report that is on the Council’s website. The fact that officers presented a report in public to elected members which contained a false and misleading statement has never, to my knowledge, been addressed. No one has been held accountable for it. We seem to have subconsciously decided to draw a veil over it and not mention it again. 

As well as being honest about the state of the Council’s finances and what this will ultimately mean for service provision, we need to be honest about the organisation’s management weaknesses. An organisation that is not sufficiently self-critical will not flourish. I say to team members in my own business, if the most insightful, penetrating and accurate criticism about our gallery comes from the outside, then we are lost. 

Some people have said that I bear a large part of the blame for the current state of the finances, especially as I was Cabinet Member for Children & Young People from 2014 until 2018. There is plenty I can say in my defence. However, I am content to point out that I made a decision not to seek any position in this administration and part of my reasoning was based on my belief that I had a duty to take responsibility for the failures that had taken place under my watch. I did seriously consider not standing for the Council in 2018 but decided in the end that I would have some counsel to offer from the backbenches which if not exactly wise, would be from an experienced perspective. 

Others have asked me what I would do faced with the current situation. I put forward some ideas 18 months ago. Those who are interested can view them here: 

In order to support the proposed Budget we must express confidence in the opinions and beliefs of the Mayor, Lead Members and Senior Officers and the reassurances they give in response to our doubts. In short, we are being asked for our trust. My response is to quote the old Russian proverb – Trust, but verify. My view is that in this, as in all things, we must hope for the best, but plan for the worst. So far we are being asked to do plenty of the former whilst the Council does very little of the latter.