Monday, 02 September 2013 08:05

Councils defend increase in reserves

Written by  Ruralcity Media
Councils defend increase in reserves

Local authorities have defended a £2.6bn increase in council reserves, saying it is justified given uncertain funding for services.

It came after local government secretary Eric Pickles accused councils of "hypocrisy" by pleading poverty despite having trebled their cash reserves over the last 10 years.

New statistics published show that councils have increased their cash reserves by over 20% in real terms since 2010 to 2011.

Reserves now stand at over £19bn – an increase of £2.6bn in the last year alone.

Mr Pickles called on local authorities to consider whether such substantial reserves were necessary at a time when many are struggling to maintain frontline services.

Councils account for a quarter of all public spending. In total councils are forecast to spend £102 billion in 2013 to 2014 - up 4% from their forecast the year before.

Mr Pickles said: "People will be surprised that while councils are hoarding billions in their piggy banks some are pleading poverty and raising council tax.

Councils should also be making creative use of reserves to address short-term costs, such as restructuring or investing now to realise savings in the longer-term, he said.

Sir Merrick Cockell, chairman of the Local Government Association, said council reserves represented around just 10 weeks of local government expenditure.

"Reserves are all that stand between councils and financial collapse and this prudent, justified increase is the correct response to the uncertainty facing funding for local services."

Sir Merrick added: "If central government managed its finances as well as councils do the country would be in a much stronger position.

"The government's welfare and pensions reforms are passing hundreds of millions of pounds of additional costs onto local government.

"These reserves are being set aside to help councils partially manage those new costs and dampen their impact on funding for the services residents use every day.

Almost £1bn of the increase was attributable to the Greater London Authority, said Sir Merrick.

This meant that councils across the country had prudently set aside 1.8% of their annual revenue over the last 12 months to cope with emerging risks.

Unlike central government, which borrows to pay day-to-day costs, councils are not allowed to operate a deficit or borrow to pay for wages or service delivery.

This means councils must be cautious in their approach to spending and keep money in reserve to meet unexpected expenses or emergency costs.

"Local authorities are legally required to balance the books each year," said Sir Merrick.

"It should come as no surprise that reserves are going up when the government is promoting caution by continually shifting the financial goalposts."

Councils could be less cautious if the government had not taken the unsignalled decision to withhold £1 billion from the 2015/16 local government funding settlement.

The government had also made a number of large and unexpected cuts to local government funding over and above those signalled in the Comprehensive Spending Review.

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