For the past few years there has been a repeated complaint made of local authorities by Whitehall about “hoarding” reserves. The current government has complained often that local councils are building up significant reserves at a time of reducing budgets and that this is especially obnoxious for taxpayers at a time when authorities are also cutting services.
At the time of writing we've seen local authorities’ levels of reserves projected to fall by double the amount they did last year. As CLG's own recent data release stated: 'Total local authority financial reserves are estimated to be £17.8bn at 31 March 2015, down from £19.9bn at 1 April 2014'. A decrease of £2.1bn, double the £1.2bn that was drawn down in 2013/2014. The release does point out that a significant amount of the funds drawn down is due to one factor, that the Greater London Authority is planning on drawing down £900m in the year owing to the use of earmarked reserves towards the costs of Crossrail and other infrastructure work.
CIPFA’s advice to councillors and chief financial officers remains firm: that the prudent use of reserves is essential to good financial management by councils. Reserves are used for a whole host things from providing crucial capacity to invest in future service transformation, to protecting against unforeseen events, or earmarked against future uses, as with TfL and Crossrail. National politicians who often like to use household economic metaphors do not advise the public to run down their savings to sort out their budgets, and they should stop the cheap shots at prudent local authority reserves because the alternative would be widespread risk and failure.
Crucially, councils should be very wary about using one-off reserves to deal with shortfalls in recurring funding. Responsible councils know that this would be a recipe for significant financial problems in the future. CIFPA is concerned that research shows that around a half of councils are making some use of reserves to balance their budget. I advise decision-makers to ensure that this is only taking place whilst planned service changes are being implemented in an orderly way.
In the run up to the election, I sincerely hope that CLG keeps out of party electioneering and does not fuel the pretence that reserves are a black hole that could be used to improve public services. Ministers deserve no credit for the way local government has delivered more savings than health, schools, police or central government if, as a point of policy, they attack the means by which councils have prudently managed their own finances in a manner from which other areas of the public sector could learn.
Reserves are not some black hole used to hoard resources that could be used to serve the public. They are, have been and will always be something any organisation uses plan their future finances to protect themselves and provide for the future. CIPFA is supportive of councils that use them effectively and is equally supportive when central government manages its finances in an equally business-like way.
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