Croydon Council’s reserves – the borough’s long-term savings – have been reduced by 55per cent in just three years, putting the council in the top five local authorities in England with the biggest drop in reserves, according to research used in tonight’s Panorama on BBC1.
Sutton’s LibDem-run council has seen its reserves fall by 46 per cent between 2015 and 2018, putting it seventh on a table of local authorities in England which have been spending their reserve funds. Top of that list is Northamptonshire County Council, which last year went bust.
Analysis by the BBC ahead of a Panorama programme being transmitted tonight has identified 11 authorities that the Chartered Institute of Public Finance and Accountancy (Cipfa) said would have “fully exhausted” reserves within four years unless they topped them up.
But in the latest example of Croydon’s collection of clangers, a spokesperson for the council has told the BBC that the figures used in the Cipfa research are inaccurate. The numbers had been obtained from the government, having originally been provided by… Croydon Council.
As you might expect, after nearly a decade of Tory-led government austerity, the need for councils to spend their reserves is because of what the Local Government Association calls “systemic underfunding”.
“Some councils are facing a choice between using reserves to try and plug funding gaps or further cutting back local services in order to balance the books,” said Richard Watts, from the Local Government Association. “This is unsustainable and does nothing to address the systemic underfunding that they face. Ongoing funding gaps are simply too big to be plugged by reserves.”
Under the Conservative-LibDem coalition between, councils were told they should not “hoard” billions of pounds in their reserves.
In guidance to councils Cipfa said: “Balancing the annual budget by drawing on general reserves may be viewed as a legitimate short-term option. However, it is not normally prudent for reserves to be deployed to finance recurrent expenditure.”
Cash reserves – money held back for specific projects or emergencies, such as flooding, or for additional funding for children’s services following adverse Ofsted inspections – are seen as a measure of a council’s financial security.
According to the BBC today, between them, the 152 major councils in England had £14billion in reserve in March 2018. That’s around £400million less than in 2015.
The analysis shows 11 councils have used so much of their reserves since 2015 that Cipfa said they would run out within four years if spending patterns continued. Those councils include Croydon and neighbours Sutton.
Northamptonshire County Council recorded a 91 per cent drop in reserves. The authority was forced to stop non-essential spending last year.
According to the BBC: “Croydon Council appeared to have spent more than half of its reserves but said the government data was ‘inaccurate’ and its reserves ‘remain strong’.”
The BBC also reported: “Sutton Council said its figures were from an earlier ‘estimate’ and it had £33million in reserve in 2018, not the £30.8million in the government data. It added: ‘Reserves are actively managed according to our consideration of risk and programme of work’.”
In the case of both Croydon and Sutton, the government’s figures had both been provided by the councils themselves.
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Things do look very grim for Local Government Finances. On top of the run down in contingency reserves there is the Brick by Brick debt mountain in Croydon. The assumption must be this debt was not counted by CIPFA since it is held off the Council balance sheet. So the Croydon Council spokesperson may be quite right. These figures are inaccurate. The real situation is far worse.