• Hari Pillai, Director |
5 min read

Local authorities up and down the country are becoming increasingly challenged to meet the funding gap. Although the local government settlement in 2023/24 increased in real terms, central government funding is not keeping pace with the rising costs of serving an expanding, and ageing population, leading to the demand on services inexorably growing. This is now being exacerbated by the rate of inflation seen for forty years and a far-reaching cost-of-living crisis.

Indeed, if one were to dream up the most testing scenario for local government in a virtual reality exercise, you would probably come up with the kind of myriad of pressures we see before us right now.

No more fat to trim?

Councils have become adept at making finances stretch to meet immediate needs, finding cost efficiencies, pruning back on some optional services and driving up commercial and other income. The problem is that many feel they have taken this as far as they can: they are running out of options.

Most councils are already increasing council tax by the maximum permitted amount each year (4.99 per cent for 2023/24). More and more are dipping into their reserves to meet shortfalls and fill budget gaps. This may work as a short-term expediency – but what happens when the reserves run out?

There are no easy answers to the very real financial challenges being faced. However, on the cost management side, there are certainly a number of best practice approaches to value delivery that can make a significant difference to the balance sheet. Through a combination of efficiencies, it is possible to really grip expenditure and create an ‘air gap’ that leaves some space for longer-term transformation planning.

The biggest cost on any council balance sheet is, of course, staff. But a lot of authorities have already streamlined as much as they can, whilst trying to preserve the dedicated and knowledgeable talent that they need. Agency staff costs are an area where there is scope to find efficiencies – but with huge demand in areas like children’s services and adult social care, agency resource has become indispensable too. Options to cut back here are limited.

Honing in on third party spend

As a controllable cost, it is third party spend where there is the highest potential for authorities to sustainably manage costs down – without harming quality of service delivery, if approached the right way.

In our work with councils, we are seeing some of the most successful outcomes arising when councils take third party spend back to first principles and ask themselves a series of simple but searching questions:

Do we really need this service or product?
Sometimes, services are procured just because they always have been. But how much value are they really adding? Do they stack up on a cost/benefit basis? And then there’s the ‘make or buy’ question: do they need to be externally provided – or could the service or product be delivered more economically in-house?

What about the specification design?
Authorities often tend to ‘over-specify’ what a service needs to deliver. A common example here is with ICT, where authorities are paying a premium for unnecessarily comprehensive technical support and maintenance. Involve potential bidders in the design process – what specifications do they believe are actually needed and what requirements are unnecessary cost? Getting the specification right will certainly mean better value for money, when factoring in that the service will deliver what it needs to, at a lower cost base.

Can we rationalise our contracts?
We frequently find that Councils have multiple contracts with different suppliers– for example housing repairs and maintenance, or ICT systems. Consolidating these down to fewer providers can generate efficiencies and savings through a cost/volume approach (while benefiting the suppliers as well).

Are we considering strategic partnerships for key services?
The procurement and contract renewals process can be never-ending – a merry-go-round that starts up again each year. This takes up internal time and resource – so is a cost in itself. Instead, ask yourself whether any key services could be better performed through a strategic partnership with a trusted supplier and consider extending contract where it makes sense from a value for money perspective. Putting the relationship on a long-term footing has benefits on both sides. In return for the extended revenue certainty during unpredictable times, the provider may well agree to a reduced rate too – saving the authority further sums. Frank and open discussions around what a supplier can do the reduce their costs, rather than impact their profit margins, and agree tolerances around service delivery with Councils, is usually an untapped lever for delivering improved value for money.

Is anyone tracking supplier spend against performance?
It sounds simple, but all too often in the everyday scramble to keep on top of things, do Councils really have the time to stand back and assess supplier performance on a systematic basis. Contract management is often left to the service areas themselves – but they tend to have manage this with competing demands caused by business as usual activities. Make sure you have a clear process, between the respective service areas, procurement and finance, to review supplier performance in key areas of spend. Are they meeting targets and KPIs? Is expected value being delivered? If not, what mechanisms exist to secure a rebate, renegotiate more favourable terms, or move the business to another supplier? Central government research has shown that up to 9% of value that’s being lost can be recovered through better contract management.

Are we collaborating with other councils and bodies?
There may be scope to co-create service design and delivery with neighbouring councils, gaining cost efficiencies through synergies and scale. This also applies with NHS partners, where collaborating with ICSs can unlock savings – for example through dynamic purchasing systems for residential and nursing care across an area, helping to control prices and outflows.

In combination, these measures can make a significant difference to an authority’s spending outflows and help open the way to navigate the cash squeeze pressure.

With that peace of mind, authorities can then devote more time and resource to carrying out longer-term transformational initiatives including digitisation and automation to drive a step change in costs and performance, and create organisational resilience for the future.