The importance of reserves

By Rob Whiteman | 01 April 2020
  • Rob Whiteman

It’s more a case of saying ‘well done’ to the many than ‘told you so’ to the few, but if recent weeks have not put paid forever to the foolishness of raiding reserves to balance day-to-day spending, then nothing will.

As the Chartered Institute of Public Finance and Accountancy (CIPFA) always advises, once you spend them, they are gone. Local authorities have experienced often massive cuts to their budgets and councils have been sensible to seek to replenish their reserves where they can.

However, at a time when local authorities have experienced devastating cuts to their budgets, they are not being replenished to the extent that is needed. Dipping further into reserves for anything but emergencies leaves councils vulnerable to financial shocks.

We have now entered one such shock. The instinct of many councils not to plunder their reserves over recent years has been entirely vindicated by the arrival of this most rainy of ‘rainy’ days.

Coronavirus is going to place an unparalleled strain on local government services, such as public health and social care, as all public services work alongside the NHS during this medical emergency. A recent letter from NHS England to NHS trusts outlined the need to urgently discharge all hospital inpatients medically fit to leave. For those needing social care, emergency legislation will ensure that eligibility assessments do not delay discharge, meaning a sharp uptick in demand is hurtling down the tracks.

Unprecedented though it may be, this is exactly the kind of unexpected financial shock reserves are designed to help councils absorb.

So, while right now we must deal with the present crisis, I implore both Government and the public alike, to always in future consider the valuable role of reserves.

Encourage councils to be building their reserves up rather than spend them down. You never know when that rainy day will come.

Rob Whiteman CBE is chief executive of CIPFA

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