Published: 06:00, 24 February 2021
Cash-strapped councils are being forced to draw on millions of pounds from their reserves to cushion the impact of the financial fallout of the coronavirus crisis.
An analysis of the budgets set by authorities in Kent reveals that more than £35m is being taken from 'rainy day' funds to deal with the shortfall and protect key frontline services.
Several authorities say they have been left with no option because the coronavirus crisis has led to a significant decline in income they had expected to raise.
And some have warned there is a risk that without further government help, they may be forced to do so again next year - depleting reserves to a level that could pose a financial risk if there was another emergency.
However in some areas, councils are using modest amounts and protecting reserves at the same time as cutting services or charging more for them.
The Covid pandemic has left councils facing an unprecedented cash crisis, with a sharp decline in previously reliable and predictable sources of income, such as the council tax and car parking charges.
Kent County Council says the public sector is having to cope with an unprecedented peacetime budget deficit with Covid presenting “an extraordinary and unexpected challenge to the UK economy.”
The use of reserves by some councils has been linked with the decline in rent from retail investment in commercial properties, with budgets having to take account of unexpected shortfalls.
This year has seen the issue come to the fore politically, with some Conservative county councillors expressing misgivings about plans to use additional council tax income to replenish reserves in future years.
The three councils who are not using reserves are Tonbridge and Malling; Sevenoaks and Dartford.
How councils are using reserves and why
Ashford: Taking £1.15m from reserves, leaving a balance of general reserves of £26.7m. Budget includes savings of £2.3m.
What the council says: “Reserves are finite and therefore are only used where necessary to bridge funding gaps. It is important for the council to ensure annual expenditure can be met by annual income to balance the budget. To do this the council needs to either reduce expenditure through savings or find new income streams.”
Pressure points: Lockdown has affected predicted income from commercial investments, notably from retail and leisure complex, Elwick Place. Also predicting a 15% decline in money from parking as shopping habits change over time.
Canterbury City Council: Taking £4.5m from reserves, leaving a balance of £3m.
What the council says: "Covid-19 has been the perfect economic storm. The demand for our services has rocketed at the same time as our income has fallen and we have been very glad our reserves have been there to help us continue to pay for vital frontline services.”
"While there is a light at the end of the tunnel, it is important we always keep a healthy amount of money in what is effectively our savings account."
Pressure point: A drop in income from commercial investment, chiefly Whitefriars shopping centre, coupled with a drop of £875,000 from council tax and declining income from other fees and charges, including parking.
Dartford: No plans to use reserves, leaving fund at £3m.
What the council says: “I don’t think councils should be building up reserves when there are so many things that residents rightly want us to do. Our approach is to be as open as possible with local taxpayers about when we can freeze tax or when we need to put it up, and when we need to draw down reserves and when we don't” - leader Cllr Jeremy Kite.
Dover council: Using £500,000 from reserves, leaving £1.8m.
What the council says: “The various lockdowns and the system of tiers has had an impact on the council’s budget, primarily through the loss of income.”
Pressure points: Council says use of reserves and £2m savings in budget reflects “wholly exceptional circumstances as a result the Covid pandemic and the EU transition.” Warns “significant uncertainties” make the situation likely to remain “volatile for a significant period of time.”
Folkestone: Drawing £3.47m from reserves, some of which earmarked for specific projects.
What the council says: Budget papers make no direct reference to Covid19 having a detrimental impact on either services or budget.
Gravesham: Taking £2m from reserves, leaving £9.2m in general contingency fund
What council says: “The Covid-19 Pandemic has created significant uncertainty on the economy and the future financial sustainability of the council.” Despite this, says essential services will not be affected.
Pressure point: Uncertainty over commercial income: “The council remains exposed to greater investment risk exposure through property funds...coupled with greater exposure to fluctuations in the commercial property market, the need for which has been driven by reductions to funding for local government.”
Thanet: Taking £1.7m from reserves, leaving a balance of £10.7m in reserves.
What the council says:
"The Covid pandemic has placed immense pressure on our finances. To continue to deliver our day to day services, whilst providing additional support to many people, we have had to use £1.7m of the council's reserves this year.” Has seen decline in income, notably car parking charges.
Pressure point: “If the cost of Covid next year exceeds government funding, it will need to be met once again by reserves, we have some £1m of protection set aside to manage this event” - Cllr Rob Yates, cabinet member for finance
Tunbridge Wells: Taking £1.9m from reserves on top of £2.2m this year.
What the council says: “The pandemic has hit income streams to such an extent that it will be necessary to temporarily use reserves to continue to fund services and this will cost £2.2m this financial year and £1.9m next financial year.”
Pressure points: Says Covid-19 Pandemic is “a health and financial emergency and the crisis is having immediate effects on councils’ budgets across the sector as a result of increases in expenditure and reductions in income from sales, fees and charges along with
Swale: Taking £600,000 from reserves, leaving balance of £3m.
What council says: “The money is necessary to balance the budget. The alternative would be cuts in staffing which I am not prepared to do” - council leader Cllr Roger Truelove
Medway: Plans to use £3.15m from reserves to balance the budget.
What it says: “The impact of national lock downs and local tier restrictions has resulted in a reduction in the council’s income from services as diverse as car parks, leisure centres and land charges...and has affected the council’s ability to collect revenues from local taxation.”
Pressure points: “The longer term effects will continue possibly for years and we will need to consider these in formulating our longer term financial plans. Healthy reserve balances will be a key component in balancing our budgets over the next couple of years.”
Kent County Council: Using £5.2m of reserves.
What the council says: “The continued financial pressure in delivering social care, coupled with the massive financial challenges of responding to COVID-19, has brought about a situation of unprecedented risk and uncertainty. COVID-19 has exacerbated what was already a very challenging financial future for local authorities” - KCC leader Roger Gough
Pressure points: The growing pressures on looking after vulnerable people is set to continue against a backdrop of declining income from council tax and business rates which has affected all councils.
Council reserves explained:
Like every public organisation, councils are required to balance their books each year and set out how their spending plans will be financed.
Part of that is setting out how much “rainy day” money they intend to set aside in the event they face some kind of emergency or crisis. These sums can often seem significant and lead to questions about why money is being held back at the same time as councils are cutting services or increasing taxes.
However, councils differentiate between different kinds of reserves: one consists of money that the council knows it will have to spend on particular services or capital projects.
These are known as “earmarked” reserves, where money is set aside for specific reasons.
Then there are “general reserves” where councils set aside money that may be needed for an unexpected crisis- such as Covid19.
How much councils put into “rainy day” funds largely depends on the size of the budget overall.
Councils are scrutinised by auditors over money held in reserve and can issue warnings where they believe levels are too low.