By: Shimeon Lee, policy analyst
As residents brace themselves for yet another council tax hike this month, they will no doubt be familiar with the narrative that cash strapped councils are struggling to stay afloat. Yet, few will be aware that even as local authorities warn of further cuts to essential services, a sizable number of councils across the country are quietly sitting on growing reserves.
Here are ten key takeaways from our latest analysis of councils’ reserves:
- Councils hold tens of billions in reserves
As of March 2024, councils held a total of £48.2 billion in usable reserves. This was nearly £10 billion more than the total amount of council tax collected in 2023-24. These reserves are cash backed and can be used to fund expenditure or reduce taxation. While total usable reserves fell by 2.56 per cent last year, this follows a period of growth during the pandemic which saw council reserves rise by some 40 per cent.
- Almost half of councils added to their reserves in the last financial year.
Despite three quarters of council officials claiming that they had to draw on their reserves in 2023-24, 150 of the 318 councils that we examined or 47.2 per cent saw their usable reserves rise in the last financial year. Looking at how councils have fared since 2022, 118 councils have seen an increase in their usable reserves since 2022.
- Some councils saw their reserves rocket by tens of millions
51 councils saw their reserves rise by more than £10 million. In nine of those councils, the increase was more than £50 million. Milton Keynes, for example, saw their reserves grow by £78.8 million even as council tax was increased by 4.99 per cent - the maximum allowed without a referendum.
- Even as residents faced hefty council tax rises.
While just over half of councils actually had to dip into their reserves, council tax rose across the board by an average of 3.92 per cent. This means that nearly half of councils that added to their reserves still raised council tax. Residents in Conwy saw the largest council tax increase in this group, £161 even as usable reserves grew by £8.5 million.
- Unsurprisingly, London boroughs had the most reserves per resident
On average, councils had £779 in usable reserves per resident. Local authorities in London had nearly triple this amount on average, £2,152, with the City of London having a whopping £31,414 in reserves per resident. London was the only region where reserves per resident grew on average since 2022. Yet despite healthy reserves, all but six London councils raised council tax by 4.99 per cent or more.
- Yet the state of councils’ reserves varied significantly by region.
Sixteen councils had less than £200 in usable reserves per resident, more than three times less than average. The regions with the lowest reserves per resident were the West Midlands (£447), East of England (£454) and East Midlands (£455). The trajectory of reserves also varied, with just 17.6 per cent of councils increasing reserves in Wales, compared to nearly 60 per cent in the East Midlands.
- Some councils have managed to both freeze council tax and increase reserves.
While most local authorities raised council tax regardless of whether their reserves grew or not, there were rare cases of councils that managed to both freeze council tax and consistently increase their usable reserves. East Cambridgeshire and South Norfolk saw their usable reserves rise by £2.4 million and £8.3 million respectively while keeping council tax frozen, for example.
- Councils with the biggest council tax rises have failed to publish accounts
We obtained councils’ reserves information from their annual accounts, which were due in September last year. Yet as of December 2024, 51 councils have yet to publish any accounts for 2023-24. This included Croydon which raised council tax by 14.99 per cent, as well as Thurrock and Slough which raised council tax by 9.99 per cent. Two councils failed to publish accounts as far back as 2021-22!
- There is nothing stopping councils from accumulating excess reserves
While the government has the power to define a minimum level of reserves councils must adhere to under the Local Government Act 2003, there is no limit to how much councils can grow their reserves. Combined with the fact that council tax can rise by up to 4.99 per cent each year without triggering a referendum, councils are able to use council tax to grow their reserves without justifying it to taxpayers.
- Councils should take existing resources into account before raising council tax on hard pressed residents.
With Britain already facing a record high tax burden, and council tax tripling since the turn of the century, taxpayers shouldn’t be treated as an endless source of cash. Local authorities must strike a balance between maintaining sufficient reserves for the future and addressing the needs of residents today.