Local councils operate on vastly different scales, managing budgets as meager as under £5,000 to over £1,500,000. The National Association of Local Councils (NALC) has acknowledged this diversity with a recent update to the financial regulations, introducing a customisable framework tailored to each council's unique circumstances. This change is crucial, given the challenges of the previous one-size-fits-all approaches.

These regulations serve as a critical framework, guiding local councils in effectively managing their financial operations. In this blog we give our take on the changes. But it’s important to note that the updated Model Financial Regulations document is exclusive to NALC members, and we recommend that member councils consult the full, official document for comprehensive details. If you are not a member of NALC, you can join here.

The Challenge with "One Size Fits All"

Historically, financial regulations for local councils were standardised, disregarding significant differences in size, capability, and needs. This approach led to:

Issues for Smaller Councils

• Resource Strain: Smaller councils, often with limited staff, faced complex compliance requirements disproportionate to their financial dealings, diverting resources from community-focused projects.

Issues for Larger Councils

• Insufficient Guidance: Larger councils, managing substantial budgets and complex projects, found the regulations too lax, lacking the necessary frameworks to ensure effective governance and accountability.

Understanding the Diversity of Council Sizes

Before delving into the specifics of the financial regulations, it’s crucial to understand the scale of variation among local councils. Here's a snapshot of the distribution of council precepts across the UK:

• £0 to £5,000: 1,676 councils
• £5,000 to £10,000: 1,593 councils
• £10,000 to £40,000: 3,003 councils
• £40,000 to £130,000: 1,410 councils
• £130,000 to £450,000: 843 councils
• £450,000 to £1,500,000: 319 councils
• £1,500,000 and above: 35 councils

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This data illustrates the vast range in the financial scope and capabilities of local councils, emphasising the need for regulations that can be adapted to fit each council's specific financial context.

Key Changes in the Financial Regulations

The updated model financial regulations are designed to be a flexible template that councils can modify according to their size, structure, and the specific needs of their community. Here are some of the significant changes and features of the new framework:

Customisation According to Council Size (Sections 4 and 5)

Councils now have the flexibility to tailor the financial regulations to their operations. For example, the regulations provide options on whether the Clerk acts as the Responsible Financial Officer (RFO) (Section 1.5), whether councils use committees for decisions (Sections 4 and 5), and how they handle different types of payments and procurement (Sections 6, 7, 8, and 9).

Decision-Making Structures (Sections 4, 5, and 6)

Smaller councils might find it sufficient to make decisions in full council meetings due to their limited scale, whereas larger councils might delegate decisions to committees or specific officers to enhance efficiency. The new regulations accommodate these varying approaches.

Procurement and Spending Limits (Section 5)

The regulations introduce scalable thresholds for procurement processes to ensure fairness and competitiveness, suitable to the size of the council:

• Small councils might only require formal tenders for significant expenditures and can handle smaller purchases with less formal procedures.
• Larger councils, managing more considerable sums, are expected to have more structured procurement processes, often involving formal tenders and quotes to ensure the best value for money.

Governance and Risk Management (Sections 2, 3, and 13)

The updated regulations emphasise the need for robust governance and risk management frameworks that correspond to the size and complexity of the council's financial activities. This includes clear guidelines on the management of assets, loans, investments, and the handling of emergencies or unforeseen expenses.

Technological Adaptations (Sections 10, 11, and 12)

Acknowledging the digital transformation in financial management, the regulations now explicitly accommodate online banking and electronic payments, providing guidance on security measures and authorisation processes suitable for councils of different sizes.

The Path Forward

The diversity in the size and financial capabilities of local councils requires a flexible approach to regulation—one that provides enough guidance to ensure sound financial management without stifling individual councils with one-size-fits-all mandates. By customising their financial regulations, councils can ensure that their governance structures and processes are both compliant and optimally suited to their specific needs.

Councils are encouraged to adopt these new regulations at a full council meeting, inserting the council's name and the adoption date in the final document. It's also vital for councils to stay updated with legislative changes and review their financial regulations annually to ensure they remain relevant and effective.

In conclusion, the NALC’s revised financial regulations mark a significant step towards empowering local councils to govern more effectively, reflecting the diversity of their sizes and the complexity of their financial operations. Each council now has the tools to tailor its financial governance in ways that best suit its operational scale and community needs.

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