Agenda item

Report by the Chief Finance Officer.

18.1     The Chief Finance Officer introduced the report. He outlined that the overriding consideration is that the level of reserves are sufficient to mitigate risk, in its various forms, and to allow for transformation and organisational change. The Robustness Statement in appendix 2 outlines the risks that are taken into account as part of the assessment of the level of reserves needed in the RPPR process. Appendix 4 shows the future plans for reserves at this point in time, but these may change as part of RPPR process.

18.2     The Committee asked if the Council has enough reserves to cope with the move from Rate Support Grant (RSG) to business rate retention funding, and the possibility that the amount of revenue from business rate retention is less than expected.  The Chief Finance Officer outlined that the Medium Term Financial Plan (MTFP) has been set out on the basis that the Council does not fully know the impact of business rate retention and the withdrawal of RSG, so the reserves reflect this position. The Council has enough reserves to cope with this situation, but cannot be certain what the impact will be in the longer term.

18.3     The Chief Operating Officer added that reserves can only be used once, and the issue of business rate retention will be ongoing. So it is not possible to give an assurance that reserves can cope with this funding change in the longer term.

18.4     The report sets out the amount of useable reserves as a percentage of the net revenue budget that ESCC has in comparison with our South East Seven neighbouring authorities (table 1, paragraph 2.7 of the report). ESCC’s useable reserves as percentage of net revenue are 17.4%. This compares with the average County Council 30%; London Boroughs 58%; Outer London Boroughs 44%; and Metropolitan Councils 40%.

18.5     The Committee asked if the move to a Core Offer of statutory services increases risk.  The Chief Operating Officer outlined that the move to a Core Offer addresses the increased risks from the reduction in central Government funding and as such de-risks service delivery. The Chief Finance Officer added that the reserves are held to mitigate the impact of change, and there is an assessment of the risk of moving to the Core Offer. Financial, service and transformation risks are embedded in our approach. So under the Core Offer, if departments have identified increased risk as part of transformation, then the Council will take this into account when assessing the level of reserves.

18.6     The Committee asked for clarification on the term ‘useable reserves’. The Chief Finance Officer explained that useable reserves is an entry in statement of accounts that incorporates all reserves that have been listed,  as well as carry forwards, under regulation IAS20, of underspent departmental  grants. The figures in appendix 3 and 4 do not include unspent grants, so the figure for useable reserves in the statement of accounts is slightly higher.

18.7     The Committee considered that the level of contingency and the General Fund was prudent, and that the general level of reserves appeared to be about right. However, the Committee would like further clarity on how the different reserves could be used (e.g. Service Specific and Strategic reserves), and found the term ‘earmarked reserves’ unhelpful in describing what the reserves were for and how they could be spent. It was suggested that the way the reserves are presented should be reviewed to help the public understand what they are for, and to emphasise that they could only be spent once.

18.8     The Committee acknowledged that it was difficult to get the level of reserves right as the Council will be criticised if it has too many reserves or spends reserves too much. It discussed the difference between Service Specific and Strategic reserves as detailed in appendix 3.

18.9     The Chief Finance Officer outlined what the Council is able to change (i.e. has a level of discretion to review the risk and need for the reserve) the £75m of reserves which are held as strategic and service specific reserves as detailed in appendix 3. These are subject to review as part of the RPPR process in line with the current reserves policy and an assessment of the robustness of the policy. For example, the Waste Reserve in 2014 was £35m. This was reviewed and a judgement made that the Council did not need to hold that amount of reserve, so it was reduced to £12m. The money released by the review was then reallocated to support the capital programme.

18.10   The Chief Operating Officer outlined that the Chief Finance Officer undertakes an ongoing review of the level of reserves required, and whether they can be used as part of RPPR process. Any recommended changes will be reported through the Audit Committee and the RPPR process as part of the Treasury Management Strategy and Reserves Policy update.

18.11   The Committee commented that it would like to see an explanation of use and review of reserves somewhere, perhaps as part of the Reserves Policy. It agreed that the reserve balances that can be taken into account in the RPPR process is everything listed in appendix 3 apart from those balances held on behalf of others (e.g. school balances).

18.12   The Committee RESOLVED to:

1) Note the current approach to reserves and balances; and

2) Agreed that the reserves and balances that can be taken into consideration within the RPPR process, is everything listed in appendix 3, except the balances held on behalf of other people.