Recommendation 10

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