Data collected by the Chartered Institute of Public Finance and Accountancy (CIPFA) has found that, while the headline levels of reserves held by local authorities have increased significantly over the last parliament, almost all of those reserves are already allocated for specific investments and to manage future risk.
CIPFA undertook a survey on reserves which asked local authority finance chiefs to identify what financial reserves they held and the extent to which they were earmarked for specific purposes and combined this with official data on council reserves.
This survey showed that over 80% of local authority reserves were either held for use in spending on public health or education or were “earmarked reserves” to meet known or predicted spending requirements.
The survey also showed that 94% of local authorities had plans in place to use the reserves they have built up. With 40% of councils stating that they are increasing reserves in light of the uncertainty around funding as a result of changes in Government policy, such as local council tax support or the localisation of business rates.
Data shows that of the £19.8bn reserves held by councils in April 2014, the latest full accounting period, £2.3bn was set aside for schools or public health projects and £13.8bn were earmarked for other areas of future local public spending and therefore unusable. This suggests that there remains £3.7bn of general fund or usable reserves in local authority accounts across the UK.
The data and survey results are being released as part of a briefing paper English Local Authority Reserves produced by CIPFA on the issue.
Speaking on the survey, Rob Whiteman CIPFA CEO 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.
“Reserves are a vital part of prudential financial management and councils should be congratulated that they have sensibly been building up their reserves to both enable them to safeguard future services for local communities and to protect against both known and unknown risks.”
You can find a copy of CIPFA’s paper English Local Authority Reserves.