Latest Public Sector News

20.11.15

Government issues stark warning of further council cuts

Communities secretary Greg Clark MP has issued a warning that councils are set to face further cuts in next week’s Spending Review after government figures showed local authorities now hold £22.5bn in non-ringfenced reserves.

Whitehall claimed that this reserved cash represented a near 170% increase in real terms in the last 15 years.

Clark took the opportunity to suggest that they would therefore be called on to “play their part in dealing with the deficit”.

“Today’s figures show how they are well-placed to do so. As we continue to secure our country’s economic future and cut the deficit, now is the time to make efficient use of their assets and resources to provide the services local people want to see,” he said.

According to the government, councils have added almost £1bn more to their non-ringfenced reserves, taking the total reserve significantly up from the £13bn held in 2010.

Revenue reserves are accumulated extra income that can be used to finance future expenditures and provide working balances. Transferring money into reserves increases the budget requirement for the year.

And increases in reserves can actually be due to a change in circumstances over a project – including it being delayed or cancelled – or authorities saving up for something larger in the future.

As a result, LGA’s resources portfolio holder, Claire Kober, said the government’s claims were misleading and that the “suggestion that they prove councils are able to absorb further funding cuts is wrong”.

“In many ways, managing a council’s budget is no different to managing your own household budget in that it is always prudent to put money aside to fix the roof if it falls in. For councils, this is especially important given the great financial uncertainty they face and the potential of further cuts to their budgets.

“Most of this money is used to repair ageing council assets, build new roads and regenerate areas or pay for school places and superfast broadband. Reserves can help councils manage growing financial risks to local services, but what's left after these earmarked reserves would only cover less than a month's spending at a time when many councils are already struggling to keep services running,” she continued.

Kober also noted that 93 councils had to use up money from reserves in the last financial year, with 203 planning to do the same this year as a result of previous funding cuts.

“Forcing councils to spend reserves on plugging funding gaps would be a reckless gamble with the future of people who rely on council services and would put local communities on the fast-track to financial failure,” she added.

“Such a move would leave councils with no funds to make vital investments or manage new financial risks and would also increase the national deficit.”

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