There have been several claims made on Facebook in recent days that the Council has vast reserves that could and should be used in these difficult times rather than having to take unpalatable decisions such as coming into line with all other south coast councils and charging for coastal car parking. For this reason I feel it is useful to make a statement on our reserves and what can and cannot be used and for what purpose.
The Council’s reserves as at 31 March 2020 totalled £155.3m of which £45m (29%) are classed as useable reserves. The £110m of unusable reserves relate to accounting adjustments for issues such as property revaluations and as the name suggests is unusable. Unusable reserves are in attached picture and contain funds that cannot be used to provide services or used for day to day running costs. They can be categorised as:
Reserves that hold unrealised gains and losses.
Adjustment accounts that absorb the differences between applying proper accounting practices and the requirements of statutory arrangements for funding expenditure.
While £45m of usable reserves sounds very healthy, these funds relate to all aspects of the services that the Council provides, and the majority can only be used for certain purposes. For example, nearly half (over £20m) can only be used for capital purposes (such as new construction projects, purchasing large assets, etc). Another £11m, can only be used in relation to council housing.
That leaves £14m (9%) of the £155m, but two thirds of this (£9m) also has pre-existing commitments and restrictions about how it should be used. For example, £2.4m is funding received secured by legal agreements from former development sites for the maintenance of open space, £1.6m relates to business rates due to be paid to Government and other precepting Councils.
So, what remains, is £5m (3%) of the £155m that can be used to meet any income shortfall in day to day spending. £1.1m of this will be used in 2020/21 to balance the budget in this year, and there is an expectation that £2.4m will be held at all times for unforeseen fluctuations in income or spending. As previously stated, it is not wise to use reserves to meet shortfalls in revenue operations because, once spent, it cannot be used again. Very valid points have been raised about replenishing reserves once used and, to do this, we require cost reductions (from service cuts) or new income.
With reference to the Council’s £290m of assets, £124m of these are Council houses, £83m relate to other land and buildings £64m relate to commercial/investment property, then there is a range of other assets (such as vehicles, plant, heritage assets, infrastructure, etc), that make up the balance. It is true that some of these assets could be sold to generate cash, but their use would be limited to new capital investments only. The cash raised could not be used to meet a shortfall in day to day funding.
The reality of the Council’s financial position is that our prudent approach in the past has allowed the immediate impact of the COVID-19 pandemic to be met from reserves, while maintaining funding for vital public services and still being able to invest in the priorities for the Borough. However, the approach this year cannot be sustained as reserves are limited, as is the Council’s ability to raise taxes without holding an expensive referendum. Difficult decisions do need to be taken to balance the budget for this, and future, years, if services to the public are to be protected. Fareham Council’s services are delivered by levying a council tax of just £3 per week for the average home, almost the lowest in the country.