Councils contradict Pickles and plan to use reserves

Rob Whiteman, chief executive, CIPFA

Almost all councils have plans in place to use their reserves, according to research, contradicting claims of hoarding made last year by former communities secretary Eric Pickles.

During the coalition government, Pickles made repeated digs at local authorities, which he accused of hypocrisy for complaining about cuts while sitting on reserves.

But a study by the Chartered Institute for Public Finance and Accountancy this week found that 94% of councils said they have plans in place to use their reserves.

Speaking on the survey, CIPFA chief executive Rob Whiteman, said: “The Government rightly proclaims the benefits of having a long-term economic plan for its own finances.

“Local authorities know that using reserves to provide for future services, protect against risks and manage the transformation of services is the right way for local authorities to manage their finances in the long-term interests of their communities and the country.”

The CIPFA data showed that more than a third of councils plan to use reserves to cover likely future cost increases, with almost four in ten planning to provide medium term cover for contingent liabilities.

And it showed large divergence between the distribution of reserves between different classes of authority and in different parts of the country.

At the end of 2014, non metropolitan county reserves were equivalent to 2.3% of revenue expenditure, compared to 22.9% of non-metropolitan districts.

The report said: “Local authorities’ views of risk are heavily influenced by their perceptions of the stability in the funding system and the way in which it operates.

“Previous mid-year changes to funding through specific grants, the Business Rate Review, uncertainty over the future of the New Homes Bonus and the difficulty in identifying Council Tax Freeze Grant once it is built into Revenue Support Grant have all created a climate of uncertainty over future funding levels.”

CIPFA said that using reserves purely to support ongoing expenditure just postpones the need for cuts and makes those cuts more difficult to deliver.

A number of CFOs have reported the need to use reserves whilst savings are implemented and increasing pressure from members to use reserves rather than make difficult savings,” the report warned.