Councils need to maintain healthy reserves despite increased funding for councils through last week’s Spending Review, says Chris Buss.
One of the advantages of not being a serving section 151 officer is that you can view publications and announcements emanating from central government with professional interest but without authority bias.
There have been a couple of recent announcements which have caught my eye in recent weeks, the Spending Review and the publicity on reserves.
The Spending Review – to quote a London colleague – “could be the most positive and constructive settlement we have had in a dozen years.”
Even though, as with all these things, there may be a sting in the tail or some sleight of hand in the detail, the bones of the settlement do look good.
As well as the continuation of this year’s temporary largesse for social care continued into 2020/21, the review announced more money for special educational needs and disabilities (SEND), the ability to increase the social care precept and hopefully a decent increase in council tax allowed where needed.
However, there was the sound of a can being kicked quietly down the road, with the postponement of the Fair Funding Review for another year and potentially another government to deal with
It is that can being kicked down the road that leads me to the second announcement, which was on reserves.
The provisional outturn figures for England and Wales shows non-ringfenced revenue reserves standing at £23.7bn.
Under a less enlightened regime – ie under Eric Pickles – this figure would have led to a blast of thunder from the secretary of state and statements that the cash should be spent on those front line services not already covered by the “50 ways to save” – that infamous 2012 Christmas card to local government.
Why reserves are necessary
There are many reasons for reasons as to why reserves can go both up and down.
The figures themselves show that there was no uniform movement by type of authority with 164 councils having a net use of reserves to balance this year’s budget.
This is perhaps the figure to concentrate on.
Using reserves is something that clearly they couldn’t do if they hadn’t previously agreed to set them aside in the first place.
These figures actually do show a wide divergence between authorities – a look behind the headlines starts to unpack and possibly show that local government isn’t sitting on a £23bn un-ringfenced rainy day fund.
Let me give you a few examples from my own experience.
The non-ringfenced figure includes all earmarked reserves, including where for instance a council has set up a reserve to cover part or all of their insurance risk through self-insurance.
For an inner London borough this could be at least £5m as a minimum potentially much more.
It will also include funding for long term revenue programmes where, to quote a phrase, expenditure may be “lumpy”.
Using an earmarked non-ringfenced reserve enables proper planning for this without causing increases or decreases on council tax.
It is proper financial planning – a lack of reserves can cause unwarranted financial pain.
Such an example I am aware of is the support to the victims and families of the Grenfell fire disaster.
There are no doubt many other examples of such prudence.
It is also worth noting that the overall figure includes organisations like the Greater London Authority, which includes Transport for London, which account for over half a billion pounds of growth largely relating to infrastructure.
Put against the scale and size of this organisation it is important not to simply think of local councils.
It is often the case that large property transactions or planned investments that are planned in one financial year but end up straddling years can distort the position.
The new business rate retention model has also required some inner London boroughs to show increases that are payments they will need to make in future years.
Funding uncertainty
However, an overriding genuine reason for keeping reserves is the fact that funding is uncertain.
The fact is that, until the current settlement, funding was reducing year on year since 2010.
I know of a number of authorities where this risk was covered by setting up reserves to enable the necessary spending reductions to be managed so that front line services could be realigned to enable service provision to be maintained as best as possible over the four years on the last review.
Without those reserves, the impact of the spending reductions on service levels would have been much worse.
However, with the good news of the new spending round – and the message that austerity is over – surely the reserves can be reduced after all regardless of who the government.
After all, both major English political parties have made anti austerity noises.
Sorry, but I come back to the sound of the can being kicked down the road again.
As long as there is the promise or threat of a funding review (fair or unfair) for local government, there is uncertainty.
Uncertainty breads caution, and caution rightly leads to the need to keep reserves.
So, until there is a firm direction on where local authority funding is going at an authority level, the idea that councils can reduce reserves is a pipe dream and it ill behoves anyone who has links to the sector to infer otherwise.
