Auditor highlights concerns over Greenwich Council’s reserves

At the July meeting of Full Council, the independent auditors highlighted concerns over the Labour adminstration’s level of reserves, commenting in their report that “you only have finite reserves available and it is important that you continue to maintain appropriate budgetary control”.

The debate on the Council’s Statement of Accounts provided a forum for me to comment on the way Greenwich Council uses reserves, although the Labour Cabinet Member for Finance Cllr Grice mentioned similar concerns in her comments based upon the Audit Findings from Grant Thornton.

It is hard to avoid mentioning the fact that the BBC ran an article in May entitled English councils warned about ‘exhausting’ reserve cash naming Greenwich as one of the eleven Councils in the country which has reduced its reserves by 44% or more between 2015 and 2018.  There followed a statement by Cllr Grice, who pointed out that the drop in reserves was mostly due to the Council investing in regeneration projects like the new cultural district in Woolwich and partially as a result in the way schools reserves are presented.  However, Cllr Grice did not deny that the figure produced by Cipfa was accurate.

Then, prior to the meeting last night, Grant Thornton produced their Audit Findings which mentioned the availability of usable reserves as a ‘key factor’ for the Council and also commented:

  • “It cannot be stressed enough how important it is to have a fall back position to address the challenges of the future. We have seen a number of Councils reach the financial precipice and members have a fiduciary duty to ensure the Council retains financial sustainability. We would strongly recommend that use of reserves remains limited in future years other than for specifically earmarked schemes.”
  • “It is vital members recognise that the current level of reserves provides a buffer for the uncertainties ahead and does not represent an easy way to resolve immediate budget pressures”
Graph showing Greenwich’s reserves situation relative to other London Councils.

So with the BBC and the Council’s Auditor highlighting concerns over reserves, it was worrying to see that on page 21 of Greenwich Council’s Statement of Accounts the usable reserves have dropped by £41m over the last year – that is an 11% decrease in one year.  This appears to suggest that the rate of decrease outlined by the BBC in their article has continued for the 2018-19.  I do appreciate that this is mostly spending which has been planned, but it seems to me that this Council cannot go on reducing reserves at this rate.

Almost more worrying was that the comments from the Audit and Risk Management Panel published just before the Full Council meeting simply don’t mention the reserves but instead focus on collection rates for Council Tax and Business Rates – both of which could be improved, but are unlikely to make or break Greenwich’s finances.  What worries me about this is that if the Backbench Councillors do not recognise the serious issue which the Council’s continuing use of reserves represents, then they will push for the Council’s spending to continue in its current vein.

To be fair, Cllr Grice was reasonable and logical as she closed the debate, making clear that with £30m of un-budgeted for spending in Adult Social Care being paid for from reserves could not continue.  Cllr Grice also mentioned an aim to increase reserves, which sounds a great aim, although whether it is achievable in the current financial setting for Councils I have my doubts.

I suspect that the truth here is that Greenwich, in common with most other Councils, will find out how big the challenge it faces will be once the new local government funding deal is settled.  Greenwich has always benefitted from generous funding as an inner London Borough, but this situation may not continue into the future, at which point the Council may well regret some of the tricky decisions it has relied on reserves to duck in recent years.