Spending Review spares councils from raid on reserves

The local government finance sector breathed a sigh of relief this week after the Spending Review omitted any measures forcing councils to spend their reserves.

Communities secretary Greg Clark has – like his predecessor Eric Pickles – consistently hinted that councils reserves could be capped.

However, speaking to Parliament this week, Osborne only said: “Councils increased their reserves by nearly £10bn over the last Parliament. We’ll encourage them to draw on these reserves as they undertake reforms.”

Chartered Institute of Public Finance chief executive Rob Whiteman said: “For local authorities, it is encouraging to see the chancellor has shied away from previous remarks suggesting councils would be forced to use their reserves.”

Paul Dossett, head of local government at accounting firm Grant Thornton, said that reserves could never be a sustainable replacement for existing funding streams.

He said: “It’s a fallacy to assume that local authorities can use reserves to help absorb the removal of the block revenue grant, because they can’t be used in a recurring way – they can never prop up baseline revenue budgets in lieu of government funding reductions. They can only be used as a one off contribution to revenue spending and do not provide a sustainable solution to maintaining local authority services.”

Last week, Clark renewed his attack on the level local authority reserves, claiming that councils’ non-ringfenced reserves – up 170% in real terms over the last 15 years.

Clark said: “With local government accounting for a quarter of all public spending, it is right that they are called on to play their part in dealing with the deficit.

“As we continue to secure our country’s economic future and cut the deficit, now is the time to make efficient use of their assets and resources to provide the services local people want to see.”
Claire Kober, resources portfolio holder at the Local Government Association, said that the figures quoted by Clark were “hugely misleading”.

Photo (cropped): Gordon Wrigley, Flickr.