LGA calls for task force probe of council reserves

Government should set up a task force to examine council reserves before rushing into any decision to cap them, according to the Local Government Association.

Last week, council finance experts criticised proposals reportedly being discussed considered by chancellor George Osborne to force councils to dip into reserves.

In its submission to the Treasury in advance of the upcoming comprehensive spending review, the LGA said that council reserves would last less than three years if used to plug cuts made to central government grants.

“Given the continued public interest in council reserves, we recommend the establishment of a joint task force to undertake further research and analysis,” the submission said.

“This should include central and local government with experts such as The Chartered Institute of Public Finance and Accountancy.”

The LGA forecasts that the cumulative gap between projected funding and expenditure for English local government will reach £17.9bn by 2018/19, with councils currently holding only £17.1bn in unallocated and other earmarked financial reserves.

The LGA added that capping reserves would leave councils with no funds to manage new financial risks and would increase the national deficit.

Claire Kober, LGA finance spokesman, said: “Reserves are designed to help councils manage growing financial risks to local services.

“Most of this money is essentially a growth fund which councils are using to build new roads and regenerate areas or pay for school places and superfast broadband.

“What’s left would only cover less than a month’s spending. The size of cuts councils are having to make are simply too big to be plugged by reserves.

“Spending them in this way would be a gamble with the future of people who rely on council services and would put local areas on the fast-track to financial failure.”

Last year, the National Audit Office criticised central government officials for lacking understanding of the impact of measures that it takes which pile extra financial pressure on local authorities.

The spending review is due to be announced to Parliament on 25 November.

Elsewhere in its submission, the LGA called for the share of business rates retained directly by local government to increase in line with reductions to the revenue support grant.

Photo (cropped): Gareth Milner, Flickr.