Independent report

Nottingham City Council Improvement and Assurance Board: final report

Published 16 May 2024

Applies to England

1. Introduction

Some three years ago, the Improvement and Assurance Board was commissioned to undertake the review of Nottingham City Council’s response to the Caller report, following the demise of Robin Hood Energy (RHE). The Board was assigned the task by Ministers to oversee, monitor, guide and advise the Council in the delivery of its Improvement and Recovery Plan. Key areas of failure included: governance, finance, corporate, planning, companies and the underlying culture of the organisation. These weaknesses also illustrated the Council’s failure to fulfil its statutory duty to achieve Best Value in providing quality and cost-effective services to the citizens of Nottingham. This final IAB report provides an account of the progress, or otherwise, in achieving fundamental change in the Council’s operation. It pays particular attention to the Council’s response to the IAB ‘Instructions’ issued in February 2023, following the Minister’s decision to give the Board powers of direction.

2. Governance

The Council established a new constitution which sought to address the significant shortcomings in the governance of the local authority. Although this marked an improvement in the principles of sound decision-making, the IAB has constantly challenged the process of timely and effective outcomes. Specifically, clarity and transparency in the administration of the officer/member protocol was, in some areas, unsatisfactory. It is disappointing that this issue, in part, remains unresolved. Historically, management of risk has been inadequate. The IAB has continuously sought assurances from the Council that a robust and rigorous approach to risk would be embedded in systems and procedures, and emphasised in the introduction and training of both members and officers. Whilst risk awareness has improved, decision-making must be seen to have full regard to the Council’s fiduciary role in fulfilling its responsibilities to citizens. The messaging within the authority must be strengthened in this respect. The Council’s engagement with partners and stakeholders is a positive development and constructive relationships are being established as Nottingham prepares its role and participation in the East Midlands Combined Authority.

The governance arrangements relating to the way the Council manages the mixed economy in the delivery of services has been reviewed, including the overhaul of the commissioning and procurement strategy. Particular focus has been maintained in respect of the professional and technical skills required to deliver each of these functions. The balance between in-house and outsourced services must, however, continue to be monitored to ensure Best Value.

3. Finance

In terms of financial planning and resilience, the sector wide cost pressures affecting adult social care, children’s services and homelessness in particular, have imposed considerable financial stress on all upper tier councils and Nottingham is no exception. In Nottingham’s case however the position is made much worse by its failure until recently, and only in part to re-set the whole Council operations to an affordable underlying cost base and level of service offer. Instead, the Council continued to draw extensively on remaining reserves as well as unwinding its risk budgets to set its most recent annual budgets. The result was a lack of any effective capacity and financial resilience to handle the emerging budget overspends and deficits for 2023/24 and 2024/25.

The recent work to undertake a more fundamental review of spend – employing a distinction between duties and powers – has generated a significant level of savings at £35m over two years of which £22m relates to 2024/25. This is commended but the reality is that it has come relatively late in the Council’s financial planning approach over the last three years; it has not generated sufficient options to bridge the gap; and in the timescale involved the methodology could not address the underlying efficiency and effectiveness of current operations taking all the savings options deemed professionally deliverable from the ‘duties and powers’ work, the Council has still had to rely on the Government allowing it to apply some £41m of its own capital resources to set a technically balanced budget in 2024/25. (This flexibility is referred to as Exceptional Financial Support).

The reliance on EFS for 2024/25 and expected new pressures creates an estimated budget gap for 2025/26 of £68m and a total gap over the medium term of £172m. Even this assumes the Council fully delivers on the balance of its c£60m of programmed transformation savings over the period. Notwithstanding the major budget delivery challenges for 2024/25, the financial challenge in 2025/26 alone is stark and as a result the Council will need to put in place, urgently, a revised financial planning methodology.

The s151 officer and the corporate directors now feel they have much better confidence in the underlying budget assumptions and budget build for 2024/25 than in recent years; but effective savings delivery, tracking and overall financial monitoring will be even more critical in the year to come, and the whole organisation, from the corporate management team to all levels of the authority, will need to rise to that challenge if the issuance of another s114 report is to be avoided.

The quality of financial controls and practice has been a consistent council–wide weakness from the outset of the Board’s involvement. Undoubtedly very significant progress has been made in the last 12 months as part of a Council wide ‘Finance Improvement Programme’ but the Council starts from a relatively low base and the results of the improvements will not be felt in substance until 2024/25. Some areas require continued focus, in particular, outturn forecasting, the workings of the budget accountability framework in practice, the culture of compliance with expected finance procedures across the Council and the quality of scrutiny and oversight provided by internal audit and the Audit Committee. These areas were found especially wanting during the year.

