Controversial plans to rate councils' financial sustainability using traffic lights have been watered down by the Chartered Institute of Public Finance and Accountancy (CIPFA).

CIPFA backed down on its plans for a weighted index following an outcry from parts of the sector that feared the creation of league tables and councils being named and shamed.

However, CIPFA will publish a traffic light rating for councils' depletion of reserves, which will indicate how quickly a local authority would exhaust its funds based on the draw-down during the previous three years.

The financial resilience tool, which will include a number of indicators, will not be published in the first year but CIPFA plans to be more open in subsequent years – after working with councils, other partners and stakeholders to ‘achieve a joint sector approach'.

CIPFA highlighted the lack of relevant data currently available and pledged to explore more forward-looking metrics.

A paper summarising the consultation responses and detailing the next steps read: ‘CIPFA now aims to provide a tool with a group of indicators able to illustrate the trajectory of an authority's financial position within the context of each authority's own comparator tier or nearest neighbours group.'

Referring to the dropping of the proposed traffic light index, the paper added: ‘This measure was criticised for the inevitable degree of subjectivity underpinning the weighting and the general hostility to the ranking that was implied.'

Asked if the changes represented a major watering down of the proposals, a CIPFA spokeswoman said: ‘Following consultation with the sector, we accept that a single weighted index has very definite limitations and runs the risk of over-simplifying the variety of circumstances of individual authorities.'

Welcoming the discarding of the index, Cllr John Fuller, chairman of the District Councils' Network and vice-chairman of the Local Government Association's resources board, said: ‘Local government is too complex to be measured by an overly-simplistic approach which is pregnant with unintended consequences.'

CIPFA chief executive Rob Whiteman sad: ‘Local government has faced unprecedented financial challenges in recent years that are likely to persist well into the next decade.

'Because of these challenges, we are now approaching the point where a number of well-run councils will only be able to deliver core statutory provisions in order to balance the books.

'We are also seeing a significant number of authorities draw down upon their reserves in an unsustainable manner.

‘The difficult financial situation that many authorities find themselves in is not helped by the weakness of public audit systems in place.

'Without suitable audit processes, often those at the helm of local authorities are able to listen only to the advice they like. Indeed, the Section 141 notices of this year are an example of the failure of the current public audit processes to identify risk.

‘It is against this background that CIPFA has taken a leadership role in the public interest and devoted resources to the development of the index.

'And now, following the feedback we have received, we have modified and strengthened the tool so it will be even more helpful for local authorities with deteriorating financial positions.'