Do Council's need £10's of millions in reserve?

[PaulAtherton]

The story on Monday http://www.telegraph.co.uk/news/ukn...cils-sitting-on-cash-as-services-are-cut.html

Implies that many (though by no means all) Councils have £10's of Millions of pounds worth of reserves.

Lambeth was highlighted as having £97.3 Million.

As Lambeth Council had allegedly to cut £37 Million couldn't they have just lowered their reserve?

Does anybody know the mechanics of this?

 

[joevsimp]

well I suppose the argument would go that if they spent it, they'd either have to re-fill it through council tax, annoying people that their tax isn't actually being spent, of get along without it, leaving themselves with no plan b if something happenned that needed it

its all a question of when you decide things are bad enough to need to spend it, Norway for example, has it's Oil Fund of over 3 trillion Krone (about £300 billion) that doesn't look like going anywhere despite things needing doing

 

[Mrs Magpie]

Well, I'm a trustee on the board of a charity and it's prudent to have at least six months operating costs in reserve and not chip into that. I don't know what the annual operating costs of Lambeth are, but I would imagine it's in the tens of millions. If they didn't have those reserves the Telegraph would be laying into them for financial imprudence.

 

[Badgers]

I think that they should have this sort of sum in reserve.
Things are not good out there but there are few councils dealing with real disasters.

 

[Mrs Magpie]

Seriously underestimated Lambeths annual expenditure. Can't find an overall figure though. Looks like their reserves are already seriously depleted.

 

[FridgeMagnet]

Officially Approved Tory Talking Point.

 

[ymu]

The reserves let them do things like provide their own insurance (ie not fork out insurance premiums to a private company) don't they? I've no idea how big the reserve ought to be/needs to be, but like most Tory suggestions for making the numbers look better, I doubt spending them would actually save any money.

 

[butchersapron]

Officially Approved Tory Talking Point.

Yep, that's it. Pickles has been hinting to the papers about this for a few months - he said local councils, they say labour local councils, in the weeks running up to the local elections. Nice bit of politics. Of course, he doesn't mention that it's a statutory requirement to keep reserves and that he gets to set the minimum levels.

 

[ViolentPanda]

The story on Monday http://www.telegraph.co.uk/news/ukn...cils-sitting-on-cash-as-services-are-cut.html

Implies that many (though by no means all) Councils have £10's of Millions of pounds worth of reserves.

Lambeth was highlighted as having £97.3 Million.

As Lambeth Council had allegedly to cut £37 Million couldn't they have just lowered their reserve?

Does anybody know the mechanics of this?

It's complex - a lot more complex that the Torygraph or Shatts imply.

"Reserves" aren't necessarily liquid assets, they're often stuff like land or long-term bonds which are currently generating income, or they may be funds whose use is covenanted to a single type of expenditure.
There's also the issue that reserves are often built up to meet specific future obligations, but without perusing the books of these councils, nobody, least of all Grant Shapps ar some mug from the Telegraph, can blithely assert that these reserves can be deployed to defray cuts.

 

[ViolentPanda]

The reserves let them do things like provide their own insurance (ie not fork out insurance premiums to a private company) don't they? I've no idea how big the reserve ought to be/needs to be, but like most Tory suggestions for making the numbers look better, I doubt spending them would actually save any money.

Most local authorities haven't underwritten their own insurance since the '70s, when it started getting too complex. IIRC Allianz used to be very hot for insuring LAs.

 

[ymu]

Most local authorities haven't underwritten their own insurance since the '70s, when it started getting too complex. IIRC Allianz used to be very hot for insuring LAs.

Really? I used to work for a quango that underwrote its own insurance. Maybe it was only on fleet cars and simple stuff though, I dunno. I thought it was a general principle in government - no need to pay a profiteering middle-man when they would be able to cover the cost of any claim should it arise.

 

[killer b]

I thought it was a general principle in government - no need to pay a profiteering middle-man

not for a while now...

 

[ViolentPanda]

Really? I used to work for a quango that underwrote its own insurance. Maybe it was only on fleet cars and simple stuff though, I dunno. I thought it was a general principle in government - no need to pay a profiteering middle-man when they would be able to cover the cost of any claim should it arise.

From what I recall (I once hung around with an underwriter's daughter and had some informative conversations with her dad) the late '70s early '80s wave of child abuse claims related to local authority children's homes, with the related liability issues, saw a lot of LAs moving over to big municipal insurers, who had the infrastructure to deal with such cases much more easily. After that, they were in the trap - offered reasonable premiums until they were hooked, and then...snap!!!

 

[The39thStep]

Officially Approved Tory Talking Point.

Nail on the head. No such questions when Kent, Westminster, Havering , Sutton all Tory councils I think lost money in the Iceland banks and Margerat Eaton , the Tory leader of the Local Government association said that they would have to use their reserves to cover any potential losses.

 

[Proper Tidy]

From what I recall (I once hung around with an underwriter's daughter and had some informative conversations with her dad) the late '70s early '80s wave of child abuse claims related to local authority children's homes, with the related liability issues, saw a lot of LAs moving over to big municipal insurers, who had the infrastructure to deal with such cases much more easily. After that, they were in the trap - offered reasonable premiums until they were hooked, and then...snap!!!

I seem to remember a similar situation arising for what was then Clwyd County Council when the Bryn Estyn & Bryn Alyn childrens home abuse in Wrexham came to light.

 

[josef1878]

If its a labour council it's waste. If it's a tory council its good management. Saving for a rainy day i would call it. Nice of the telegraph to highlight it. Again.

