16 February 2007
Scottish councils have cut their financial reserves for the first time in recent years after facing 'significant and steadily increasing' costs, the Accounts Commission has found.
In a local government overview published this week, the public spending watchdog disclosed that total reserves had fallen by 14%. This, the commission said, was the first downward move in reserves in recent years. Scottish councils have been at the centre of controversy over high level of reserves, with the commission calling for clearer policies. According to the overview report, all councils now have policies setting out their position on reserves.
The report showed that at March 31 2006 councils held total reserves of £0.9bn. This compares with £1.05bn at the end of the previous year. The 2006 figures included general funds of £273m – a drop of more than a third. Housing revenue account balances amounted £114m and other reserves set up for specific purposes, £519m.
As the report pointed out, the figures exclude the substantial reserves held by Orkney Islands (£198m) and Shetland (£311m) arising mainly from harbour and oil-related activities.
The commission said the accounts, showing the total reduction of 14% in reserves, reflected 'significant and steadily increasing financial costs such as equal pay settlements, implementing the single status agreement and rising energy costs'.
It also voiced concern about the uncertainties faced by local government because of the May elections, which will be conducted under a system of proportional representation for the first time. The report warned that the pace of change and improvements achieved in recent years could be put at risk.
Commission chair Alastair MacNish welcomed the signs that services were getting better. But he added: 'Councils face significant challenges and need to deal effectively with rising costs, falling reserves and the changes the May local government elections will bring.'
The improvements reported by the commission included increased council tax collection. This exceeded 935 for the first time.
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