Raid on reserves will hit hard on council cash

By Heather Jameson | 13 July 2021
  • Heather Jameson

You could, if you were so minded, wallpaper entire housing estates with the reams of column inches The MJ has devoted to unravelling the complexities of local government finance, pontificating over solutions to the broken system.

Despite its complexities, some aspects of local government finance are remarkably simple, not least the idea of holding cash in reserves as uncertainty approaches. From household finances to council coffers, the wisdom of a rainy day fund is not hard to grasp.

Nevertheless, central Government has always been perplexed by the concept of reserves – if only for political reasons.

The Treasury detests the thought of loosening the purse strings for a sector that seemingly holds billions in the bank – while the Taxpayers’ Alliance whines and wails at council tax rises for ‘cash rich’ councils to fritter away. Even the concept of earmarked reserves seems lost on ministers and civil servants caught up in the accountancy of envy.

In truth, the simple concept of keeping reserves on hand is an exercise in understanding localism. Every area has its own story as to why it has – or hasn’t – got cash in the bank.

As we come out of the pandemic, the Treasury is eyeing up council reserves, keen to claw back unused cash. And it is true – though whispered in hushed tones – that some councils have accrued cash. Others have not.

What the Treasury can see is an accounting snapshot – a short-term picture with no narrative that looks like councils have had too much COVID cash. It comes with the assumption there will be no more pandemic costs – an unlikely scenario at best.

COVID aside, the short-term reprieve does nothing to alter the long-term reality – there is a massive fiscal black hole coming.

There is still no solution to funding social care, no plan for business rates and no fair funding review. Council tax – the only option for raising funds – is stretched to breaking point.

To head towards a Spending Review with a Treasury that has convinced itself local government is loaded could leave local government with a long-term funding issue – at the time when councils need stability the most.

Councils are looking at their financial plans, all too aware they are unlikely to get much from the Spending Review. Please don’t make them pay back too.

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