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Reserves raided as cuts bite

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Financially pressured authorities are planning to massively increase their reliance on reserves this year by drawing down £1.2bn to balance their books - almost 60 times the amount they intended to use in 2012-13.

The scale of the draw down was revealed in data published by the Office for National Statistics about councils’ budget estimates for 2013-14. This shows that councils intend to use £1.2bn of reserves to finance revenue expenditure this financial year. This compares to the much smaller £20.7m which councils budgeted to withdraw in 2012-13.

Although the huge jump in forecast reserve withdrawals is partly due by last year’s figures being particularly low, the forecast still represents a 23% increase on the £971m that was budgeted for withdrawal in 2011-12.

One LGA source said it was “more of an indication of the stress that some councils are under”.

The decision to draw down considerably more from reserves comes at a time when councils are weathering a 33% cut in funding since 2010 and were told last month they faced an extra 10% cut in 2015-16.

At the same time the LGA has warned that councils face increased demand for services, opening a financial black hole that is widening at a rate of £1.2bn a year.

County councils, which had elections this year, are the group of councils showing the largest change, more than tripling their planned use of reserves from £125m in 2012-13 to £407m in 2013-14.

 

Budgeted appropriations to (+) and from (-) reserves £m2012-132013-14% change
Counties-125-408-226%
Unitaries-31-87-186%
Metropolitan districts-180-410-127%
London boroughs-35-79-124%
Districts-54-3438%
Other authorities, including waste, parks and transport4058978%

 

The figures used by the ONS and DCLG include ‘schools reserves’ - over which councils have no spending power- and reserves earmarked for a specific purposes, such as loan repayments.

A breakdown of reserves forecasts shows that the biggest change is in earmarked reserves where £1bn is expected to be spent in 2013-14, compared with 2012-13 when councils thought they would add to earmarked reserves to the tune of £254m.

Elsewhere, withdrawals from unallocated reserves are set to be £137m in 2013-14, which is less than the £223m which was set to be withdrawn in 2012-13.

 

Budgeted appropriations to (+) and from (-) reserves £m2012-132013-14% change
Schools-52-43-17%
Public health-10-
Other earmarked255-1013-498%
Unallocated-223-137-39%
Total-21-11835626%

 

The data also shows that councils are starting to build up public health reserves for the first time, following the transfer of responsibility for these services from the NHS to local government.

In the first year, just over £10m was added - although ONS data shows that only London boroughs and unitary councils have done so, with county councils and metropolitan districts adding nothing to this category of reserves.

A spokesman for the Chartered Institute of Public Finance and Accountancy said “uncertainty and risk is increasing” but warned councils against using “a one-off, finite source of funding” from reserves” to fund services which would otherwise be cut.

“They can cover a shortfall in recurring funding for a specific period but, after reserves are exhausted, the underlying shortfall will still be there. Ultimately services will need to be reduced to a level which is affordable within the envelope of recurring funding available,” the spokesman said.

Cipfa said the drawdown was “more than last year, [but] not out of kilter with years past” and also warned that budgeted drawdowns could vary considerably with what actually happened with some councils actually adding to reserves despite planning to reduce them.

Spending

The forecast data published by ONS also shows what councils intend to spend on individual services, which shows a decrease for most services bar children’s social services, central services and environmental services.

 

Net current expenditure 2012-13 to 2013-14% change
Mandatory housing benefit4.5%
Central services3.0%
Children’s social care1.9%
Environmental and regulatory services0.6%
Adult social care-0.6%
Education-1.3%
Planning and development-1.5%
Fire and rescue-1.9%
Housing (not including housing revenue account)-2.6%
Highways and transport-2.7%
Police-3.8%
Cultural services-4.2%

 

Forecasts of councils spending also show a variation between groups of councils with inner London councils set to increase spending the most and districts the least.

 

Revenue expenditure 2012-13 to 2013-14% change
Inner London7.0%
Unitaries5.0%
Outer London4.0%
Metropolitan districts4.0%
Counties1.0%
Districts0.0%
Fire authorities-1.0%
Police authorities-2.0%
Other authorities, including waste, parks and transport-28.0%

 

Cipfa has pointed to regional variations in spending by local authorities. The east Midlands -2.0% and west Midlands -2.1% are where local authorities are set to reduce their budgeted spend the most while the north-east bucked the trend and expect to see an increase of 1%.

Cipfa’s policy and technical director Ian Carruthers said: “While many local authorities have dealt well with the spending pressures they are under, the continued reduction of spending year on year makes it difficult to see how they can avoid some decreases in their service levels.

“There is a growing need for the public sector to start to engage in tough conversations about the future shape and nature of local government and what level of services local communities can continue to expect in the age of continued austerity and beyond.”

Cipfa launched a major policy review at their conference last month July where new president Jaki Salisbury called for a full and proper debate on the future of public services.

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