When Northamptonshire County Council declared itself nearly bankrupt last February, it sent shockwaves through local government finance. The East Midlands council had balanced its books by draining its reserves. Were other councils also getting dangerously close to running out of money? The BBC England data unit used public data to scrutinise the accounts of local authorities and discover which other councils might be in danger. It revealed eleven councils would run out of reserves within four years if their recent levels of spending continued.
The story led the BBC news website and led to reaction and debate within the local government sector about the importance of cash reserves as well as the pressures councils are under because they do not know what their funding position will be from year to year. It also highlighted weaknesses in government data, namely the way that “earmarked” and “unallocated” reserves can mean different things to different councils.
The piece helped others to scrutinise the accounts of local authorities paid for and relied upon by millions of people, explaining the methodology used by the Chartered Institute of Public Finance and Accountancy (CIPFA), one of the most trusted expert bodies on the matter in clear terms and ensuring that the views of councils about the analysis and its reliability were represented fully.
It was followed up by local newspapers all over the country as well as local government sector publications.
Councillor Richard Watts from the Local Government Association, explained: “Some councils are facing a choice between using reserves to try and plug funding gaps or further cutting back local services in order to balance the books.
“This is unsustainable and does nothing to address the systemic underfunding that they face. Ongoing funding gaps are simply too big to be plugged by reserves.”
Professor Tony Travers of the London School of Economics said: “Emergencies can happen and sudden increases in spending can be needed. Councils need to be resilient or they end up in the position Northamptonshire was in. However, they don’t know their funding position from one year to the next.”
We used R to download, clean and analyse years of government data on council reserves and spending and created an R notebook detailing the process of analysing council accounts to match CIPFA’s measure for resilience.
Work was then done in Excel to calculate how many years councils could continue to spend their reserves, based on the changes over the previous three financial years.
R and the BBC’s bbplot package were used to provide a simple bar chart showing percentage change in reserves at the councils highlighted.
What was the hardest part of this project?
Despite councils themselves being the source of the government data, and the data being classed as national statistics, some local authorities dispute the figures and wanted us to use their own audited accounts instead.
We decided to continue with the government data on the basis that every council had been treated the same and the data had been compiled and published by the same team, rather than different auditors.
Yet we had to ensure we had been fair to all concerned and so a large part of the story was given over to local authorities for them to explain their figures.
For example, some argued that we should not be using their “earmarked” reserves (money set aside for specific projects” as part of the analysis. We did so because Cipfa had done so and because while the money may have been allocated, it was still available to call upon and use should it be needed. Crucially, it had not yet been spent.
Above all, what this project showed was that while many representative bodies and analysts have used this data on many occasions to make claims about council finances, it is very rare for anyone to actually name the individual councils that they may be referring to. And once anyone does start to highlight individual examples, everyone has something they want to say about their own individual circumstances.
What can others learn from this project?
Aside from understanding some of the terminology around English local government finance, this project was also an example of downloading, cleaning and analysing public data.
As well as the story itself, which focussed on reserves, the analysis we did in the research phase involved subsetting data and using regex to find specific spending types that we wanted to look at, such as social care.
We did the same when we then settled on looking at cash reserves.
It was also an exercise in data cleaning, for example dealing with columns imported as characters rather than numeric data.
Above all, however, it is an example of ensuring fairness, of seeking expert advice and of making sure that weaknesses and doubt are given appropriate weight.