 

[stavros]

Do the figures quoted include in some way the reserves for employee pensions? I would suspect the Torygraph would have linked together as many tenuous sources of money, which may be unusable for whatever reason, that a in councils' names and then just spewed out a headline statistic to hammer home the Telegraph smaller government mantra.

Of course, there'd be more expendable funds for local and national governments if rich arseholes like the Barclay brothers didn't buy private islands to avoid tax.

 

[danny la rouge]

Do Council's need £10's of millions in reserve?

Councils.

 

[shagnasty]

Must say that it is prudent to have a little bit tucked away for a rainy day.It's how i raised my sons and thankfully they follow me as did my father the tight git

 

[shagnasty]

It is prudent to keep a bit set aside for a rainy day.It's how i raised my sons .And my father before me the tight git

 

[Bear]

Do people need to have one months salary in the bank? Is it a good idea or bad idea too? Kinda the same thing no?

 

[ViolentPanda]

Do people need to have one months salary in the bank? Is it a good idea or bad idea too? Kinda the same thing no?

I sometimes wonder that people can't see how daft it is to equate personal finance with (local or central) govt finance.

It's not "kinda the same thing" at all. Your maximum liability is likely to be mortgage debt, which is predictable, and within your power to settle (and within affordability to insure for settlement). A council's liabilities can be potentially limitless. They have to plan for the unexpected, take a "worst case scenario" route, and even then most of them will be unable (because of the constraints put on them by the current minister) to sock away anywhere ear enough capital reserves to do so.

 

[ViolentPanda]

I seem to remember a similar situation arising for what was then Clwyd County Council when the Bryn Estyn & Bryn Alyn childrens home abuse in Wrexham came to light.

I remember Private Eye mentioning that. Paul Foot, I think.

 

[ericjarvis]

Do people need to have one months salary in the bank? Is it a good idea or bad idea too? Kinda the same thing no?

As a general rule I'd say it was good policy. Likewise with any business, where you need at least 3 months running costs in reserve. You can run an organisation on the basis that nothing will ever go wrong, but it's a recipe for disaster.

 

[PaulAtherton]

It's complex - a lot more complex that the Torygraph or Shatts imply.

"Reserves" aren't necessarily liquid assets, they're often stuff like land or long-term bonds which are currently generating income, or they may be funds whose use is covenanted to a single type of expenditure.
There's also the issue that reserves are often built up to meet specific future obligations, but without perusing the books of these councils, nobody, least of all Grant Shapps ar some mug from the Telegraph, can blithely assert that these reserves can be deployed to defray cuts.

How can we get our hands on the salient information, specifically in Lambeth, I'm guessing there publicly published somewhere?

 

[PaulAtherton]

Councils.

Thanks

 

[ViolentPanda]

How can we get our hands on the salient information, specifically in Lambeth, I'm guessing there publicly published somewhere?

IIRC Lambeth are statutorily-obligated to send you a full paper copy of their annual accounts balance sheet if you apply for it.

As usual, can't find bugger-all on their website about it, so it might be worth you phoning North Lambeth Law Centre or the like and asking.

 

[PaulAtherton]

well I suppose the argument would go that if they spent it, they'd either have to re-fill it through council tax, annoying people that their tax isn't actually being spent, of get along without it, leaving themselves with no plan b if something happenned that needed it

its all a question of when you decide things are bad enough to need to spend it, Norway for example, has it'shttp://www.urban75.net/vbulletin/newreply.php?do=newreply&p=11696245 Oil Fund of over 3 trillion Krone (about £300 billion) that doesn't look like going anywhere despite things needing doing

The thing is, they don't need to spend anything like all of it. The reserve is included in the budget and is usually between £4 - 6 Million every year, the fact that it has accumulated to £93 Million tells me there is something direly wrong here. As the cuts are coming in over 4 years they could simple apportion that element of the budget set aside for reserve, directly into actual spending and thereby only be required to spend £5 Million per year. Which still leaves £73 Million in the pot?

 

[PaulAtherton]

Yep, that's it. Pickles has been hinting to the papers about this for a few months - he said local councils, they say labour local councils, in the weeks running up to the local elections. Nice bit of politics. Of course, he doesn't mention that it's a statutory requirement to keep reserves and that he gets to set the minimum levels.

I'm aware of this guidance:

CIPFA (Chartered Institute for Public Finance) does not accept that a case for introducing a statutory minimum level of reserves, even in exceptional circumstances, has been made. Local authorities, on the advice of their finance directors, should make their own judgements on such matters taking into account all the relevant local circumstances. Such circumstances vary. A well-managed authority, for example, with a prudent approach to budgeting should be able to operate with a relatively low level of general reserves. There is a broad range within which authorities might reasonably operate depending on their particular circumstances.

Which was published in October 2010. Have there been any changes since?

 

[butchersapron]

That was actually first published in Febuary 2003, just before the Local Government Bill 2002-2003 was passed - Explanatory Notes to the Bill say:

Clauses 26 and 27: Minimum reserves

45. Clause 26 gives the Secretary of State power to determine minimum reserves for local authorities in England by regulation. The National Assembly for Wales is given a corresponding power in relation to local authorities in Wales. The minimum applies to the budget process: authorities would have to ensure that their budget made allowance for reserves at least equal to the minimum. Nothing in the clause would prevent these reserves being used during the year, even if as a result they fell below the minimum. However, if it was forecast that this was likely to happen, clause 27 requires the chief finance officer to report to the authority, at the time the following year's budget and council tax is being considered, to explain the reasons and any action considered necessary to prevent a repetition.