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Revealed: Variation in levels of 'stressed' reserves

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Cash available to councils in the event of an emergency varies significantly between different types of councils, LGC analysis reveals.

Overall councils had just under £4.2bn in unallocated reserves at the end of 2016-17, down 6% on the previous year. Unallocated reserves are funds not already earmarked for expenditure on specific services and projects.

Using data councils supplied to the Department for Communities & Local Government, LGC analysed the level of local authorities’ unallocated reserves as a proportion of their overall net spend on services in 2016-17.

This showed that county councils had lowest level of unallocated reserves as a proportion of their net revenue expenditure (4.7%) while London boroughs had nearly double that.

While district councils overwhelmingly have the largest amount of reserves as a proportion of expenditure, the £2.2bn they collectively spent on services last year was a small part of the £41bn spent by all councils in England.

LGC previously reported that total reserves fell for the second year running in 2016-17 with 2015-16 the first year since 2008-09 that councils spent more of their reserves than they saved.

Sean Nolan, director of local government at the Chartered Institute of Public Finance & Accountancy, told LGC councils were “relying more on reserves and that’s showing there is real stress in the system”. He said this was especially the case for top-tier authorities which have responsibilities for the financially stretched adult and children’s social care services.

The amount of unallocated reserves councils collectively have as a proportion of their net revenue spend fell by half a percentage point to 7.7% in 2016-17.

Mr Nolan said reduced levels of reserves is not necessarily an issue on its own.

“You could be running down reserves to invest-to-save for example but if you’re running down reserves and overspending then that’s a cocktail I would look out for as a particular warning sign,” he said.

Mr Nolan said there was no specific level of unallocated reserves different types of councils should maintain.

“Reserves should be used strategically and not tactically,” said Mr Nolan. “You should use them for a reason; either genuine one-off items, genuine invest-to-save propositions, or for real investment.

“What they should not be used for is propping up current expenditure because all you do is just avoid taking the decisions that need to be taken.”

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