14 November 2008
By Tash Shifrin
The amount of money held in council reserves has rocketed upwards, more than doubling since 1997, government figures have revealed.
Union leaders criticised local authorities for holding down pay and threatening cuts to jobs and services while town hall coffers were swelling.
Figures released by the Department for Communities and Local Government show councils' total non-schools reserves rising from £5.6bn in 1997 to £12.56bn at March 31 this year.
Unallocated reserves have also increased dramatically, from £2.25bn in 1997 to £3.42bn at the end of March, while the sum held by schools has almost quadrupled over the same period, from £538m to £2bn.
The rise in total reserves appears to have begun in 2002/03, after fluctuating around the £5.5bn mark for six years. The start of the increase predated the swing to a majority of Conservative town halls after the 2004 elections and has continued since. Schools' reserves first jumped sharply two years earlier, in 2000/01.
A spokesman for the Local Government Association said: 'Local authorities put money away and saved money while the economy was strong. They saved when the sun was shining specifically to deal with the kind of recession that we're on the brink of at the moment.
'We would see it as prudent financial management. We are talking about a sector that spends £120bn each year… it would be financial suicide not to have significant reserves in place for a financial emergency or the kind of problems we've seen with the Icelandic banks.'
But Heather Wakefield, head of local government at trade union Unison, said: 'They are “saving for a rainy day”, but it's a rainy day already for staff by way of job cuts and low pay.'
She added: 'Local government has made double the efficiency savings it's been told to make by central government at the same time as stashing this money away.' It was hard to see how these factors 'tied together' with town halls' attempts to hold down pay or the 'steady stream of redundancies' that were now being announced, she told Public Finance.
Wakefield said the Icelandic collapse – which has left £1bn of local authority money tied up in the collapsed banks – raised further questions over the wisdom of saving funds. 'If there's a likelihood that this money will be invested and lost, local people might say we'd rather keep people employed [in council jobs],' she said.
Paul Mason, CIPFA's technical manager for local government, said councils might put away money in reserves to cover emergencies such as last summer's floods, adding: 'But you don't keep building them up and up without a proper reason.'
Inflation would account for some of the rise in reserves – although this would be 'nowhere near all of the increase', while the overall figures were likely to conceal variations between authorities.
Councils should be 'careful about paying ongoing expenses with reserves' as they constituted a one-off source of funding, he added.
The LGA spokesman suggested that councils might now raid their reserves to help with rising bills and the effects of the credit crunch, saying: 'It is not beyond the realms of possibility that councils will use a fair amount of the reserves they have built up through [these] tricky financial times.'
PFnov2008
