Independent report

Nottingham City Council: Improvement and Assurance Board fourth report

Published 13 December 2023

Applies to England

Introduction

This quarterly report marks an important stage in the development and delivery of Nottingham City Council’s Improvement and Recovery Plan. It is now some 30 months since the Improvement and Assurance Board commenced its work in overseeing, monitoring and advising the council in the way it progressed its work to address and correct the significant weaknesses and shortcomings of the council identified in The Caller report.

The role of the IAB was strengthened in September 2022 when it was given powers of direction, and in February 2023 the board issued a set of instructions designed to accelerate the pace at which the council was delivering fundamental change. Those instructions were accompanied by deadlines and this report records progress to date in meeting those requirements. Previous reports have continuously expressed concern and disappointment that improvements leading to substantial change in the resourcing and delivery of services have not been achieved in a timely fashion. Although advances have been recorded in response to the IAB instructions much remains outstanding when having to meet the prescribed deadlines.

This report covers the key areas of challenge identified by the IAB relating to governance, finance, transformation, planning, companies and workforce, and records progress by NCC against set instructions issued in February this year.

Governance

Operate an efficient and effective decision-making process

The review of decision-making has been undertaken and there is much evidence that the process itself has been improved in terms of clarity of roles and streamlining of leadership meetings including the Executive Panel.

Guidance and training has been provided and decisions taken under the scheme of delegation are being delivered in a more timely fashion. There remain some concerns, however, that these practices are not being applied throughout the authority and the council is working to correct them

Application, in full, of the council’s officer/member protocol

There is a much increased awareness of the need for members and officers to observe the protocol which underpins a healthy and effective member/officer interface. The ambiguity relating to respective roles is being eliminated and induction and training for new and existing councillors reflects this approach. Some issues, however, remain and these must be addressed.

Regularise, in a consistent way, good communication and engagement with stakeholders

An updated stakeholder database is now in place and the communication and the engagement strategy offers clarity in setting out plans and objectives together with delivery mechanisms. Feedback informs the forward planning approach.

Consolidate best practice in governance relating to all partnership working

Work is underway across key partnerships to review current governance arrangements and best practice guidance has been subject to review and weaknesses in operation are being addressed. However, the council must monitor partnership working on a continuous basis.

Finalise the implementation of the restructured commissioning and procurement systems

The commercial oversight board has been in operation since March 2023 and the new commissioning structure is now in place. Evidence of how this initiative is improving Best Value in the commissioning and procurement of local authority services must now be identified and reported.

Deliver a robust and rigorous risk management process

The council has carried out a review of its risk policy, management and practices relating to the resourcing, management, operation and delivery of its services. Work is underway to ensure that risk management is understood and practised effectively at all levels within the organisation. This is not yet complete and the embedding of the process in all aspects of the council’s work must be tackled as a matter of urgency. The Audit Committee’s oversight of this approach must be emphasised.

Finance

Realistic, and balanced, plans and budgets

The latest forecast outturn for 2023/24 reveals a worsening, rather than an improving or at the least, stabilising financial position. The council’s projected year-end overspend at period four monitoring is £33 million, of which £22 million relates to social care. This is extremely disappointing as the position has deteriorated from the previous period forecast of £26 million despite very substantial mitigating actions being put in place. The board recognises external pressures facing the whole sector, but is particularly concerned about senior managerial grip with fundamental responsibility and accountability to constrain spending within the departmental budget set for the year. There is not the evident pace and substance of action plans in response to a seriously worsening position within directorates, especially in respect of social care, that is expected. In short, there remains an ineffective culture of budget accountability departmentally and corporately.

The position is made worse by a continuing high level of volatility and poor quality in budget forecasting especially (but not only) in respect of adults and children’s social care. The board fears that the current £33 million forecast overspend for the year could be significantly understated.

