What is the Financial Resilience Index?
CIPFA's Financial Resilience Index is a comparative analytical tool that may be used by Chief Financial Officers to support good financial management, providing a common understanding within a council of their financial position. The index shows a council's position on a range of measures associated with financial risk. The selection of indicators has been informed by extensive financial resilience work undertaken by CIPFA, public consultation and technical stakeholder engagement.
Section 151 officers may also use the index in their annual report to the council setting out the proposed budget for the year and medium-term financial strategy.
COVID-19 has had an impact on the 2022 resilience index, as the data is obtained from the Revenue Expenditure and Financing England Outurn Report 2020-2021. It should therefore be viewed in the context of this having been a transitional year. The index continues to illustrate the financial resilience of authorities during the pandemic but figures on reserves have been affected by a series of coronavirus-related payments at the very end of the financial year and will require additional explanation at a local level.
Why has it been created?
We understand that local authorities are feeling the financial pressure as the demand for services is becoming greater, with higher costs and delivery charges impacting on budgets. Local authorities are also facing higher levels of scrutiny over their decision-making amid an increasingly complex delivery landscape. At the heart of this decision making has to be a clear understanding of possible areas of financial risk.
The Financial Resilience Index is a free service and is made publicly available to support and improve such discussions on local authority financial resilience. It provides a platform for constructive debate based on consistent information.
How does it work?
The index is made up of a set of indicators which take publicly available data and compare similar authorities across a range of factors. There is no single overall indicator of financial risk, so the index instead highlights areas where additional scrutiny should take place in order to provide additional assurance. This additional scrutiny is accompanied by a narrative to place the indicator into context. This narrative will be particularly relevant in the 2022 index in the context of reserves.