With local authorities planning to draw down more from their reserves this year, finance directors and chief executives will have to make sure they are not compromising the future
Statistics released this week from the government and CIPFA show the true impact of the cuts on local government spending in England.
A quick glance at the figures shows the services worst hit and there are no real surprises. With severe budget cuts announced progressively over the last few months, it was only really a question of how severely the axe would fall.
However, a deeper look into the statistics reveals intentions that should be given some consideration: local authorities are budgeting to draw down considerably more from their reserves to finance their revenue expenditure this year compared to last and only a small percentage are looking to add to them. While these plans may not be surprising, and indeed this may well be the best use of reserve funds for many authorities, dipping into cash reserves requires careful consideration.
Opinion on this appears quite divided. Stephen Jones, finance director of the Local Government Association, recently commented that reserves were being used in a way that was prudent and sustainable and indeed that many councils may not need to use as much as forecast. Meanwhile, Steve Freer, chief executive of CIPFA, has warned that it is more important than usual that councils maintain good and healthy reserve levels.
Certainly, the two standpoints are not mutually exclusive, but it is clear that, in order to maintain continuity and deliver their services with minimal impact on residents, councils will need to perform a delicate balancing act.
Maintaining a healthy reserve is a sensible part of risk management and mitigation, and is just as vital in the public sector as in commercial business. Failing to do so would be an oversight on the part of any council chief executive or finance director and would damage the authority’s overall resilience. However, negotiating the balancing act will require substantial planning and forecasting to ensure the larger-scale projects that have been put together remain on course.
At the same time, and as part of a thorough risk management programme, clear and open channels of communication with employees and residents will be essential to maintain morale and support as the impact of spending adjustments manifest themselves, in some cases more severely than expected.
Residents losing faith in their councils at a time when their support is needed most could be particularly damaging if Big Society projects are to take off. Keeping as many people as possible on side will be done best by remaining transparent on when and why reserves are, and indeed aren’t, being used.
The rainy day for which councils have been saving may well have come and the time for funds to be drawn upon here, but they will need to do so carefully. Panic spending now may leave councils exposed just as future storms come.
Andrew Jepp is director of public services at Zurich Municipal
