01 April 2005
Scottish councils should manage their financial reserves – now totalling more than £1bn – to help cut council tax bills, the Accounts Commission has advised.
After an annual review of local authority audits, the commission concluded this week that councils were maintaining good financial controls. But it said scope remained for improving the work of audit committees and monitoring budgets.
The level of financial reserves has soared from about £700m in 2001/02 to more than £1bn in 2003/04, and critics have called on councils to use some of their balances to reduce council tax bills.
According to the commission's latest report, the reserves for 2003/04 include general fund balances of £377m – the amounts set aside to support future years' expenditure and for contingencies – and housing revenue balances totalling £102m. Other reserves, which include capital, repair and renewal funds and insurance funds, total £571m.
These figures exclude substantial sums held by the Orkney and Shetland island councils (£233m and £357m respectively) arising mainly from harbour and North Sea oil-related activities.
The report reveals a wide variation in the level of general fund balances held by councils. These range from less than 1% of net expenditure in South Lanarkshire to about 12% in Moray. More than half of the 32 councils had balances of 3%–6% of net expenditure.
The commission said councils have plans to use balances held at March 31, 2004. But it stressed the need to have 'clear and explicit policies on the overall level of balances they intend to hold and how these will be applied'.
Commission chair Alastair MacNish said: 'While it is for each local authority to decide what levels are needed locally, we want councils to ensure that clear strategies and policies about reserves are part of robust financial planning, and that efforts are made to communicate this information to the public.'
The report also says more needs to be done to improve the timing and quality of financial information provided to elected members to enable them to monitor service performance and the overall financial position.
'All councils have audit committees but there is still work to be done to ensure that best practice principles are applied in all cases, particularly in relation to risk management and the oversight of internal audit,' the report states.
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