Council chiefs have been warned they could use up their reserves in less than three years – after burning through more than £90 million since 2015.
Cipfa, the public spending watchdog, says Stoke-on-Trent City Council’s reserves sustainability is at the ‘highest risk’, compared to similar authorities in England.
The institute’s financial resilience index shows that up to 2018/19 – the most recent year covered – the city council had the fourth lowest level of reserves and the largest reduction in reserves out of its nearest statistical neighbours.
The council’s ‘usable’ reserves fell from £186.9 million in 2015 to £94 million in 2019 – a fall of £92.9 million.
This included £16 million which had been used to balance the council’s budget over this period. Another £16 million has been spent on one-off projects, such as the European City of Sport programme.
Cipfa’s analysis showed that if the council continued to use its reserves at the same rate it had done in the three years up to 2018/19, they would be completely gone in just 2.87 years.
Council finance officers say that the rate of depletion has now fallen, meaning this scenario has been averted. Most of the decline has been in relation to ‘earmarked’ reserves, held for specific reasons.
But scrutiny committee members have called for ‘lessons to be learnt’ on the use of reserves – particularly given the Covid-related budget problems the council is currently facing.
Nick Edmonds, assistant director for finance, explained the reserves situation to the corporate services scrutiny committee, after councillors had previously raised concerns over the issue.
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He said: “Because we’ve used a portion of the reserves over the last few years – that trajectory, if it continued, would mean we would use those reserves within a three-year period. And therefore we score in the higher risk end of those financial resilience indicators.
“Clearly, because that’s earmarked reserves that have been spent, we do not plan to continue spending the funds in that way, so that actually won’t happen. But because of that previous use and that historic trend, that’s the position we sit in.”
Around a third of the decline of usable reserves – £30 million – relates to the dedicated schools grant reserve, which may not be included in these figures in future.
Mr Edmonds added that the council had increased its general fund balance – a part of its usable reserves held as insurance against unexpected shocks – from £8.6 million to £9.7 million, to increase the authority’s financial resilience, with the aim of eventually getting up to £11 million.
The latest figures from the council, not included in the Cipfa analysis, show a further decline in the usable reserves, to £79.8 million, as of the end of March this year.
Labour councillor Paul Shotton was among the committee members to raise concerns over the fall in the level of reserves.
He said: “We see some very concerning terminology used here. We have the fourth lowest reserves out of our nearest neighbours and we sit high on Cipfa’s risk index.
“We are potentially going into uncharted financial territory with respect to Covid and possibly Brexit too. So there might be rocky times ahead. Should we be worried?”
Mr Edmonds said the council’s current reserves position was not as worrying as the Cipfa analysis suggested.
He said: “I suspect as we move forward that position around the depletion rate will have declined, as most of the spending has been in the earlier years. I expect that position to improve over the coming years because we’ve started to stabilise that position.
“We have acknowledged that in terms of the general reserve our position is weak, and that’s why we’ve made the commitment to increase that reserve in the coming years.”
Committee member David Williams said he hoped the council would not deplete its reserves as quickly in future.
He said: “It’s about lessons learnt, isn’t it? We’ve clearly used a fair amount of our reserves. We’re now in a pandemic where we really need to pull on potential reserves.”