Peterborough council spent millions of pounds from its reserves last year

Ministry of Housing, Communities and Local Government figures show that the city council took £3.6 million out of its reserves in 2018/19.

Local authorities hold money in two types of reserves, unallocated and earmarked, neither of which are ring-fenced or controlled by central government.

In Peterborough, all the money withdrawn last year came from earmarked reserves. These are often held against budget risks, such as insurance excesses, but also include money set aside for specific upcoming projects, such as building works or outreach programmes.

The council left its unallocated reserves - which are there to help cushion the impact of any unexpected events, emergencies or unforeseen budget difficulties - unchanged.

Across England, councils added more than £1 billion net to their reserves in 2018/19, an increase of seven per cent.

The Local Government Association said that reserves help manage “growing risks to local services”, but warned against councils over-using them.

Cllr Richard Watts, chairman of the LGA’s resources board, said: “It is not viable for councils to use reserves to plug funding gaps and meet rising demand for services.

“The latest Spending Round delivered a £3.5 billion funding package for councils in 2020/21 which will help them manage immediate cost and demand pressures, but we remain in uncertain times.

“While earmarked reserves go up and down each year, as they are used for the projects for which they are held, what is left would cover less than a month’s spending by councils on local services.”

The Chartered Institute of Public Finance and Accountancy said it was crucial for councils to focus on strong finances in the face of “uncertain, looming costs” associated with Brexit.

Joanne Pitt, from CIPFA, said: “Local government reserves play a vital role in good public financial management and it is crucial that authorities maintain a focus on strong financial management given the uncertain future for funding and service demands.

“Increasing reserves may also reflect the absence of a long-term funding settlement for the sector and an expectation that the long, hard winter of austerity is set to continue.”

An MHCLG spokesperson said: “All local authorities are required to hold enough reserves to meet unpredictable financial costs.

“Councils are responsible for managing their own budgets and the level and use of reserves is a matter for them, taking into account local challenges and priorities.”