Sector told to boost reserves

By Sam Clayden | 06 September 2017

The reserves row between central and local government resurfaces each year with the release of annual revenue expenditure statistics. And each year, as the use of reserves increases, the debate grows more severe.

The Department for Communities and Local Government (DCLG) figures this year, published at the back end of last month, are emblematic of a sector at the butt end of their savings capabilities – despite many section 151 officers frantically searching for more.

Councils funded 2.1% of revenue expenditure in 2016/17 with reserves and collection fund surpluses – up from 0.9% in 2015/16. They used £1.5bn (6.2%) of the £24.6bn reserves balance held at the start of 2016/17, leaving £23.1bn at the end of March this year. Further, DCLG analysis of the use of general fund reserves by individual authorities showed that half of all councils reduced their reserves during 2016/17.

When confronted with concerns about financial sustainability, the Government is quick to point to reserves figures as evidence the sector is stockpiling cash. But finance experts point out it is prudent to build up reserves, and that they can only be used once to plug budget gaps.

In response to the latest figures, Chartered Institute of Public Finance and Accountancy chief executive Rob Whiteman was forthright about the Government’s persistence that councils should trim down their reserves.

He told The MJ there was ‘no surprises’ that the levels of reserves were now falling. ‘Councils have been placed in an invidious position because they have taken significant reductions in resources and so have sizeable savings packages to deliver over the next few years on top of the sizeable savings they have made over the last decade.

‘Traditionally, the Government has created an inaccurate picture in the media that councils are actually well resourced, claiming the fact they have reserves demonstrates they do not really have to make cuts. [The Government] claims, rather emotively, that councils are choosing to line their own pockets and make the public suffer. That could not be further from the truth.

‘It is incredibly irresponsible for the Government to continue criticising and carping local authorities that have reserves. Councils are dipping into their reserves because they cannot deliver all the savings they budgeted for.’

Counter to the Government’s narrative, Mr Whiteman explained that, during periods when councils are having to make considerable savings, he would expect reserves to rise as ‘cover’ for any failure to meet difficult savings targets.

He continued: ‘My advice would be – and I do not pretend for one second this is easy – to avoid using reserves as best as you can. If you have difficult decisions to make, it is better to make them now than in a year or two when your reserves are depleted.

‘In fact, the best thing to do would be to put more money into your reserves because the likelihood is you will not deliver all the savings you have budgeted for,’ Mr Whiteman said, explaining that councils ‘do very well’ if they are able to deliver two-thirds of their planned saving. However, he warned that very often councils ‘find themselves delivering only half’.

In a dramatic rebuke to communities secretary Sajid Javid, Mr Whiteman said: ‘Completely ignore the inaccurate messages central government is giving. We would like the Local Government Association and the sector to speak out against the secretary of state if he in anyway suggests you should be using your reserves, because reserves are the one thing at the moment that is saving the sector from bankruptcy.’

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