Tower Hamlets Council’s chief financial officer has stressed that funding pressures exacerbated by the local government finance settlement (LGFS) have forced the authority to use £22.3m from reserves to balance its budget.
In a report, Kevin Bartle, outlined the authority’s 2023/24 budget and medium-term financial strategy following the release of the provisional LGFS, which was announced on 19 December 2022.
The report forecast that the council’s planned level of expenditure in 2023/24 is “significantly greater” than its level of recurrent funding, as it is over the medium term, and therefore Tower Hamlets will need to draw down £22.3m from its reserves to balance its budget.
Bartle highlighted that due to the announcement of the LGFS the council’s funding has experienced “a range of significant implications”. He also detailed that due to the government only providing a single-year settlement for 2023/24 “the funding landscape for local government over the medium term remains highly uncertain”.
Bartle’s report stated: “The Revenue Support Grant has been rolled forward for 2023/24 with an inflationary uplift and New Homes Bonus funding has continued, albeit without any legacy year’s funding provided, and is much reduced from prior years.”
The report detailed that the council’s revenue support grant has decreased from circa £54m in 2017/18 to £39.3m in 2023/24. It indicated that Tower Hamlets’ New Homes Bonus has also decreased from £16.26m in 2022/23 to £3.89m in 2023/24.
The amount of revenue support grant given to authorities is established through the LGFS using a relevant funding formula. A revision of this formula is the focus of the fair funding review, which was deferred again in the settlement.
Bartle detailed that the council’s services grant has also been significantly reduced from the 2022/23 allocation following the LGFS. He added that the Improved Better Care Fund for 2023/24 has been rolled forward, but the settlement provided no inflationary uplift.
The report outlined other funding pressures facing the council, such as soaring inflation, rising energy costs and the impact of the Covid-19 pandemic.
However, he highlighted that the council has received additional Social Care Grant for 2023/24. This is due to the government’s announcement on 17 November to delay the social care reforms, but that funding for implementation of the reforms will be maintained by councils.
Local government finances remain in a precarious position, which is not helped by the worrying disparity in reserve levels across authorities.
Draw down of reserves to balance budget
In a statement by Bartle in the report, he expressed concern over the council’s need to draw down £22.3m to balance its budgets as it is a “significant sum from one-off reserves” and is “unsustainable”.
He said: “This usage of one-off reserves is deemed as affordable in the short term, but the high level of recurrent net expenditure forecast to continue would require further significant drawdowns from reserves in future years, which is clearly unsustainable as the council’s usable reserves would be exhausted in the medium term.”
Dan Bates, finance specialist at LGi Improve, echoed Bartle’s sentiment that councils might use reserves to balance their budgets in the short term, however, they should look to balance long-term budgets without depleting reserves.
He told Room151: “Local government finances remain in a precarious position, which is not helped by the worrying disparity in reserve levels across authorities. LGi’s analysis shows a large number of councils are already vulnerable from low and/or depleting levels of reserves.”
Council reserves increase
This comes as research from CIPFA’s Resilience Index, published on 20 December 2022, found that local authorities in England had increased their reserves to £31bn in 2022, up from £29bn in 2020/21.
In response to this research, Bates warned that despite the positive increase in council reserves he would “advise caution to anyone concluding that local government financial health has turned a corner”.
“The bulk of the reserves increase is made up of front-loaded government Covid-19 support, which will be depleted over the next 12 months as local authorities continue to address the impact of the pandemic. Some authorities have increased their reserves in anticipation of future funding changes, as a prudent approach to medium-term financial planning,” he added.
Bartle’s report was presented to the council’s cabinet on 4 January.
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