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Councils using growing reserves to meet spending commitments, finds Cipfa

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Financial reserves held by local authorities have increased significantly but are largely being used to meet existing spending needs, a Chartered Institute of Public Finance & Accountancy survey has revealed.

Cipfa found that more than 80% of local authority reserves were either held for use in spending on public health or education or were “earmarked reserves” to meet known or predicted spending requirements.

The survey also showed 94% of local authorities have plans in place to use the reserves they have built up.

A large proportion – 40% – of councils stated that they were increasing their reserves due to uncertainty around funding as a result of changes in government policies, for example local council tax support and the localisation of business rates.

The data shows that of the £19.8bn reserves held by councils in April 2014, the most recent full accounting period for which figures are available, £2.3bn was set aside for schools or public health projects and £13.8bn was earmarked for other areas of future local public spending.

This suggests that there remains £3.7bn of general fund or usable reserves in local authority accounts across the UK.

The data and survey results are being released as part of a briefing paper English Local Authority Reserves produced by Cipfa on the issue.

Rob Whiteman, Cifpa chief executive, said: “The government rightly proclaims the benefits of having a long-term economic plan for its own finances.

“Local authorities know that using reserves to provide for future services, protect against risks and manage the transformation of services is the right way for local authorities to manage their finances in the long-term interests of their communities and the country.

“Reserves are a vital part of prudential financial management and councils should be congratulated that they have sensibly been building up their reserves to both enable them to safeguard future services for local communities and to protect against both known and unknown risks.”

In a comment piece for LGC this week, Mr Whiteman has urged councils to resist calls to drive down reserves.

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