OK, Council finances are dry reading but CIPFA; (Chartered Institute of Public Finance & Accountancy), offer a useful explanation of Council Reserves because reserves are important! They 1) cushion the impacts of uneven cash flows and avoid temporary borrowing. 2) provide a contingency for unexpected emergencies and 3) can be ‘earmarked’ to meet anticipated requirements.
Of course calculating what general reserves are needed, is a complicated balance of strategic, operational and financial Risk! (CIPFA 03.2023)
For example; the Conservative administration (2017-19) used reserves to finance planned projects across the Borough, reducing general reserves to £10.3m (3.9% of the Revenue budget), but in February 2019/20 MTFS, prudently allocated £1.7m to replenish General Reserves to £12m (4.5% of the Revenue Budget and close to the 5% widely considered ‘good practice’).
It’s therefore a bit rich when the Labour/Independent administration regularly cite “inherited” low levels of reserves, as causing current budget problems. When they took office in May 2019, they ignored the February 2019/20 MTFS decision and chose not to transfer the £1.7m to General Reserves.
They didn’t add to reserves in the following 2020/21 MTFS either - despite rising annual revenue budgets.
In short, under this Labour-led administration, General reserves fell in percentage terms before the emergence of Covid, (and not surprisingly, afterwards in response to post-Covid pressures, - See graph above).
Of course, Covid, International affairs and resulting cost of living crisis was a ‘perfect storm’ that no one predicted, and has created financial pressures for Councils across the Country. The Conservative Group continues to submit budget proposals for consideration by the CEC coalition, because no Council wants to inflict an S114 scenario on its residents or staff. But let’s be clear, reserves under the Conservatives were well managed, in line with 2019 revenue income levels and approved the prudent, £1.7m general reserves replenishment decision, at the February 2019 MTFS Council.
Neglecting general reserves as revenues rise, is notoriously problematic and therein lies the real risk - we didn’t need a pandemic to teach us that.
Cllr Janet Clowes
CEC Conservative Group Leader (Opposition)
References:
- CEC MTFS Reports 2018/19, 2019/20, 2020/21, 2021/22, 2022/23, 2023/24 (Appendices ‘C’: Reserves Strategy Sections)
https://moderngov.cheshireeast.gov.uk/ecminutes/ieListMeetings.aspx?CId=239&Year=0
- CIPFA Bulletin 13: Local Authorities Reserves and Balances (Up-dated) March 2023
