AN INVESTIGATION by the Financial Times newspaper has revealed Thurrock Council suffered the largest fall in its reserves in the whole country.
A total of 169 of England’s 353 local authorities, or 48 per cent, recorded real-terms falls in their reserves between March 2015 and March 2017, according to FT analysis.
The Tory-led Thurrock Council reported the biggest fall in its reserves, a drop of 65 per cent to £11.8m.
The council said the fall was largely the result of paying to get out of a services contract with outsourcing group Serco five years early in 2015. The amount of reserves held for schools also fell due to an accounting change when multiple schools became academies and were moved out of local authority control.
The council said reserves had also been invested in unspecified “change programmes” designed to generate long-term savings, but had not been used to fund frontline services.
Nearly half of the councils in England have run down their financial reserves in the past two years, with many struggling to cope with a pincer movement of cuts to central government funding and rising social care costs.
A number of authorities increased their reserves, but they were mostly smaller district councils that do not manage social care to support the elderly and the disabled.
The strain on council finances has become a central issue in the run-up to next month’s local elections, with opposition parties blaming the Conservative government for squeezed local budgets.
Last month, Sajid Javid, the local government secretary, sent a team to take over Tory-led Northamptonshire County Council’s finances after it imposed emergency spending controls.
The East Midland authority recorded a 62 per cent decline in its reserves between 2015 and 2017, which it said had been used in part “to mitigate the need for higher spending in key areas such as social care”.
Councils cut the unit costs of social care almost 10 per cent between 2010 and 2015. But since then, unit costs have been rising, according to the Institute for Government.
Whitehall officials said no other council had approached Mr Javid to suggest they were facing the same risk of financial breakdown.
But Rob Whiteman, chief executive of the Chartered Institute of Public Finance and Accountancy, warned that if reserves were run down and an unexpected cost or emergency “suddenly rears its head”, a council’s financial stability could “come unstuck”.
There are no set rules on the amount of reserves councils should hold, but the funds give local authorities the flexibility to respond to emergencies such as flooding or natural disasters or pay for one-off costs like investments in service upgrades.
Central government funding for local authorities has been reduced in real terms by 49 per cent between 2010-11 and 2017-18, according to the National Audit Office, parliament’s spending watchdog.
The Office for Budget Responsibility has estimated that reserves for councils in England peaked at £24.8bn in 2014-15, but fell to £23.1bn in 2016-17. The OBR has forecast that reserves will fall further, to £20.2bn in 2020-21.
Jonathan Carr-West, head of the Local Government Information Unit, said: “If you’re using [reserves] on an annual basis to fund services that’s not an appropriate use. We know a lot of councils are dipping into their reserves in a way they weren’t in 2010.”
An FT analysis of local authorities’ accounts found that between March 2015 and March 2017, 169 of England’s 353 councils showed a real-terms decline in their reserves, with 11 recording falls of at least 40 per cent. Of the 152 councils with social care responsibilities, 106 ran down their reserves in the two-year period.