In respect of the Council’s capital planning and resourcing, it took the right decision to impose a voluntary cap on new borrowing given the above average level of debt it held. Capital use prioritisation was also amended in a sensible way and has been altered again to reflect the first priority need for capital receipts to fund EFS flexibility. The Board has consistently commended the Council’s new approach to the governance and method applied to securing capital receipts which included a new more robust and transparent asset disposal policy. In response to the relevant ‘Instruction’ the Council has identified a further risk adjusted pipeline of circa £150 million over the medium term; however a proportion of this new pipeline comprises income earning assets and thus a sophisticated approach will be required to assess the best course of action in each case. Notwithstanding the final pipeline sum available, supporting the current capital programme and the funding of the EFS flexibility allowed for in 2023/24 and 2024/25 will be priority calls on it.

The Council’s approach to capital planning and monitoring is also the subject of a number of necessary improvements as part of the Financial Improvement Programme but attention to the reasons for the very significant level of slippage in recent years will also be needed. The future of the District Heating Network and the Broadmarsh development represent potential capital liability risks if not handled appropriately going forward and the Council leadership is fully aware of this

4. Transformation

Fundamental to the success of the Improvement and Recovery Plan is the Council’s commitment to transformation. Historically, Nottingham’s organisation, management and delivery of services illustrated behaviours and ways of working which were not consistent with Best Value. The Transformation Plan seeks to address this and has established a change academy to advocate significant changes in working practices. Consultants have been engaged to assist in effecting radical improvement in the organisation, structure, management and delivery of services. Whilst this is encouraging, there has been significant slippage in achieving fundamental change and this has reduced planned budget reductions in those years. This must be corrected as a matter of urgency. The corporate leadership of the authority must drive this change. If transformation is to assist in the delivery of Best Value, it is essential that attention be given to identifying, providing and evaluating service outcomes as a key measure of success of the Improvement and Recovery Plan.

5. Companies

The non-statutory review in November 2020 found that poor commercial investment decisions and failures in the direction of the Council’s companies had led to significant debts. Since the appointment of the IAB, there has been a substantial de-risking of the portfolio of companies and improvement in their governance, albeit from a low base.

The operations of Enviro Energy, Nottingham Revenues and Benefits and Nottingham City Homes have been brought back inhouse. The disposal of Thomas Bow has been completed. These were the companies where decisions were most pressing. A programme of strategic reviews is helping to determine the future of the remaining Council owned entities and should be used, where required, to clarify their strategic purpose.

The Council has also applied its improved governance process to its non-subsidiary companies and other commercial ventures. This has enabled it to understand better the full portfolio and take actions to mitigate the risks.

The composition of the company boards has substantially changed through the implementation of a new policy for board appointments. The approach balances a commitment to the City of Nottingham, the IoD’s Competency Framework and the requirements of the specific company board. The planned board evaluations should continue to be implemented to support board effectiveness.

The new companies’ governance processes are a major step forward. Continuous refinement and development will be required as the Council gains experience in their application. Companies’ business planning needs to be strengthened further to ensure alignment and drive performance.

The Council still faces a number of large and complex commercial issues. To get high quality decisions on these, it is essential that effective independent commercial assurance is sustained and there is disciplined governance process adherence.

6. Strategic and Corporate Planning

The IAB was initially concerned that the various planning processes lacked coherence. Strategic, corporate, divisional, financial, HR and service plans existed, but were not integrated. This lack of consistency and clarity is being addressed but recent unanticipated overspendings have distorted that picture and the integration of the plans must now be finalised. The Council is aware that plans must not be a statement of aspirations as they have to be reconciled on the basis of affordability and are entirely at one with financial and human resources. Party manifestos must be subject to the same discipline

7. Human Resources

The Council has been continuously challenged on the size of its workforce relative to other local authorities of similar size and responsibilities. Equally, the IAB remains concerned that the underlying culture of the organisation was unacceptable. Reference has already been made to working practices being inefficient and there remains a significant challenge in tackling a training programme which offers skills and expertise required to modernise the workforce and its output. It is unfortunate that, after three years, this issue remains unresolved and this requires urgent attention. Alongside this challenge sits the workforce which has had more than 500 people greater than comparable authorities. The IAB has also continuously highlighted weak performance management and accountability. The appraisal system is under review, but addressing underperformance, remains a significant weakness in Nottingham. Appropriate action must be taken to ensure that the workforce delivers efficient and effective outcomes to Nottingham citizens.

8. Conclusion

In this report, the IAB points to progress in a number of areas as the Council pursues its Improvement and Recovery Plan. However, the areas where there is a failure to deliver change in its entirety, there is a concern the Council has still not fully accepted the gravity of the situation.

Governance has yet to be completely addressed, particularly in the areas of timeliness of decision-making and the embedding of sound risk management. The Council’s financial position remains a very serious one, with significant shortcomings in budgetary control and the underlying level of spend, despite progress with the financial improvement programme.

Encouraging advances, have been made in tackling the company’s portfolio, including better governance; these processes will need further development to ensure Best Value outcomes. Strategic leadership and direction has still to be wholly addressed together with the need for fully integrated plans. Fundamental to the Council success in the future is a workforce culture which fully embraces its need to deliver quality and cost-effective services to the citizens, fulfilling the Best Value requirement with a clear unity of purpose demonstrated by the Council leadership. The IAB has been disappointed throughout its term of office at the pace of change in Nottingham.