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Tension between town halls and Whitehall over spending cuts intensified this week, when councils presented ministers with a plan to ease the pain of front-loading – but were told they should use their £10bn cash reserves to protect services. In advance of the sector's imminent finance settlement, the Local Government Association made a last-minute plea to communities secretary, Eric Pickles, to help councils fill an alleged £4.5bn ‘funding gap' in 2011/12. But, within hours, Mr Pickles – who is attempting to make local government finances more transparent – published a list of councils already sitting on significant cash reserves that, he argued, could be used to cover shortfalls during these ‘tough times'. The CLG claimed ‘all councils' keep ‘large sums of money' in reserve to meet sudden unexpected costs. A full CLG breakdown showed this year's reserves totalled £10.5bn. Some authorities, Mr Pickles revealed, held reserves worth more than 100% of their annual revenue budget – although all such councils were districts. Crawley BC, for example, held reserves of £38m, which was 202% of its 2010/11 revenue expenditure. However, some urban and populous councils were sitting on significant reserves, the CLG revealed. The London borough of Kensington and Chelsea, for example, held £113m – or 35% of its annual revenue budget. Other London boroughs with significant reserves, when measured as a proportion of their spending, included Greenwich (£133m, or 25% of revenue budget), and Camden (£97m, or 20.4%). Cities with sizable reserves included Sunderland (£86m, or 16%) and Manchester (£108m, or 11%). Unitary councils such as Bournemouth (£61m, or 24%) and counties including East Sussex (£130m, or 18%) also had access to significant deposits. Mr Pickles said: ‘Good financial planning is about putting a little extra away when the sun is shining, so you have some cover during the rainy days. ‘But building up reserves isn't simply about turning town hall vaults into Fort Knox. These untapped funds exist to ensure councils can respond to unexpected situations, such as the pressing need to tackle the nation's unprecedented level of debt. ‘All good councils should be considering the merits of temporarily dipping into the money they have set aside as part of their plans to address immediate financial challenges, with a view to building up their reserves again in the sunnier days to come.' That could disappoint a local government sector still eager to secure late additions to its annual finance settlement. At a meeting on 29 November, LGA chair, Baroness Margaret Eaton, presented Mr Pickles with an open letter – signed by the leaders of all political groups at Smith Square – calling on ministers to relent on tough, front-loaded council grant cuts next year. Since chancellor George Osborne's Spending Review confirmed a four-year Whitehall grant reduction of 27%, councils have been concerned about the hefty front-loading involved – reductions of 8.4% next year and 6.5% in 2012/13. With many targeted grants now merged into formula grant, some authorities have warned they face total first-year cuts of 20%. Mr Pickles' CLG team last week revealed it was considering measures to ease the impact on services, possibly through a damping mechanism within the finance settlement, which could drag the worst-affected councils to a higher funding ‘floor'. However, CLG sources have suggested staff are struggling to produce a solution. The LGA's letter claims ‘the front loading of the cuts deepened the funding gap in the first year by an additional £2bn', and warns the extent of the cuts required ‘takes us far beyond the territory that conventional transactional efficiencies can cover'. But Baroness Eaton told Mr Pickles the problem could be ‘mitigated' by a five-point plan – reducing the impact of front-loading; increasing capitalisation limits to help councils cover redundancy costs; allowing councils to raise more income from local sources; greater clarity over ‘missing' grants, including future business rates; and measures designed to avoid unfair grant distributions as targeted cash is merged into formula grant. ‘We urge you to act on our recommendations,' the LGA's letter concludes.

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WHITEHALL

Front-loading cuts row shifts to cash reserves

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