Year ended 31 March 2020
The Directors present their strategic report on the Group for the year ended 31 March 2020.
Principal activities
The Local Government Association (LGA) was incorporated on 30 January 2018. On 1 April 2019 the LGA took on the business, assets and liabilities of the unincorporated Local Government Association, which had been set up on 1 April 1997 following the merger of the three previous local authority associations covering England and Wales (the Association of County Councils, the Association of District Councils and the Association of Metropolitan Authorities), to provide a single national voice for local government.
During 2019/20 the LGA continued to streamline its merged operations with its subsidiaries – the Improvement and Development Agency for Local Government (IDeA), its two property companies The Local Government Management Board (LGMB) and Local Government Association (Properties), and its commercial company LGA Commercial Services Ltd.
The shared objective of the LGA and its subsidiaries is to make an outstanding contribution to the success of local government working with and on behalf of the LGA’s member authorities to support, promote and improve local government.
Departure from United Kingdom Generally Accepted Accounting Principles (UKGAAP)
In line with prior years, the financial statements do not include a detailed note on the Association’s defined benefit pension scheme, instead just showing the combined Group view.
The LGA Board do not believe that this exception results in the financial statements not showing a true and fair view.
Report of the business
This has been a successful year for the LGA with significant progress on all the priorities agreed by the LGA Executive Advisory Board. These priorities (set out below) were firmly based on the most important issues for our members. In deciding these, we looked at intelligence from councils, a great many of whom are actively involved in the LGA through representatives on our boards and panels, at issues emerging from government or already going through the legislative process, and at the economic and social challenges that impact on local authorities.
Despite further reductions in our core funding, we have delivered a satisfactory financial outcome in 2019/20. From 1 April 2016, IDeA become the recipient of Direct Government Funding from the Ministry of Housing, Communities and Local Government (MHCLG) to pay for improvement services to councils, replacing Revenue Support Grant (‘RSG top slice’). Despite our income from subscriptions remaining steady, and a further reduction
in MHCLG Funding, other income including funded programmes rose such that overall income increased by a total of 7.5 per cent in 2019/20 compared with the previous year. We continued to keep costs down and invested in reducing costs of back office services, at the same time as continuing to deliver on our key priorities and deliver direct support to councils. Both the LGA and the IDeA continued to make significant payments towards their pension fund deficit.
As agreed by the LGA Board, the 2019/20 consolidated operating deficit has drawn down from the risk and contingency reserve in our balance sheet. This was created to be used to provide opportunities to invest to save costs or generate additional commercial income, and also to cover the potential risks to the three year plan included in the LGA’s Financial Strategy.
The LGA Board has overseen the LGA’s approach to Treasury Management and concluded that the LGA should continue to be cautious in its investment strategy. Substantial use has been made of the Public Sector Deposit Fund, a qualifying money market fund operated by CCLA Investment Management Ltd. No losses arose on treasury activities.
Future developments
As with many other parts of the public sector, we are taking steps to ensure we develop new sources of income as well as continuing to reduce our costs.
Our future success will rely heavily on our delivering ever greater value to local government at a time when councils themselves are facing significant reductions in their own funding and are, more than ever, questioning the value of every item of expenditure.
During 2020/21 the LGA’s Financial Strategy for the property companies is to continue to develop the assets to provide capital growth to offset the liabilities arising from our pension funds, as well as reducing costs and delivering additional commercial income to maximise the level of support we deliver to our members.
The LGA Board has taken the decision, having maintained membership subscriptions at the same level between 2013/14 and 2018/19 (a real terms reduction in subscription income of over 48 per cent over the last seven years in response to the financial challenges faced by member authorities), to increase membership subscriptions by an inflationary 2 per cent for 2020/21.
The impact of COVID-19 on the Group and Company’s business has been assessed and has been determined to not be material. The IDeA receives grant funding from MHCLG. This funding is received on behalf of the LGA and its related bodies. The level of funding has been formally determined by parliament for the year to 31 March 2021 at the same level as the year to 31 March 2020. Funding for the Company’s principal funded programmes has also been agreed by the funders. The majority of member subscription income has been received for the year.
Certain workstreams are being re-prioritised to COVID-19-centric initiatives, and other funding programme timelines may be deferred, but no funding has been withdrawn. For the investment property rental income streams, there is expected to be no interruption for 18 Smith Square, while the delay in securing tenants for Layden House may reduce income for the coming year, it is not expected to be material to that company or the Group.
Therefore, it is considered that the majority of the Group and Company’s income for the foreseeable future is secure and the Directors have therefore adopted the going concern basis for the preparation of these accounts.
Our priorities
In October 2019, based on feedback from our member councils and agreed by our politicians, we launched a new three-year business plan that set out our priorities.
Funding for local government
Fair and sustainable funding enables councils to plan and deliver essential public services beyond the short term, to raise more funds locally and to promote greater collective working across local public services.
Adult social care, health and wellbeing
Sustainable funding and better integration with health services enable councils to continue to support people to live safe, healthy, active, independent lives and to promote wellbeing and resilience for all ages.
Children, education and schools
Councils have the powers and resources they need to bring partners together to deliver inclusive and high-quality education, help children and young people to fulfil their potential and offer lifelong learning opportunities for all.
Places to live and work
Councils lead the way in building the homes that people need, driving inclusive and sustainable economic growth and creating safe and resilient communities that are great places to live.
Strong local democracy
A refocus on local democratic leadership and a shift in power to local communities leads to greater diversity of elected representatives, high standards of conduct and strong, flexible local governance.
Sustainability and climate action
Councils take the lead in driving urgent actions in their local areas to combat climate change and its impacts and to deliver zero net carbon by 2030.
