Local authorities accumulate reserves for several reasons, from cushioning against shocks to building up funds for planned future expenditure. In recent years, an increasing number of councils have faced financial difficulties. Since 2018, 13 section 114 notices have been issued,[1] with half of English councils saying that they are likely to follow suit in the next five years.[2] This has led not only to a rising council tax burden that is now triple what it was at the turn of the century,[3] but also council leaders warning that they have had to use financial reserves in order to fund operations.[4]
More than three quarters of respondents to a survey by the Local Government Information Unit (LGiU) reported drawing on their reserves in 2023-24, with 56 per cent saying they will draw on their reserves in both 2023-24 and 2024-25.[5] Yet research by the Local Government Chronicle found that the average unallocated reserves increased between 2016 and 2022, from 2.7 per cent of net current expenditure in 2016 to 2.9 per cent in 2022,[6] while the Institute for Fiscal Studies (IFS) found that as of March 2023 two thirds of councils had higher reserves than at the start of 2019-20.[7] At the same time, average band D council tax in England increased by an average of 4.1 per cent per year from 2016-17 to 2022-23.[8]
Calls for greater funding from central government and rising council tax are difficult to reconcile with growing reserves in some local authorities, leading to concern that some councils are choosing to increase council tax to accumulate reserves. In December 2022, the government noted the significant increase in some local authority reserves over the two years of the pandemic and encouraged local authorities to consider how they can use their reserves to maintain services in the face of immediate inflationary pressures.[9]
Using information provided in councils’ 2023-24 accounts, this note explores the state of usable reserves in local authorities across England, Scotland and Wales, and compares it to changes in council tax. While just over half of councils saw their usable reserves fall alongside council tax rises, there are notable exceptions at both ends of the spectrum that suggests a broader debate is necessary regarding the appropriate level of funding for local authorities.
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Key findings
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150 of 318, or 47.2 per cent of councils that published their accounts for 2023-24, saw an increase in their usable reserves between March 2023 and March 2024.
- Nine councils saw an increase in reserves of over £50 million.
- 12 councils saw an increase of between £20 million and £50 million.
- 30 councils saw an increase of between £10 and £20 million.
- 59 councils saw an increase in usable reserves in both the previous financial year (March 2023 to March 2024) and the year before that (March 2022 to March 2023).
- For local authorities that published 2023-24 accounts, overall total usable reserves fell from £48.2 billion in March 2023 to £47 billion in March 2024, a 2.56 per cent decrease.
- 59.5 per cent of local authorities in the East Midlands reported an increase in usable reserves from March 2023 to March 2024, the most of any region. In contrast, only 17.6 per cent of Welsh councils reported an increase in usable reserves during that period, the fewest of any region.
- Epping Forest saw the largest increase in usable reserves, which grew by £86 million or 253 per cent from March 2023 to March 2024. This was attributed to a major sale of land at North Weald Airfield which raised £88.2 million in capital receipt.
- The second largest increase was by Milton Keynes, where usable reserves grew by £78.8 million or 29 per cent, from March 2023 to March 2024. In that same period council tax rose by 4.99 per cent.
- Of councils that saw their usable reserves increase in both March 2022 to March 2023 and March 2023 to March 2024:
- Staffordshire saw the largest increase in usable reserves from March 2022 to March 2024, growing by £114.4 million or 26 per cent.
- This was followed by Oxfordshire which saw usable reserves increase by £73.2 million or 16.9 per cent from March 2022 to March 2024.
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[1] Bentley, O., Why do councils go bust and what happens when they do?, BBC, 5 March 2024, www.bbc.co.uk/news/uk-politics-66878229, (accessed 28 November 2024).
[2] Stride, G. & Woods, M., The State of Local Government Finance in England 2024, Local Government Information Unit, February 2024, p.7.
[3] TaxPayers’ Alliance, ANALYSIS: Council tax receipts have more than tripled since the start of the century, 14 August 2024, www.taxpayersalliance.com/analysis_council_tax_receipts_have_more_than_tripled_since_the_start_of_the_century, (accessed 9 October 2024).
[4] Inman, P., Councils in England draining reserves to stay afloat, leaders say, The Guardian, 4 September 2024.
[5] Stride, G. & Woods, M., The State of Local Government Finance in England 2024, Local Government Information Unit, February 2024, p.18.
[6] Weakley, K., Research: Cutting through the confusion of rising reserves, Local Government Chronicle, 24 April 2023, www.lgcplus.com/finance/research-cutting-through-the-confusion-of-rising-reserves-24-04-2023/, (accessed 7 October 2024).
[7] Ogden, K. & Phillips, D., How have English councils’ funding and spending changed? 2010 to 2024, Institute for Fiscal Studies, June 2024, p.29.
[8] Ministry of Housing, Communities and Local Government, Live tables on Council Tax, 8 May 2024, www.gov.uk/government/statistical-data-sets/live-tables-on-council-tax, (accessed 7 October 2024).
[9] Department for Levelling Up, Housing & Communities, Local government finance policy statement 2023-24 to 2024-25, 12 December 2022, www.gov.uk/government/publications/local-government-finance-policy-statement-2023-24-to-2024-25/local-government-finance-policy-statement-2023-24-to-2024-25, (accessed 7 October 2024).