Local authorities have increased their revenue reserves by £6bn over the last two years due to financial uncertainty, a new analysis by local government specialists LG Improve has found.
The research revealed that councils’ revenue reserves rose from £18bn in 2019/20 to £24bn in 2021/22. LG Improve detailed that the rise is partly due to Covid-19 funding and authorities’ uncertainty over future finances amid rising inflation.
Dan Bates, LG Improve’s analytics director, said: “Government funding won’t be clear until the last minute. Bolstering reserves is sensible in the context of the uncertainty around long-term funding.
“The government does appear to have treated councils fairly through the pandemic, compensating for lost income, which has enabled them to build reserves. That will buy time for some councils facing down high inflation and growing service demands, but not all.”
The analysis was based on the first summary of 263 (79%) authorities that have published 2021/22 draft accounts.
LG Improve detailed that the rate of growth in reserves over the two years appears largely consistent across local government, however, there remain big disparities between councils in cash terms.
The research found that district councils and inner London authorities hold more reserves compared to county councils that have the lowest level of usable reserves as a proportion of expenditure.
Bates added: “Figures also highlight disparities between councils with many already on the brink after a decade of makeshift funding settlements.
“The sector desperately wants longer-term certainty and a fair funding formula, based on local need. This will especially be the case for a handful of authorities that hold reserves some way below average levels.”
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