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Bleak future leads councils to reserve cash

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Officials figures have shown the first small signs of councils adding to their reserves as the sector prepares for a number of significant changes to funding and continued austerity.

Almost two-fifths (39.9%) of councils are budgeting to increase reserve levels in 2012-13, according to the latest expenditure statistical release published by the Department for Communities & Local Government.

The figure is the highest level since 2009-10 and compares to a quarter of authorities adding to their reserves in the last financial year. However, the monetary value of the growth in non-school reserves is small at just 0.25%, and with the majority of councils still budgeting to draw down from reserves, some experts said most were under too much financial pressure to be stashing money away.

An increase in reserve levels has been long predicted as a result of the uncertainty caused by major changes to the way councils are funded that are due to be implemented next year. The retention of business rates and the transfer of council tax benefit to councils coincides in 2013 with the transfer of public health to local government.

Alison Scott, assistant director of local government and governance at the Chartered Institute of Public Finance and Accountancy, said those treasurers that were adding to reserves were doing so for reasons of prudence. And she said a trend for increasing reserves had already been seen in the current financial year, as finance officers’ cautious predictions of how many and how quickly savings can be made were exceeded.

“Because people are being required to make significant cuts and required to make cuts in services, naturally looking at the figures they tend to take a very prudent view of what savings they can make in the year,” she said.

Prudence

Treasurers have previously expressed concern that ministers, who have been critical of reserve levels in the past, might take a negative view of this trend.

Ms Scott said: “This really comes from a prudent view and the need to get a balanced budget.

“Hopefully, they [ministers] will recognise that councils do need to be prudent. It is about the need to make cuts, and being certain that cuts can be made, and good forward planning in a period of continuing cuts.”

Figures from the budgeted 2012-13 revenue expenditure and financing statistical release published last week, showed that non-schools reserves increased from £12.48bn to £12.52bn.

One finance expert said the tiny increase in reserve levels suggested many councils were unable to add to their coffers in preparation for the tough times ahead.

“It suggests there is a recognition of future financial risks but the quantum does not suggest there is much wriggle room or that the system is awash with money,” he said.

Paul Kent, president of the Society of County Treasurers, also suggested rises in reserve levels would be slow and steady, not sudden, as their remained pressure to spend reserves.

“The big issue next year is likely to be council tax, and for counties in particular, the liklihood that elected members will seek a third successive council tax freeze given the county council elections,” he said. “If another freeze grant is available this may mitigate things, but there is going to be pressure to utilise reserves, if only pending delivery of additional base budget savings.”

Budgeted spending

According to Cipfa analysis of DCLG’s data for expenditure in 2012-13, budgeted spending has fallen below 2007-08 levels although the annual reduction of 4.8% is smaller than the previous year when it was 5.7%.

In 2012-13, education is set to see the biggest reduction in spending due to the transfer of funding to academies, Cipfa said.

social care is the only area expected to see an increase in spending, bearing out the LGA’s warning that the unavoidable demands of an ageing population would eat up an increasing proportion of council budgets in the years to come.

 % change  2010-11 to 2011-12  2011-12 to 2012-13 
 Education                           (6.4)                          (8.6)
 Highways & Transport                         (20.7)                          (5.9)
 Social Care                            1.6                           0.2
 Housing                         (14.9)                          (7.2)
 Cultural & Related                           (9.8)                          (4.8)
 Environmental & Regulatory                           (3.1)                          (1.4)
 Planning & Development                         (32.1)                          (7.9)
 Police                           (2.7)                          (2.0)
 Fire                           (2.6)                          (0.3)
 Central                           (4.0)                           1.1
 Other                           36.7                        (16.6)
 Total                           (5.7)                          (4.8)

 

Cipfa’s figures also showed large variations in the average spend in regions, with authorities in the east Midlands, south-west and east of England making the largest cuts while Yorkshire and the Humber, and Greater London, made the smallest cuts.

 

% change 2011/12 to 2012/13EducationHighways & TransportSocial CareHousingCultural & RelatedEnvironmental & RegulatoryPlanning & DevelopmentPoliceFireCentralOtherTotal Service Expenditure
Yorkshire & the Humber                 (4.2)                   4.2                   0.7               (10.8)                 (2.2)                 (0.2)                 (1.1)                 (4.1)                 (0.6)                 (6.0)             (173.6)                 (2.9)
Greater London                 (4.8)               (11.5)                 (2.0)                   2.3                 (3.7)                 (0.6)               (21.3)                   1.1                 (1.9)                 10.5                   2.2                 (3.3)
North West                 (5.9)                 (3.7)                 (0.6)               (12.8)                 (3.9)                 (2.2)               (12.4)                 (3.7)                 (0.9)                   1.1               (29.4)                 (4.2)
South East exc. London                 (7.6)                 (2.7)                 (0.1)                 (5.7)                 (6.3)                 (0.5)                 (1.9)                 (2.1)                   1.3                 (1.4)               (21.3)                 (4.2)
West Midlands                 (9.1)                 (2.8)                   2.2                 (6.3)                 (4.3)                 (1.3)                 (5.6)                 (3.2)                 (0.1)                 (0.2)               (37.2)                 (4.8)
North East                 (8.0)                 (2.5)                   1.1                 (8.7)                 (9.6)                 (5.1)               (16.1)                 (3.6)                   0.7               (13.3)                 10.0                 (5.2)
East of England               (14.5)                 (3.9)                   1.0               (13.7)                 (4.3)                 (1.6)                   1.0                 (2.5)                 (0.4)                   3.8                 21.3                 (7.0)
South West               (14.6)                 (5.3)                   2.4               (22.2)                 (0.2)                   0.1                   1.7                 (3.7)                   0.0                   3.5               (56.7)                 (7.1)
East Midlands               (14.6)                 (2.4)                 (0.1)                   5.7               (11.5)                 (4.6)                 (2.2)                 (2.8)                   0.5                   0.4               143.0                 (7.5)

 

Local government minister Bob Neill said spending was “still at £114bn” and advised coucnils to spend their reserves.

“Local government accounts for a quarter of all public spending and all councils need to make sensible savings to keep council tax down, protect front-line services and help tackle the deficit inherited from the last administration.

“There is more councils can do by reviewing taxpayer funded trade unions subs, sharing back offices, maximising their £62bn a year procurement budget, bringing their pay bill down, utilising their £10bn of reserves and tackling the £2bn lost locally to fraud.”

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