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Councils sitting on £13bn reserves

Councils have reserves of nearly £13bn, which have grown by 36% in the past five years, new statistics from the Audit Commission show.

Communities secretary Eric Pickles accused some local authorities of “hoarding” cash while “pleading poverty.”

Overall, English councils have increased their reserves by £4.5bn since 2007 to £12.9bn. The news follows the Chancellor’s Autumn Statement yesterday, which announced an extra 2% cut to council budgets for 2014-15, labelled “unthinkable” by the Local Government Association.

Between 2007 and 2012, 77% of English councils increased their reserves relative to their spending and 26% more than doubled their reserves. The increase could be a response to funding reductions and financial uncertainty.

£9.9bn of the total reserves has been earmarked for a specific purpose.

Jeremy Newman, chair of the Audit Commission, said: “Reserves are a vital element of good financial management for any council, especially at a time of financial uncertainty.

“They help councils plan for known and predictable spending commitments, but are also a defence against the unknown and unpredictable. However, councils must strike a balance between the needs of current and future taxpayers.

“Given the sums involved, and the risks, it is essential that councils' decisions are made openly and reported with clarity, so local taxpayers and service users can hold their councils to account.

“Our report doesn't offer any magic formula for deciding whether reserves are appropriate – councils must make their own decisions in the light of local circumstances.

“But we do identify how councils can improve their decision making, and suggest questions for councillors to ask to stimulate local debate about reserves.”

Communities secretary Eric Pickles said: “People would be surprised that councils are hoarding billions whilst some are pleading poverty.

“Given the rise in reserves, it was disappointing and irresponsible that some sections of local government chose to scare the public with predictions of doom and gloom.”

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