The current financial position has prompted the S151 Officer to initiate formal consultations internally, and with the Department, on issuing a Section 114 notice for the council. Ultimately, that is his responsibility and his decision alone. This would not alter the financial position immediately if such a notice were to be issued but, in any event, the council has to discuss the possibility of emergency capitalisation support with the department, which is now underway.

The financial position is compounded by the emerging financial gap for the following year, 2024/25. Inevitably that will figure also in the S151 Officer’s considerations as it is the size of the combined budget gap or deficit, for 2023/24 and 2024/25, versus the Council’s capacity to cover it, in terms of reserves and realistic saving plans, that will determine if financial balance is possible under current arrangements.

Unfortunately, current prospects are not encouraging. Due to the significant increase in overspend for 2023/24, the size of the opening gap for 2024/25 has increased markedly. The board has requested a firm figure but the current working assumption is at least £50 million before various mitigations. Against this backdrop, the council has some, but limited, reserves and more importantly has failed, to date, to provide convincing evidence of being ready and able to take and implement fundamental decisions about the size, scope and focus of all its operations so it can maximise its chances of being financially stable.

A planning machinery has been put in place designed to robustly challenge ‘duties and powers’ across all the services with the aim of identifying significant service change and retrenchment. The board awaits the early results of that programme but confidence levels, are perhaps, not high at this point.

Notwithstanding whether the council can identify coherent and cogent service change and corporate strategies to deliver financial balance, there remains the challenging question of the council’s inherent capacity to deliver change agendas already committed. In particular, the council’s major transformation programme – the fundamental pillar of its medium term financial strategy – is set again to undershoot significantly against the planned savings target. The board has asked the Council for a realistic reappraisal of the likely scale and timings of the transformation savings

In respect of all reserves, the S151 Officer is assessing these to identify available and defensible capacity, albeit one-off, to help cover the emerging gaps and deficits in 2023/24 and 2024/25. The board awaits sight of that analysis but is aware that the council has already, and significantly so, drawn down some reserves and temporarily re-purposed others to enable it to set recent budgets

Overall, regardless of whether a S114 notice was an issue, the council’s current financial position (short and near-term) and its capacity to address it is very concerning. The council’s External Auditor is actively considering the issue of a statutory public report recording his position on this issue.

Other matters relating to the finance instructions

The council appears on track to achieve existing capital receipts targets for the current year and has made some commendable progress in identifying some potential new streams of capital receipts, but much more work is required especially in respect of the operational estate. This will be vital in terms of any emergency capitalisation support forthcoming from government. In terms of capital investment plans or requirements going forward, there remains no coherent plan for funding future district heating scenarios but the board does commend the council’s decision to take stock of both its waste and district heating core objectives checked going forward. The former is statutory but the latter is not. Funding any significant Broad Marsh redevelopment remains in flux pending further work by the council.

The production of historical accounts by the end September 2023 has now drifted to the end of October 2023 for 2019/20 and 2020/21 and to December 2023 for 2021/22. Early indications from the External Auditor are that these accounts will be adversely qualified (or even a declined opinion) because of the earlier findings of widespread and long-standing management control overrides. Qualification may also apply if the audit work is timed out. The board, however, commends the work of the S151 Officer regarding the various Financial Improvement Plan initiatives in place, and underway, but much remains to be done to deliver and embed reliable financial processes and disciplines across the council. 

Transformation

Establish and deliver a fully funded transformation programme

The transformation programmes in respect of audit social care and children services have been impacted by significant overspending in both 2022/23 and the current year and this very worrying trend currently extends to future years. These are two of the three key drivers in effecting fundamental change and transformation in the Council service provision. Without significant improvement in resourcing, budget management and control the transformation plan will be severely compromised.

Identify best value in the provision of all services as key in developing fundamental change

The best value framework is in place and the principles are reflected in the transformation programmes. Whilst core strategic services have been restructured to incorporate Best Value criteria, there remains the challenge for the council to ensure that outcomes are properly articulated for all services in order that citizens are able to judge whether they are receiving cost-effective services in meeting their needs and requirements

Create a clear plan for stimulating the local economy

A framework for developing a coherent economic plan is in place and implementation is being progressed.

