Council reserves are an important element of good financial management. They exist to enable investment in priorities and service transformation or to respond to unexpected events or emerging needs. The Committee is asked to note the 2018/19 outturn reserves position.
Hitesh Jolapara reported that the Council’s accounts for 2018/19 were closed and subject to an audit. The statutory deadline for closure was 31 May with external audit completed by 31 July. Audit, Pensions and Standards Committee later in the month will consider the outcome of the audit.
The movement in reserves and balances over recent years was noted. £32.7 million of General Fund earmarked reserves were spent in 2018/19. The use of earmarked reserves included provision for NNDR movement due to technical adjustments, spending on approved projects, funding of the in-year general fund overspend and provision for the Dedicated Schools Grant (DSG) reserve. The closing balance was now £62.3 million.
The general balance stood at £19 million which represents 3.3% (equivalent to 12 days spend) of the Council’s gross budget of £560 million. The general balance should be maintained within the range of £14 million to £20 million over the next 3 years to allow for the identified financial risks and support effective medium-term planning. Officers are undertaking a review of all current reserve commitments. The reserves and general balances closing balance stood at £81.3 million.
Councillor Vincent inquired how much had been set aside from reserves for the West King Street renewal programme and how much of the £62.3 million balance was at risk. It was explained that additional work was required on use of reserves as officers were considering alternative funding options before use of reserves. The West King Street renewal programme would be funded at the point of expenditure.
Councillor Schmid added that West King Street programme would be funded through the most economical advantageous funding streams available. We have not shown a commitment to use reserves because this would be a last resort. The Town Hall project could be financed from CIL, S106 funding, profit from the JV, savings from not occupying the building such as utilities, business rates, capital etc and as a last resort use of reserves. A use of reserves forecast and strategy will be agreed to protect the level.
In response to a question about of £19.0 million represents 3.3% (equivalent to 12 days spend) of the Council’s gross budget, Hitesh explained that £20 million was the average level maintained by other local authorities. The general balances would not be touched. Councillor Murphy asked why we are keeping money that we do not plan to spend. Councillor Schmid explained that £19 million was a guarantee to residents that the Council would be able to continue providing essential services to vulnerable residents in the case of catastrophe. The general balances act as a safety net for the organisation.
Action – Officers to submit an update report on reserves and future commitments.
Action by – Hitesh Jolapara
In response to Erik Hohenstein’s question about DSG reserves provision, it was noted that the £13 million was an accumulated overspend. The Education and Skills funding Agency expects Councils to draft a 3-year recovery plan to recover their deficit. Councillor Schmid recalled that the DSG overspend was one of the 5 significant issues of concern raised at the Finance workshop. The recovery plan’s objectives are to reduce the in-year deficit and the accumulated overspend. Unfortunately, all Councils are in a similar position. An issue which the Government must address. Hitesh noted that a letter had been sent by the Society of London, Municipal and County Treasurers to the Secretary of Education explaining the current position, their concerns about the level of funding and its impact on local authorities’ finances. The Leader, Councillors Culhane and Schmid are also raising the issue directly with the Government.
Action - A letter from the Finance PAC chair to be sent to Government outlining the difficulties we are experiencing due to the underfunding of dedicated schools grant.
Action – Report on DSG shortfall to be discussed by both Children’s and Finance PACs.
Action – Hitesh Jolapara and Steve Miley
Councillor Smith inquired whether reserves would be used to fund the restoration of the Hammersmith Bridge. The Leader stated that reserves would not be used for this purpose. The strengthening work is required by TFL to enable double decker buses to cross the bridge. Therefore, TFL would have to bear most of the costs. If negotiations fail, the fall-back option would be to install a toll on the bridge, but residents would be exempt from such payment.
Judith Worthy was pleased with the work done so far. She noted that the key was to get into a 5-year rolling forecast.