Source · Select Committees · Public Accounts Committee
Recommendation 10
10
Local authorities need to hold sufficient reserves to deal with known future needs and the...
Conclusion
Local authorities need to hold sufficient reserves to deal with known future needs and the financial risks they face. Accordingly, reserve levels are a key measure of the financial sustainability of local authorities over the medium-term.20 As part of its monthly survey the Department collected data on local authorities’ reserves in order to assess the extent to which their reserves were under pressure. To do this the Department did not use the traditional categorisation in which reserves are classed either as allocated (for defined purposes) or unallocated (and therefore available for any purpose). Instead the Department introduced a new, experimental category of “available” reserves. The concept of availability reflects the fact that owing to local authority accounting practices not all an authority’s unallocated reserves are necessarily available, while some of their allocated reserves may be. This means that despite the publication of data on allocated and unallocated reserves it is not possible to identify the level of reserves that an authority actually has available to respond to the pandemic or any other issue. However, the Department told us that it was “not sure that [the collection of this experimental data] has been entirely successful” as 65 authorities simply replied that they did not have reserves available to respond to the pandemic. The Department told us that later in the year, rather than concentrating on reserves it instead focused on the capacity of authorities to set their 2021–22 budgets. It explained that it was reassured by the fact that all authorities either had, or were in the process of, agreeing their 2021–22 budgets.21
Government Response
Acknowledged
HM Government
Acknowledged
2.6 The government agrees with the Committee’s recommendation. Target implementation date: October 2021 2.7 The department agrees that collecting more detailed information on local authority reserves levels will increase understanding and transparency around reserves. This will improve understanding of local authority reserves levels both within government and for the wider public. The department’s Local authority COVID-19 financial impact monthly monitoring includes questions on reserves, which are useful but do not go through as much validation as official statistics so are less reliable. 2.8 The department intends to make changes to the Local Authority Revenue Expenditure and Financing collections to require more detailed information from local authorities on the different types of earmarked reserves that they hold. The department will soon consult on the proposed changes with the finance subgroup of the Central Local Information Partnership, a group made up representatives from MHCLG, local authorities and other interested expert bodies. 2.9 The department will write in October 2021 to update the Committee on the status of these changes.