Updated: Nov 26, 2021
The biggest challenge facing the UK public sector continues to be the need to balance the books.
The Covid-19 pandemic has posed an existential risk for many public sector organisations as their financial positions have become less robust and in many cases, unsustainable. Many organisations have seen costs increase during the pandemic, whilst receipts have decreased sharply, creating a perfect financial storm.
The Office of National Statistics (ONS) estimates that public sector net borrowing during the Covid-19 pandemic accounted for £1 of every £3.60 spent and by the financial year end 2021. Public sector borrowing is expected to grow and its proportion to GDP is expected to hit a ratio that has not been seen since the end of World War Two.
This is not sustainable and will result in the withdrawal of the 50+ funding initiatives that have been put in place to support individuals, businesses and public bodies during this period. Government bodies, local authorities, and public agencies will need to transition off this funding and find new sources of income to meet increased and changing demands.
Local authorities have seen the biggest gap in funding amongst public sector organisations. For some this has led to emergency measures and for others to failure. Whilst reports of the financial challenges existed before the pandemic, with over 150 local authorities forecasting a funding gap of £3.2bn as early as March 2020, the real impact of the increased demand for social care, funding for remote learning and reduced receipts from business rates and lease rents are still emerging.
Across the public sector difficult choices will need to be made during what could be a prolonged period of tight funding. In Scotland there is a drive to allow more “permissive funding” and allow public bodies to raise revenues to fund services. Without a clear focus on costs as well as driving revenue from new and existing services, many local authorities will be forced to issue Section 114 Notices, invoking emergency measures on expenditure.
Tight and insightful management of income and expenditure will be essential, with effective financial performance, controls and forecasting measures required to enable decision making. More so than ever, integrated finance systems will be key enablers in allowing public sector organisations to manage costs across departments, track revenues from multiple sources and generate information to support effective and timely decision making. Taking a “finance first” perspective will require organisations to drive costs from fixed to variable where possible, challenging pre-conceived notions for IT, the use of buildings and office space and the management of capital investments. At the same time the public sector will need to find new and innovative ways to commercialise services and attempt to earn as much as they currently receive in public subsidies.
Infor is a leading ERP providing cloud-based financial management software that is hosted on Amazon Web Services’ (AWS). Enabling integration across Finance, Human Resources and Supply Chain, Infor’s Cloudsuite can provide an integrated view of an organisation’s financial position and this information can be augmented with data in the AWS cloud to support actions such as demand prediction and financial forecasting. Moving to the cloud can permit public sector organisations to reduce or remove fixed costs such as the need for on-premise data centres and transition to a Software-as-a-Service (SaaS) approach where costs are variable based on a per employee, per customer, or population-based pricing models.
In addition, Infor and AWS’ cloud-based solutions can be accessed remotely from any web-browser, allowing Finance teams to connect via any device and in any location, permitting organisations to protect against future business disruptions and respond to the trend towards flexible working. Moving to a SaaS cloud-based ERP solution can initiate a “finance transformation” for public sector organisations which FifthQuadrant can support from inception to delivery.