Cornwall Council, its reserves and why it needs them
When it comes to setting a budget the issue of reserves comes up. It is used as a political football between the political groups at Cornwall Council and even the PM entered the foray by saying Cornwall Council is sitting on £200m worth of reserves, yet is cutting services.
A face value, it does seem an awful lot of money sitting in the bank. However, face value is not the full story as I will explain.
Cornwall Council currently spend over £1bn each year delivering services for people in Cornwall. The range of services provided by the Council is staggering and includes: caring for vulnerable adults and children, maintaining Cornwall’s schools, repairing our roads, providing fire and rescue services and supporting the local economy to create jobs.
The Council receives funding for these activities through a mixture of government grants, business rates, council tax and, where appropriate, from fees and charges.
It is no secret that Cornwall Council has since 2010 faced considerable financial challenges as a result of Government’s programme of austerity. From to 2010 to 2013 the Council has to save a staggering £170m. This was painful, but then the Government hit the Council (and other LA’s throughout the land) a further £196m worth of cuts. This is on top of increased demand.
The Council has, and rightly so set aside money in reserves. Reserves are an essential part of good financial management, enabling the Council to cope with unforeseen circumstances and spread the cost of paying our bills.
Around £40m of our reserves are actually held on behalf of partners and schools, which means the Council is not allowed to use them. Others are “earmarked” for specific purposes. These include paying for future building projects, such as new schools or roads, settling outstanding insurance claims or meeting redundancy costs for any further restructuring of the authority.
These are all costs the Council knows we will need to meet in the future and setting money aside now means we will not need to find it all at once when we need to pay it. This is particularly the case with our Private Finance Initiatives (PFI), where the Council puts money away to fund the long-term costs of maintaining and refurbishing our PFI schools and fire stations. We currently hold £118m in earmarked reserves, £74m of which is for PFI.
This means we hold just £41m of un-allocated money within our General Fund reserve – less than 5% of our annual spend. These are the only usable reserves which the Council can call on in a sudden and unforeseen emergency such as flooding. Of course, all the money we hold in reserves originally came from you, the taxpayer and it is important that we maintain the right level of reserves: too little and we will not be able to manage financial shocks and sustained financial challenges; too much and we will fail to make best use of our resources in the delivery of key services.
How much a Council should hold in reserves, there is no set formula for deciding what level of reserves is appropriate. Councillors are responsible for ensuring we have a sensible level of reserves. It is clear that there are still some tough times ahead, but because of the money we have set aside in reserves, the Council is well positioned to face the financial challenges.
I hope this makes sense?