Clause 26 - Minimum reserves
Local Government Bill
4:15 pm
Mr Robert Syms (Poole, Conservative)
I agree with the hon. Member for Southport. Local authorities spend a lot of time considering what reserves would be appropriate. I agree, too, with his point about whether it is good or bad to have large or small reserves. What local authorities really need are reserves that are adequate to cover an emergency. Piling up money, which means raising too much from the electorate or not spending
sufficiently, is not an efficient and effective way of conducting local government.
Those judgments are best made by local authorities, which have experience of their own financial controls and can look at how they have conducted their affairs over several years. It is not necessary for central Government to set a minimum reserve figure. If that happens, people will start to budget above the minimum, so that they do not fall below it. Inevitably, then, they will start to pile up more money in the reserves than is necessary.
There would be a slight benefit if the Government set minimum reserves: we may get some warning of the impositions that the Government intend to place on local authorities in any given year. In recent years, there have been major impositions on local authority pension funds which have put pressure on the authorities, and major tax changes, including increases in national insurance contributions. The Government may give local authorities some indication of how they intend to hit them, and their balances, in ways that their treasurers may not have foreseen.
We have professional people in local government who are paid good salaries to use their judgment to make recommendations to the authorities. They do not need to be second-guessed by people in Whitehall. When local authority treasurers make the wrong judgment, they have the embarrassment of explaining to council members why reserves have fallen too low, and that is a discipline in itself. It is not easy to make those judgments, and we can see in many local authorities the vagaries of social services budgets, such as children being placed in care outside their local authority area and bills that exceed the budget, which cause problems. However, given the history of local authorities and the robustness of their management methods, local treasurers, and not the man in Whitehall, are best placed to make these decisions.