Reserves dented before recession hit

Local authorities budgeted to take £1.2bn out of their reserves in 2008-09, according to figures released by the Department for Communities & Local Government.

Between 2003-04 and 2007-08 councils went through a period of pouring cash into their reserves, rather than removing it.

Financial year / Net changes to reserves

2005-06 / + £816m

2006-07 / + £974m

2007-08 / + £1.5bn

2008-09 / - £1.2bn (budgeted)

Local Government Association director of finance and performance Stephen Jones said councils always had to prepare for a worst-case scenario.

But he added: "The budgeted use of reserves for 2008-09 was a lot larger than in previous years and this shows that things are getting tighter. It will be interesting to see the figures which show what actually happened and also to see what councils have budgeted for 2009-10."

One senior consultant added: "They have been saving for a rainy day and with reductions in revenue and increases in demand, it’s not surprising that they may need to use their reserves."

Following the collapse of interest rates, the Icelandic banking crisis and public sector spending cuts, the issue of how councils get the best use their reserves has grown more pressing. As councils have sought the security of government accounts, returns have fallen.

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