Councils draw on reserves revealing financial ‘pressures’
0Local authorities in England spent £391m of their financial reserves during 2015–2016, the first deficit in the figure since 2008–2009.
The new figures, compiled by Department for Communities and Local Government Revenue, amount to withdrawing 1.6% of the funds set aside but contrast with a £949m addition to reserves last year.
Although £183m of the total came from changes in school reserves and the use of public underspend from previous years, the remaining £208m is equivalent to a change of 0.9%.
A spokesperson for the Chartered Institute of Public Finance and Accountancy said: “While appearing marginal in percentage terms, it still highlights current real pressures facing local government now.
“This will be worrying if continuing reductions in reserves become a trend, as the onset of 100% retention of business rates from 2020 could lead to a need to bolster rather than reduce revenues in the medium term.”
Richard Harbord, former chief executive of Boston Borough Council, said: “When the DCLG say authorities used 1.6% of their reserves last year they are talking of all reserves.
“However, a better measure would be the unallocated, or general reserves, which currently total £4.481bn.
“The use of reserves was therefore around 9% of this figure and although this figure was stable, eventually the use of reserves will feed through here.”
He said that the increasing burden of statutory services means that some authorities could issue section 114 notices in the next few years.
“Part of the difficulty is that with the demise of the Audit Commission nobody really knows which authorities are struggling and using their reserves.
“It is, of course, the role of the Section 151 officer to say each year, at budget time, that reserves are adequate, and the pressure will be on them to do so rather than authorities continue to make additional savings in areas that are less acceptable.”
Greg Clark
Last year, former communities secretary Greg Clark renewed the assault on council reserves, claiming they have risen by 170% in real terms over the past 15 years.
In September, he hinted that the government could take action to reduce their reserve levels by introducing greater certainty over their future income, but no policy action was taken in November’s Spending Review.
In 2013, Clark’s predecessor Eric Pickles was criticised by the sector after he said: “While councils are hoarding billions in their piggy banks some are pleading poverty and raising council tax.”
The new DCLG figures also showed that the amount of revenue expenditure paid for by council tax rose from 25% to 26% over the past year.
Retained business rates also rose by 4.6% but Harbord said that “at £11.854bn it did not make a great contribution to total expenditure of £94bn.”
Grants from central government totalled £57bn during 2015/16, a reduction of 6.9% over the previous year.
