Communities secretary Eric Pickles has accused councils of “hypocrisy” for complaining about funding cuts at the same time as they increased the amount of money they hold in reserves.
Official figures published on Thursday showed that councils increased reserves by £2.6bn in 2012-13, almost 20% in one year, bringing the total amount in the bank to £19bn.
However, the LGA has defended councils financial management arguing that a series of unexpected funding announcements showed councils were taking a prudent approach by adding to reserves.
Mr Pickles said: “People will be surprised that while councils are hoarding billions in their piggy banks some are pleading poverty and raising council tax.
“While it is sensible for local authorities to maintain a healthy cushion, such substantial reserves are completely unnecessary and should be tapped into to ensure councils can protect frontline services and keep council tax down for hardworking people.
“Councils should also be making creative use of reserves to address short-term costs, such as restructuring or investing now to realise savings in the longer-term.”
The Department for Communities & Local Government’s reserves figures for 2012-13 include both councils earmarked and unallocated reserves.
The largest increase has been in earmarked reserves for specific purposes such as loan repayments and ongoing private finance initiative project costs.
|Financial reserves £m||At 1 April 2012||At 3 March 2013||% change|
The £2.6bn added to reserves include £900m addition to reserves made by the Greater London Authority. LGA chairman Sir Merrick Cockell (Con) said this meant “that councils across the country have prudently set aside 1.8% of their annual revenue over the last 12 months to cope with emerging risks”.
Unlike government departments, councils must set a balanced budget and are not allowed to borrow to pay wages or service delivery.
Sir Merrick said: “Local authorities are legally required to balance the books each year and it should come as no surprise that reserves are going up when the government is promoting caution by continually shifting the financial goalposts.
“Councils could be less cautious if the government had not made a number of large and unexpected cuts to local government funding over and above those signalled in the comprehensive spending review, or if it had not taken the unsignalled decision to withhold £1bn from the 2015-16 local government funding settlement.”
He added: “Reserves are all that stand between councils and financial collapse and this prudent, justified increase is the correct response to the uncertainty facing funding for local services. If central government managed its finances as well as councils do the country would be in a much stronger position.”
Earlier this year, LGA chief executive Carolyn Downs revealed the results of a survey of councils which showed many were increasing reserves because of the costs of welfare reform and in order to invest in economic growth.
She also told MPs of the public accounts committee that reserves might be built up because the government’s refusal to give councils the flexibility to use capital funds to pay for large revenue costs such as restructuring and redundancies.
“If we can’t do that people will build up reserves to pay off all those one off costs,” she said.
At the same hearing, Professor Tony Travers, director of the Greater London Group at the London School of Economics, backed the LGA’s argument that increased reserves were a “rational” reaction to the probability of further cuts.