Over the first few months of 2025, we have had announcements from MHCLG on local government reorganisation (LGR) and had all two-tier areas in England submit their initial proposals. These have ranged from a single, county-wide submission for all authorities, to multiple submissions from a county area.  

The next round of submissions is due in the Autumn with a very tight timetable ahead for the phase one authorities; being those within the Devolution Priority Programme (DPP), plus Surrey, with shadow elections due May 2026 and new authorities coming into place April 2027. Phase two is currently all other two-tier areas, due to be in place April 2028. 

In this blog, Graham Oliver, our Director of Local Government and Accounting, explores an important aspect of preparation for LGR: the balance sheet. It's important to note that the principles discussed apply to all local authorities, regardless of whether they are undergoing LGR.

 

Importance of the balance sheet

The balance sheet is the single most important financial statement of an organisation as it shows the financial health of an organisation, in the form of the value of its assets and liabilities, working capital, and state of its reserves.

It shows what the future cashflows of the organisation should be by showing the current assets and liabilities due.

But how many local authorities treat the balance sheet with the respect it deserves? And how many see it merely as a year-end statement – dated 31st March – that receives little attention outside of that context? 

It seems the focus tends to be on funding, the budget, and the medium-term financial plan, rather than on the significance of the balance sheet itself. 

 

Management of the balance sheet

The balance sheet should be seen as a critical statement, alongside the MTFP, and be actively managed on a daily, monthly, quarterly, and annual basis.

Every line on the balance sheet, down to the granular detail, should have an identified owner, a clear audit trail of evidence supporting the balance and a clear plan of action where required.  

In the case of current debtors, it should be clear what these are for, who is responsible for getting the cash in, what actions are to be taken to prevent it simply rolling over each year.  

The same applies to current liabilities. The focus of these balances should be to get the cash in, in the case of debtors and cash paid for liabilities.  

The term ‘current’ states that numbers here are less than 12 months old – how many of your ‘current’ numbers have been there for multiple years? 

 

Importance to LGR

Why does this matter for LGR? Whatever the ultimate council configuration post-LGR, what is known is that multiple organisations will be coming together and merged as a single entity.

It is also likely to be the case, in some areas of the country, that current county councils will need to be split across new unitary councils (see Cumbria, for example). 

The new unitary authority will want to know that the balance sheets it is inheriting from the predecessor authorities are sound financial documents and that the inherited balances are genuine with a clear audit trail supporting all balances.  

With a major reorganisation, movement, and loss of staff, changes in systems and against a backdrop of a failed audit system the past few years, there is a real risk that a new authority will inherit debt and liabilities that it cannot substantiate. 

 

Next steps

Is the review and substantiation of the balance sheet on your project plan for LGR? This work does not depend on the Secretary of State's decision regarding the final form of LGR; it can and should start immediately.

The steps you should take: 

  • Break down your balance sheet and identify an owner for each balance – being a service area and responsible officer.
  • Review reconciliations for each of these balances and RAG (red, amber, green) status each one. Red being those that have no reconciliation or evidence.
  • Put in place a financial control framework and project plan that then looks at all these balances, gets an evidence base for each balance alongside a reconciliation, and actions for all of these.
  • Where there are unknown and erroneous balances, write them off – the idea of this exercise is to get a clean balance sheet.
  • Do not forget feeder system reconciliations – is your housing rents system, your social care system, your revenues and benefits system, your income management system fully reconciled to the main finance system?
  • Once all the above is completed, keep in place the rigour and controls via a monthly process to ensure the clean state you are moved into is maintained. 

For non-LGR authorities, this article highlights financial controls that should be in place at all organisations and, therefore, every local authority across the UK. 

  • Do you have this control framework in place?
  • Do you have confidence in your balance sheet?
  • Does your finance system represent the ‘one version of the truth’? 

 

Conclusion

The balance sheet is the most important financial statement of an organisation. It indicates financial health and should be an active document, regularly reviewed throughout the financial year.  

LGR brings this into stark light, due to multiple organisations being merged but the controls and discipline applies to every local authority and therefore all should be asking themselves the questions posed. 

If you would like more advice on any of the matters raised in this paper, from the state of your balance sheet, methodologies to put in place, financial control frameworks, or resources to help support you in this work, then please contact me. 

 

Moore Insight's accounting lead, Graham Oliver

Graham Oliver, Director of Local Government and Accounting