What are Reserves and why can’t the Council just spend them?

The Council holds reserves for a number of reasons:

  • it’s required by strict accounting policy
  • to manage significant emergency risks across all council budgets
  • to manage budget risks arising from increased prices or demand on services over the year
  • to support the future year budget position, against temporary pressures
  • to address future short and long term liabilities.

The Council’s financial environment is constantly changing and Council tax only covers a small part of the money needed to pay for all public services the Council provides. Most of the money the Council receives comes from the government as a grant which we depend on.

As the government continues to make cuts, we are being given less and less money to provide these services. Yet the cost of living is rising and poverty is increasing – this means demand on our services is going up and up.

Reserves are an important part of the Council’s financial strategy. They enable long-term budgetary stability and allow the Council to manage change without having an impact on Council Tax. The Council needs to provide assurance that potential financial impact of unplanned changes to its budgets can be managed.

  • Reserves are set at a level that recognises the financial risks facing the Council.
  • The greater the level of uncertainty, the more likely reserves will be needed.

Why can the reserves be used to save us from budget cuts? The use of reserves (a one-off cash amount), can only be used to address risks ‘once’. The risks associated with the need to make £69m of cuts over the next three years are of a ‘permanent’ nature. Applying reserves, if available, therefore only puts off the timing of making permanent cuts, and further reduces the temporary funding available to manage risks into the future. The strategy of simply using high levels of reserves to avoid cuts is not good financial management, however it is recognised that neither is holding too high a level of reserve. The balance therefore needs to be managed carefully, something which is being done in setting the 2015/16 budget.

In summary

Reserves = once

Budget Cuts = permanent and on-going

If you’re interested in finding out more about our reserves balances in detail you can find more information on our website.


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