Don’t force us to spend reserves, town halls tell Treasury

11 Sep 15

Councils could be placed on ‘a fast tack to financial failure’ if the government implemented a policy to force authorities to spend their reserves to make up for cuts in funding, the Treasury has been warned.

The Local Government Association today highlighted reports that the Treasury may force councils to spend their reserves to lessen the impact of any funding reductions in the Spending Review.

With public spending expected to continue falling until 2020, and town halls facing £10bn of spending pressures, the LGA said that if councils used reserves to cover projected funding cuts, all of the money would be spent by 2018.

This would leave councils with no funds to make vital investments or manage new financial risks and would store up huge problems for the future, LGA finance spokeswoman Claire Kober said. Total reserves in English local authorities stand at £17.1bn, of which £3.8bn are unallocated. Unallocated funds amount to only 27 days’ expenditure.

“Reserves are designed to help councils manage growing financial risks to local services. Most of this money is essentially a growth fund which councils are using to build new roads and regenerate areas or pay for school places and superfast broadband. What’s left would only cover less than a month’s spending,” Kober said.

“The size of cuts councils are having to make are simply too big to be plugged by reserves. Spending them in this way would be a gamble with the future of people who rely on council services and would put local areas on the fast-track to financial failure.

"With further funding reductions expected in the Spending Review along with ever-growing pressure on vital services like caring for our elderly, putting aside money for the difficult years ahead is prudent financial management.”

As part of its Spending Review submission to the Treasury, the LGA called for longer-term funding settlements for authorities. This would allow councils to plan ahead and they could therefore release some of their risk-based reserves to fund services.

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