Principal risks and uncertainties
Our arrangements for risk management include the regular review of a strategic risk register with clear responsibilities assigned to named senior officers for the management of the principal risks. These included ensuring that we deliver on our objectives and have impact for our members, ensuring that membership levels are maintained, ensuring that we have effective governance arrangements and financial sustainability, and ensuring that we maintain employee capacity and capability. We have also put in place clear governance and project management arrangements for projects designated as being high risk from a financial or operational point view.
Our principal liabilities other than those arising in ordinary day-to-day business relate to our combined pension deficit and three main liabilities: structural interest free debt of £8.2 million due to the predecessor local authority associations and related to the purchase of the Smith Square property; bank debt of £2.60 million on separate loans due to Barclays relating to the Smith Square property, which is currently being repaid at the rate of £0.52 million each year; £20.0 million from Westminster City Council which we are using to fund the development of our properties; and a liability until 2022 for funding the District Councils’ Network (DCN), financed from cash received from the predecessor local authority association.
The valuation of our combined pension deficit was £93.12 million at 31 March 2020 (£133.85 million deficit at 31 March 2019). In order to pay off the pension deficit and liabilities for past employees, we have been making additional contributions averaging over £4 million per annum. Following the Triennial Valuation as at 31 March 2019, these contributions have reduced to under £0.5 million per annum. Actuarial advice indicates that on reasonable long-term assumptions, these contributions will be sufficient to eliminate the deficit over a period of 19 years for the LGA and 15 years for the IDeA. The LGA Board has commissioned further work to investigate ways in which the management of the pension deficit can be improved.
Key performance indicators
We have reviewed the impact of our work and the delivery of our priorities through robust performance management which has included regular reports to the LGA Board. In addition, we have reviewed our own efficiency and effectiveness through a number of key indicators. These include the number of organisations in membership, which has remained static in 2019/20, with only four councils out of membership. The National Association of Local Councils has entered into a corporate membership with the LGA and requested that 22 town/parish councils had access to our associate membership scheme.
In 2017 we carried out a survey of our members which gave us important information about customer satisfaction with 73 per cent of members indicating that they were satisfied overall with the work of the LGA. We have set ourselves the target of increasing member satisfaction and also their perceptions of the value for money we offer and we will monitor our progress with these through member surveys.
We review our financial sustainability by carefully controlling our staff costs. Following a reduction in our core grant funding, over the last five years employee numbers have fallen from 529 employees in the year ended March 2012 to 375 employees in the year ended 31 March 2020 (a rise from a low of 331 employees at 31 March 2018). We continue to monitor employee absence through the implementation of better recording methods (self-service) for staff and this has remained fairly stable from an average annual number of sick days per employee of 3.2 days in March 2019 to 3.3 days in March 2020 which is still well below national averages for sickness (8.0 days for public sector – Source: CIPD Health & Wellbeing at Work Survey 31 March 2020).
We continue to pay close attention to the collection of outstanding debt. The percentage of debtors over 12 months was 1 per cent of the total trade debtors at March 2020 (2 per cent 2019).
Market value of land and buildings
The market value of 18 Smith Square (formerly known as Local Government House), which is owned by LGA (Properties), is considered at the latest valuation in March 2020 to be £50.8 million (2019 £48.1 million) with a net increase of £2.7 million in the year reflecting rental market conditions in the Westminster area. In the Group accounts 34 per cent (2018/19 34 per cent) of the above market value is reflected as an investment in the Groups’ balance sheet. The remainder held as an operational asset at the current net book value of £17.7 million.
Layden House, which is owned by The Local Government Management Board, is classified as an investment property and included in these financial statements at its market value at 31 March 2020 of £64.4 million (2019 £39.0 million), an increase of £25.4 million as the refurbishment of Layden House was substantially complete at the year end.
Environmental matters – minimising the impact of climate change
At the General Assembly in July 2019, the LGA declared a climate emergency, and aligned our priorities to the United Nations Sustainable Development Goals.
The LGA is committed to minimising the environmental impacts of its activities, reducing pollution and CO2 emissions and contributing to a healthy future for all.
Flexible working
Our flexible working policy allows staff to work from home up to two days per week, subject to the needs of the business. This means less journeys to work, a better work-life balance and has enabled us to reduce by a third the amount of office space that we occupy.
Our ICT is designed to support flexible working, enabling staff to log in from home on the days they are not in the office or from public transport when they are on the move.
Head office − 18 Smith Square
Secure cycle facilities and showers are provided for those who prefer to cycle or run to work.
All lights are energy efficient LEDs, with motion sensors that ensure they are switched off when not needed. Windows which are not part of the conservation area are triple glazed to reduce energy loss. Recycling bins are provided on every floor.
Travel
Staff and members are encouraged to use public transport wherever practicable to help reduce the impact of the LGA’s business travel arrangements on the environment.
Meetings
All meeting rooms at 18 Smith Square have access to telephone and/or video conferencing facilities, enabling members and staff to join meetings remotely and reducing the need for lengthy journeys to Westminster.
Procurement
The LGA has a robust procurement policy and process, which underpins the importance of all our contractors being able to demonstrate a commitment to sustainability and combatting climate change. Our procurement documentation states: ‘In adhering to our commitments, the contractor should have systems in place to account for and minimise environmental impacts in all areas of contract delivery’.
At the commencement of all board meetings, directors are reminded of their responsibilities in regard to this requirement, and agree to abide by it in their decision making.
By Order of the Board
James Jamieson LGA Chairman and Chairman of the LGA Board 3 June 2020