The Government is plotting to create an early warning system alerting Whitehall to councils that may be in trouble, The MJ can reveal.

It is understood that the Ministry of Housing, Communities and Local Government (MHCLG) is looking very seriously at putting together a list of resilience indicators, which it hopes would pick up serious issues at councils before they escalate.

Civil servants, who are grappling with the additional data they need to gather for the department to fulfil its stewardship role, used a meeting with the sector last week to test the water on an informal suite of metrics.

There is expected to be some overlap with the Chartered Institute of Public Finance and Accountancy's financial resilience index but the indicators are likely to also look at wider governance issues.

Scenarios that have been suggested that would be picked up by the indicators include three qualified value for money judgements on the trot, a high turnover of senior staff and a council being in no overall control. 

A well-placed local government source said: ‘I think MHCLG is genuinely weighing up options and is open to ideas. 

‘Individually, they're not indicators of failure by any stretch of the imagination but a combination of a number of them does put an authority at risk.

‘I think something like this is necessary.

'What it could be is quite a useful tool for identifying risk.'

MHCLG hopes such a system would have highlighted emerging risks in advance of the high-profile collapse of Northamptonshire CC and the finding of widespread failures at West Sussex CC.

‘Lots of people knew lots of things about Northamptonshire but not many people knew everything,' said the source.

‘No one [in the sector] ever talks to each other.

'The purpose of this is to prompt a conversation – probably in private.'

Another source said: ‘There's always more that we can do to refine and perfect the system.

'There has to be more that can be done.

‘The conversation is going on, which is good, but it's a tough challenge.

'MHCLG wants that additional assurance, but it's very difficult to work through.'

The moves come after the Public Accounts Committee criticised the Government's ‘complete lack of transparency over both the department's informal interventions in local authorities with financial or governance problems and the results of formal interventions'.

However, some in the Local Government Association (LGA) are understood to be concerned, with fears millions of pounds it gets for sector-led improvement could be at risk.

A local government insider said: ‘Sector-led improvement is not an assurance process.

'Both MHCLG and the LGA know it wasn't doing the things it was saying it was doing.

'Ultimately, that has become a problem.

‘I think this list of indicators could be a part of sector-led improvement.

'It could be a way of giving it a bit of backbone, giving it some cahoonas.

‘I think the LGA being defensive is going to make the situation worse.

'If you're defensive about it that risks government going off and doing it on its own and there will soon be an office in 70 Whitehall.

'My fear really is that the LGA puts up its hands and says no, no, no, the Government goes ahead and does it anyway and you get the worst of every world.'

Chief executive of think-tank Localis, Jonathan Werran, said: ‘MHCLG needs to know for their own sake what the state of the sector is but you can't completely prevent all failure.

'The LGA doesn't need to see this as a threat to sector-led improvement – it could complement.'

The LGA said its benchmarking tool LG Inform already provided more than 7,000 data sources from 188 different collections, from 41 different organisations. 

An MHCLG spokeswoman said: ‘The department is regularly in contact with councils and they are able to inform us if they are experiencing challenges.'