News story

Rainy day reserves could help councils invest to save

Good financial planning is about putting a little extra away when the sun is shining so you have some cover during the rainy days.

Councils that have put aside significant amounts of money in recent years should not shy away from dipping into their reserves in tough times to help manage the consequences of the economic downturn, Local Government Secretary Eric Pickles said today.

All councils keep large sums of money in reserve so that they have a financial cushion to meet sudden unexpected costs. English local authorities currently have around £10 billion of in reserves for the period 2010 to 2011 and over 50 individual local authorities have over £50 million in reserves.

The economic downturn, public debt and the need to drive down unnecessary spending mean councils are facing additional budget pressures. Ministers believe that it is sensible, as part of wider financial planning, for council treasurers to consider drawing on their reserves to address short term costs and pressures, such as necessary restructuring, and to invest now in order to realise savings in the longer term. Low interest rates have significantly reduced the revenues from council reserves.

Local Government Secretary Eric Pickles said:

“Good financial planning is about putting a little extra away when the sun is shining so you have some cover during the rainy days.

“But building up reserves isn’t simply about turning town hall vaults into Fort Knox. These untapped funds exist to ensure councils can respond to unexpected situations like the pressing need to tackle the nation’s unprecedented level of debt.

“Just like any household facing challenging times, all good councils should be considering the merits of temporarily dipping into the money they have set aside as part of their plans to address immediate financial challenges, with a view to building up their reserves again in the sunnier days to come.”

Reserves can also provide councils with a way of avoiding avoid false economies. Finding additional funds with which to meet upfront costs could help councils deliver projects now that will realise savings in years to come. This kind of ‘invest to save’ spending could include:

  • improving energy efficiency: greening up council buildings and homes, switching to more energy efficient street lighting and installing renewable sources of energy all offer the potential to reduce council energy bills, reduce carbon emissions but also potentially establish new income streams for councils
  • increasing online transactions: online customer services have been measured as a cheaper per transaction often leading to improved access to information, satisfaction and delivering new savings to councils
  • making smarter use of technology: many councils are looking at improving mobile IT to support people working from home, electronic purchasing and invoicing and using alerts to remind customers of appointments
  • co-locating services: investing in new facilities and ways of working in order to bring more services under on roof thereby reducing running costs

Further information

The reserves are from ‘budget forecast’ returns for 2010 to 2011 provided by local authorities to the department. The full list of council reserves can be found in the spreadsheet below.

Reserves are either:

1) earmarked, as a result of a policy decision by a local authority to use them for specific purposes (it should be noted that some earmarked reserves have to be set aside for specific purposes under statute).

2) unallocated, these reserves are part of a local authority’s risk management process, which would be called upon in the event of the need to meet unexpected costs, and emergencies, such as flooding.

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