Dismantle historic practices to enable transformation to succeed

The change programme is underway and some historic barriers have been removed. However, the underlying cultural issues have not been resolved, with outdated ways of working yet to be addressed in some areas. This is an obstacle to delivering the transformation agenda in full.

Understanding, acceptance and commitment of all senior management to the need for cultural change

All senior managers have completed the ‘Leading and Managing Together’ programme but evidence suggests that there is yet to be total commitment of all senior management to fundamental change in behaviours and ways of working

Ensure the right balance is struck between the provision of in-house and outsourced services

The best value framework provides a clear undertaking to provide the appropriate delivery model and the Commercial Board is in place to ensure compliance and good governance in decision-making

Corporate planning

Approve the fully integrated SCP, workforce plan, MTFP, transformation and recovery plans

The Strategic Council Plan is in place and Divisional and Service plans have been integrated. However, corporate planning is seriously undermined as the financial deficit now reported creates a mismatch between budget/MTFP and other plans. This must be addressed as a matter of urgency

Instil a truly corporate commitment in the fulfilment of council plans

The integration of corporate plans has been under the banner of a One Council Approach and reconciled with Divisional Plans. However, the serious issue relating to financial planning and resilience now evident must be addressed in terms of clear corporate commitment to reconcile all plans immediately.

Provide a clear and direct link between the Corporate Plans and Performance Management Regime

Subject to addressing the implications of the financial deficits now reported, the integrated business planning process, itself, is in place and the performance management structure links to Divisional Performance Clinics and Divisional Business Plans. However, the underlying discipline relating to assessing and acting upon performance outcomes remains in doubt

Companies

The future of Nottingham Castle in line with the commercial strategy and without exposing the council to inappropriate risk

The castle is being operated as part of the council’s Museum’s and Gallery Service on a temporary basis. The financial performance, since re-opening in June, has been satisfactory but will continue to be monitored closely. This temporary operation is due to run for up to two years. During this time, the long-term solution to the castle will be determined and implemented in line with the new Commercial Strategy.

Assist in the process of providing a solution for Tram Link within the confines of NCC role and responsibility

The council continues to be fully engaged with Tram Link stakeholders and supporting them in reaching a solution. It is accessing appropriate external expert advice to understand and mitigate risks to the council. Additional governance with an SRO is in place.

Ensure major project teams are in place (with SROs) where required to manage or mitigate risk effectively, including the decision on the revised structure of NCH and subsidiaries

A project plan is in place to progress changes in the NCH Group company structure and assets. Financial and strategic objectives have been agreed and the disposal of a limited number of market rental properties has commenced. Approval of the preferred final structure of the NCH Group of companies is expected in the coming months. The implementation is expected to take at least 12 months. This is a complex task and will require continued scrutiny. Strengthening the governance of the support arrangement between NCC, the companies and internal company governance is ongoing.

The Greater Broadmarsh redevelopment is also being managed through a major projects’ governance process and similar arrangements are being put in place for District Heating and Victoria Market

Align conflicts of interest requirements, as we apply to council owned entity boards, with the Lawyers in Local Government Code of Practice

The new policy and process for board appointments is being implemented. The approach balances commitment to the City of Nottingham, the IoD’s Competency Framework and the requirements of the specific company board. The first tranche of appointments has been made and the policy change is expected to be fully implemented in December this year.

Integrate Shareholder Unit good practice in all company activity

Good progress made in the improvement of the companies’ governance over the last year. However, addressing vacancies to maintain the commercially skilled resourcing will be essential to sustain the improvements and continue to make progress. The Companies Governance Handbook and Commercial Strategy, agreed in November 2022, set out a programme of improvements. The council remains largely on schedule to implement these.

Finalise the review of local authority companies expeditiously

The NIC strategic review is ongoing. The council must use this experience to ensure it has the resources necessary to deliver the remaining reviews before the March 2024 deadline.

