The issue of reserves once again dominated the Local Government Association’s (LGA) finance conference this year.
Ministers took the opportunity at last year’s event to attempt to assuage fears over a renewed interest on the part of the Department for Levelling Up, Housing, and Communities (DLUHC) in the sector’s reserve levels.
This year, new local government minister, Simon Hoare, went a step further in suggesting councils ‘can and should consider drawing on their reserves’ in what is one of the toughest budget-setting rounds the sector has faced.
Hoare pointed out the ‘overall balance of reserves is up post-Covid’ and that ‘half of local authority reserves have grown since 2019-20’.
He added: ‘I recognise all of this money cannot be used, but unallocated reserves are there to be used.’
While acknowledging the decision to spend reserves was down to councils and should be done with advice from section 151 officers, Hoare said reserves were ‘not there to be guarded’. Whether unwittingly or not, he is by no means the first minister to make the suggestion.
A decade ago, in the midst of the austerity years, then-local government secretary Eric Pickles in a more robust approach accused councils of hoarding millions in their reserves coffers.
With the draft finance settlement failing to provide any solace, there is a consensus within the sector that reserves will come under renewed pressure in the coming year with many authorities having no choice but to fall back on reserves as a stopgap measure.
But the response is the same as a decade ago. Nicola Morton, the LGA’s head of finance, said: ‘Reserves are not a long-term solution to the pressures councils face,’ echoing the body’s long-held stance on the issue.
A sceptical Cllr Peter Marland, chair of the LGA’s economy and resources board, said: ‘It sounds like ministers are saying: “Use reserves until they run out, then we can have a discussion about the future”.’
Hoare’s opposite number, shadow local government minister Jim McMahon went as far as to say: ‘The idea you can dip into one-off reserves is ridiculous. The higher the risk, the more reserves you need to mitigate that risk.’
President of the Society of London Treasurers Clive Palfreyman voiced the opinion of many who believed the approach misunderstood what reserves are for.
He said: ‘Reserves are there to manage us through difficult times, they are not there to balance the revenue budget.’
It was left to DLUHC’s director of local government finance, Nico Heslop, to attempt to smooth things over, saying the department took a ‘balanced view’.
He added: ‘Every local authority I speak to says they are using reserves to some extent. I don’t think that’s a stupid thing for the sector to be doing.
‘If you have reserves available, it’s acceptable to use those reserves.’
He also acknowledged reserves, particularly those accrued as a legacy of the Covid pandemic, were ‘not spread equally across the sector’ and were ‘variable’.
The differences are stark. Hampshire CC plans to use £86m of reserves to balance its budget next year, while Windsor and Maidenhead’s available reserves amount to just £10m.
Joe Chesterton, president of the Society of Municipal Treasurers, was among those pointing out that reserves form part of the overall financial health of an organisation.
‘Reserves are there to put some certainty into planning. You need to replenish those reserves within the lifetime of the medium-term financial plan,’ he said.
Part of the reason given by the section 151 officer for the issuing of Nottingham City Council’s s114 notice in November was that use of reserves to help close its budget gap would ‘undermine the financial resilience of the council’.
Perhaps mindful of the treatment by the national press 10 years ago, Nicole Wood, president of the Society of County Treasurers warned those at the conference to ‘not get distracted by headline figures’, adding there were ‘myriad reasons for reserves’.
She added: ‘It’s really important there is transparency and scrutiny of reserves.’
Rather than simply bailing out the revenue budget for a given year, Wood suggested unallocated reserves could instead help councils balance the books through transformation, particularly in the realm of digital.
She said: ‘It’s important reserves don’t stand idle, but retaining sufficient to achieve long-term change is mission critical. Half of my unallocated reserves are transformation.’
