ACCA - The global body for professional accountants
Finance managers working in the public sector under austere conditions need to demonstrate improved value – and as this report shows that is a massive challenge, as well as being an opportunity. By providing more effective strategic financial leadership, public sector financial managers can lead the way out of austerity
—Gillian Fawcett, head of public sector, ACCA

The public sector appears to be rising to the challenge of Government austerity measures, according to public authority finance experts, but many of the strategies being developed might not be sustainable or result in long-term value for money

For several years now, public authorities such as health and local government have been grappling with the pressures of financial austerity which involve cuts in public spending at a time when demand for services is growing. 

Furthermore, public authorities are likely to face a continuation of 'substantial real-term cuts' in funding for many years to come, according to the report by academics from Nottingham Business School on behalf of ACCA (the Association of Chartered Certified Accountants), the global body for professional accountants.

The report The importance of strategic financial leadership in the UK public sector in a time of financial austerity says that, amid unprecedented challenges, authorities are responding to reductions in funding 'without disastrous consequences for service standards' but it adds that many financial strategies do not appear to be sustainable or able to maximise value for money in the long-term.

Looking at a range of public authorities, the study team examined:

  • Vision and strategy
  • Leadership
  • The role of strategic finance managers.

It found that public sector bodies – including local councils, health authorities and hospitals, police, fire and ambulance services – need to be more proactive in making clear to decision makers the financial costs and benefits of particular courses of action.

'Austerity is presenting huge challenges for the public sector and we have to assume low economic growth – GDP of less than one per cent – is likely to continue for the foreseeable future,' said Professor Malcolm Prowle, who led the study team at Nottingham Business School, part of Nottingham Trent University.

'What the public sector needs is strategically adept financial managers who can work with colleagues to achieve the best overall outcomes. Working at multi-agency level has a vital role to play in achieving sustainable and long-term value for money and finance leaders need to have the strategic ability and vision to drive change in the right direction, seeing beyond political obstacles and short-term difficulties.'

Gillian Fawcett, head of public sector at ACCA, added: 'For the public sector, austerity often means managing fiscal standstill, which has a knock-on effect for services. It has significant political and managerial implications. Finance managers working in the public sector under austere conditions need to demonstrate improved value – and as this report shows that is a massive challenge, as well as being an opportunity. By providing more effective strategic financial leadership, public sector financial managers can lead the way out of austerity.' 

Key recommendations in the report include:

  • Organisations using senior finance staff as business partners and putting them at the heart of decision making
  • Senior finance staff being professionally qualified and widely experienced – either in the public or private sector – and with the ability to demonstrate strategic leadership skills
  • Finance managers and other senior staff improving public engagement in the wider debate about the nature of public services in their area
  • Improvements in basic financial management in central government departments.

The report suggests there is a need for senior council officials to create a corporate culture in which the pursuit of public value by employees is rewarded in the same was as pursuing shareholder value is rewarded in privation corporations.

'Managers need to think about what is most valuable in the service that they run and how effective management can make the outcomes of the service the best that it can be for their communities,' said Professor Prowle.

'In doing this, however, they sometimes need to recognise that public value may be best maximised by joint planning and working with other public authorities, rather than working unilaterally.'

The study looked at a sample of public authorities with the aim of identifying good practice which could be promoted elsewhere.

The team comprised Professor Prowle, Dr Don Harradine, Roger Latham, Glynn Lowth, Peter Murphy and Kevin Orford, all public sector finance and management experts at Nottingham Business School.