Take decisions on the council’s future interests in all subsidiaries / non-subsidiary companies and other commercial ventures

Over 40 organisations have been evaluated, including those where the council has representation at board level, as a trustee or where grant funding is provided. The level of governance on the retained entities, the planned closure of dormant entities and the monitoring of those going through liquidation was approved in July. The delivery of these changes is ongoing and is expected to be completed by the end of the financial year 2023/24

Carry out an internal evaluation of the shareholder unit effectiveness

The internal evaluation of the shareholder unit (SHU) effectiveness has been completed. It included a survey of the COEs’ boards and executives. It showed that good practice has generally been established in the COEs. However, governance weaknesses persist, particularly in NCH which need to be addressed promptly. The SHU was seen as a significant improvement on prior arrangements.

The evaluation also identified the potential for better strategic dialogue between NCC and its COEs. Changes to the reporting practices will be proposed to address these.

Workforce, culture and performance outcomes

Establish and maintain a trained, skilled, competent workforce accommodating fundamental cultural change

A substantial training and development programme is in place including coverage of coaching, profiling, best value e-learning and digital data skills. The Change Academy now comprises 25 graduates. The issue of achieving and embedding fundamental cultural change remains a key challenge for the council.

Establish, in full, corporate leadership underpinned by robust and focused performance management and accountability

Corporate leadership has effected a relatively clear messaging which relates to the need for change, but the impact on the workforce is less clear. Performance management is improving but has yet to be rigorously applied across the whole workforce

Enforce strong discipline in identifying and acting upon underperformance

Guidance and briefings for managers in dealing with effective performance management have been progressed. However, the council has been slow in adopting a robust approach in addressing underperformance.

Ensure best value in delivering quality and cost effective services is paramount in officer performance

Objectives have been set relating to the delivery of the council Best Value duty and an e-learning module has been introduced to increase awareness and understanding of this concept. More evidence is needed to determine whether Best Value is now deeply embedded in the thinking of the whole workforce

Complete a clear plan and procedure for monitoring performance against plans

Performance management is included in monthly performance clinics and these agendas cover SCP commitment, project risk, KPIs and RAG rated performance against the Performance Management Framework

Ensure the recovery improvement plan is achieved within the set timescale

A number of developments have taken place within the plan period but the Council’s overall pace of change remains unsatisfactory, particularly in workforce planning, ways of working and performance management.

Monitor the response to OFSTED recommendations and ensure compliance

OFSTED recommendations are being progressed and service change and improvement work has led to a reduction of children with a child protection plan, in line with best practice.

Ensure the council’s new pay policy demonstrably assists effective recruitment and retention

The council, like many local authorities, has experienced significant recruitment challenges in a difficult labour market leading, in some instances, to the employment of interim staff. There is also a further challenge in that Nottingham has at least 500 more staff than local authorities of similar size and responsibilities. The process of seeking to reduce numbers is now underway but there is a need for greater urgency in resolving this issue.

Conclusion

Although this report records positive progress in a number of areas of the council’s Improvement and Recovery, there remain serious concerns about the failure to address particular weaknesses in finance, transformation and the underlying culture of the organisation in respect of governance and the workforce. The current service pressures which the council is facing are acknowledged but the pace of change remains unsatisfactory. The financial resilience and sustainability of the Authority is clearly at risk and this must be tackled as a matter of real urgency. These shortcomings clearly undermine the potential to deliver a successful transformation of the council’s structure, organisation and its potential to deliver best value in service provision. The IAB remains of the view that effective and efficient ways of working are not being comprehensively applied. The changes so far are inadequate. The corporate leadership, both members and officers, must correct these shortcomings and be afforded the highest priority because there is now no scope whatsoever for any further slippage in performance against the IAB instructions. The board will also issue further instructions to address failures that have emerged since February 2023 and these will be accompanied by very tight deadlines. It is incumbent on the council to tackle these immediately and respond within the timescales set.