Funding cuts ‘will wipe out council reserves in five years’
By Mark Smulian | 3 September 2012
Councils have warned that their reserves will run out in five years if they have to keep using them for infrastructure investment and covering service funding gaps.
The Local Government Association said the £17bn in accumulated reserves held by local authorities would largely be devoted to local infrastructure projects, with £12.4bn earmarked for this.
The remainder of the money would be used to help mitigate the impact of cuts to council funding and manage the risks associated with localisation of business rates and Council Tax Benefit.
Figures released by the Department for Communities and Local Government showed that in 2011/12 councils added £2.6bn to their reserves, although the Greater London Authority accounted for £600m of this sum.
Some 79.7% of local authorities increased their reserves, while 19.6% cut them and 0.7% made no change.
Total revenue expenditure by local authorities was £99.9bn in 2011/12, a decrease from £104.3bn in 2010/11.
The LGA said that reserves would run out by 2018 if cuts in government spending continued as expected.
Chair Sir Merrick Cockell said: ‘Prudent councils fixed the roof while the sun was shining which is why they are now in a position to invest in the infrastructure and development projects which will help drive Britain out of economic downturn.
‘Councils are working extremely hard to shield frontline services from the 28% cut to the money they receive from government.
‘But cash reserves can only dampen the impact, not fill the gap. If councils plundered their reserves to cover the cuts, the cupboard would be bare within five years and there’d be nothing left to invest in the growth promoting projects Britain desperately needs.’
Local Government Secretary Eric Pickles has previously criticised authorities for keeping excessive reserves. Two years ago, he accused some councils of ‘turning town hall vaults into Fort Knox’ by building up reserves.