Scrutiny of councils’ commercial activity – guidance and support reminder

Posted on 03/11/2020 by Ed Hammond.

You can’t have failed to notice that controversy around councils’ commercial activity has been in the news recently. Some councils have found themselves unexpectedly exposed to significant risk around their investments – caused in part by the impact of the pandemic, but partly by longer-standing issues.

It’s generally accepted that councillor oversight of commercial activity has been poor in many authorities. Cabinet members often exercise a strong leadership role, but there is little member awareness of the issues beyond a small number of administration councillors, and those councillors who may sit on the Boards of commercial vehicles.

We know that in many councils, scrutiny finds itself being pushed away from these issues. Commercial confidentiality is often cited as a reason, but isn’t the only one – in truth, the problem is a subset of the wider challenges that scrutiny experiences when engaging with financial matters across the piece.

Councillors often have a lack of confidence in dealing with financial matters. But senior officers have a critical responsibility to support them to build that confidence, and to work with them to carve out a meaningful role for scrutiny in what is a complex governance landscape. Otherwise much scrutiny in this area will remain poorly directed and ineffective. This is a central feature of “Taking scrutiny seriously”, a paper we published earlier this year, which highlights how the onus on scrutiny improvement sits with people in senior leadership positions, rather than with scrutiny councillors or officers who lack the authority and resources to make change happen on their own. 

The fact this continues to be the case is extremely troubling. We produced comprehensive advice earlier this year on how we think councils should be addressing these matters through proportionate but robust member oversight, led through scrutiny. S151s, Monitoring Officers and Heads of Paid Service in every council need to think seriously about their exposure to risk on financial matters; they need to involve members of all groups in those conversations, and use those insights to rethink how councillors will be more meaningfully involved from now on.

This starts with work to develop the 2020/21 budget, which will now be in full swing. Again, we have recently published detailed guidance on this subject in the form of a “Financial scrutiny practice guide”, earlier in the summer. The most common solution for councillor scrutiny of budget development remains a set-piece event in December or January where councillors pore through the budget, sometimes line-by-line, in an unproductive and inefficient manner. We have said before, and we will say again, that this approach is unsustainable.

Part of the solution lies with a better understanding of the interface between scrutiny and councils’ audit committees. We’re doing some work on this at the moment, and hope to be able to provide councillors and officers with practical suggestions in the coming weeks. In the meantime, please check out the publications referred to and contact us if you need any advice or support.