What budget cuts mean for local authorities

24 June 2015

As the austerity drive continues local authorities must choose between outsourcing jobs and keeping them in-house.

Local authorities have borne the brunt of the government’s austerity drive and have seen their spending power fall by nearly 30 per cent (in real terms) between 2008 and 2015. This has led to significant cuts in staff numbers and services, and affected local authorities’ ability to manage their risks. 

Many authorities have sought to address these problems by outsourcing certain services. However, although it’s often seen as a way of transferring the cost of risk, outsourcing also introduces complications. 

For example, the risks flowing from outsourced services still have to be managed, but the consequent reduction in staff numbers means that the authority often loses the expertise it needs to do this. 

Consequently, some authorities have sought to keep as many services, and consequently jobs, in-house, in order to retain greater flexibility for the future. Outsourcing a contract means agreeing to a fixed price for a period of years, and this makes it virtually impossible to achieve further savings during the currency of an outsourcing contract. 

Less money, more risk?

Insurance is one of the largest single purchases made by a local authority. Unsurprisingly many local authority insurance officers are being asked to achieve savings on their insurance spend.

However, a reduced spend on services often leads to an increase in risk – for example, a highways authority may have significantly less to spend on repairs but it is still responsible for the same length of road.

Any downturn in economic circumstances seems to be accompanied by an increase in the number of spurious legal cases brought against local authorities. 

Authorities that have been able to maintain robust inspection, maintenance, and claims handling regimes have been more successful in repudiating fraudulent claims than those that have cut back on inspection and maintenance. 

The challenge for all authorities is to replicate this level of success throughout their entire organisation.

The local government sector is facing difficult times and only by placing greater emphasis on risk management, aligning risk financing strategy to corporate strategic objectives, and working with a broker who understands them will authorities be able to achieve reductions in their overall cost of risk.

For further information please contact Julia Reffell, Head of Public Sector Risk Practice on +44 20 7558 3253