Topical - Council Tax

Aaron C Rescue

Does anyone know the reason why local councils hold so much money as 'reserves' - are they required to?

PGM

Wasn't aware they did. How much are we talking? And what % of revenue?

Aaron C Rescue

A root around the web suggest that some councils hold +-10% for emergencies, the Pickles fella is suggesting that councils have around £18b in reserves and is suggesting that those reserves are used to cover the shortfalls from central government funding so as to prevent councils from cutting frontline services. Is there anyone around these parts perhaps working in Public Sector who could throw some light on it?

PGM

10% would be a tiny amount for a normal company, and management will always want to have a safety cushion like this. Although whether councils need this amount is unlikely, unless they can justify it for large planned capital projects?

coojee

I know it doesn't directly translate to large councils but when I used to audit community councils they were only supposed to hold no more than one years precept in reserve unless they were specifically saving for a project. If this were to be translated to a large council it would be no more than one years income from rates and government grants.

Having said that, there were no sanctions on the councils who had massive reserves of 3-10 times their annual precept. We just used to tell the clerk they weren't supposed to do it and then leave it at that. Ho hum, like they were going to listen to us!

stevef

Three types of Reserves:

unusable - due to odd local authority accounting arrangements - not cash backed
earmarked - savings for a future known expense, these have to be justified and reported on
general - these have to be held by law as a safety cushion, levels not set by statute but anything over 5% of budget will be examined by external audit and have to explained to Councillors.

Can not use reserves to make good shortfall in Central Govt grants as Grant is a year on year assistance, once the reserve is spent and the grant is gone (or reduced in real terms) there is no funding for the service (unless you increase Council Tax, but then you will be capped). ie you can not prop up an ongoing budget with a one off windfall!