Reserves are vital tool to weather the financial storm says WLGA
02 March 2009
Responding to BBC figures published today over Welsh councils’ budget reserves WLGA Leader, Cllr John Davies (Pembrokeshire) said:
“Over the last six months we have seen global organisations and institutions collapse through a lack of prudence. Indeed, today’s black hole in the global economy is the result of ineffective financial management. It is incredulous that councils are being questioned over their reserve levels when it is these same reserves that will play such a vital role in ensuring financial risks can be managed. Poor budget settlements from the Welsh Assembly Government and the recession have increased those risks, particularly in terms of infrastructure developments. Councils are also facing increasing demand for services from people affected by the current economic situation and protecting communities from council tax rises as far as possible. A number are having to take millions of pounds from reserves next year to meet these pressures, but it is important to recognise that reserves can only be spent once.”
“It might seem like a good idea to some people to use all these reserves now while the economy is suffering, but this would leave councils with no funds to deal with the financial black hole predicted last week by the Finance Minister. Local councils are committed to sustaining their communities by ensuring that they do not use short-term fixes to deal with long-term issues.”
“This year’s local government settlement was dismal leaving councils to make some very difficult and sometimes unpopular choices over service provision. However, the worst by far is still yet to come and with the future of public finances looking so bleak over the next few years, it would be irresponsible of councils not to have contingency reserves in place. As long as the Welsh Assembly Government continues to leave local government to bear the costs of unforeseen events and added service pressures then reserves to this level will remain a vital and essential element to councils’ budget planning.”
Cllr Rodney Berman (Cardiff), WLGA Finance Spokesperson added:
“Local authorities are best placed to assess the external and internal risks that they are facing and will make informed, professional decisions over budget reserves based on local circumstances and service risks - an approach that is recommended by the professional accountancy body CIPFA. Varying local circumstances and service pressures will inevitably result in varying levels of budget reserves between authorities and from year to year. In recent years some local authorities have sought to increase their reserves in response to concerns from external auditors that their reserve levels were too low.”
“The majority of councils’ reserves have been earmarked for specific purposes, such as new school building programmes or one off revenue commitments and there are clear plans showing how and when they will be used. The remainder relate to contingency balances which councils set aside to deal with unforeseen circumstances and which have proved to be vital over the last few weeks with unpredicted levels of snow and ice costing local councils thousands of extra pounds over and above their allocated budgets.”
“Given the current economic climate increasing numbers of people across our communities are coming forward in need of core services, including homelessness, debt advice and benefits claims. We expect this demand to increase further over the next couple of years and councils need to be prepared to deal with the consequences, particularly within the context of below inflation local government settlements for years to come.”
Also attached is the breakdown of local authority reserves as at the 1st April 2008
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