Agenda item

Reserves Policy for 2020/21 to 2021/22

 

The present to the Audit Committee, the proposed Reserves Policy of the Council for the financial years 2020/21 to 2021/22 and to incorporate any views into the final policy.

 

Minutes:

Consideration was given to a report submitted to the Committee presenting the proposed Reserves Policy of the Council for the financial years 2020/21 to 2021/22 and to incorporate any views into the final policy.

 

The Committee was reminded that the Council had developed a strategic approach to the creation and maintenance of reserves through the development of a Reserves Policy and the presentation of the Policy to the Audit Committee.  The aim is to improve the transparency of the level of and the use of reserves.

 

It was reported that because resources were becoming even more scarce, any money set aside needed to both support the priorities of the Council and prevent unforeseen expenditure/events impacting on year-on-year budgets wherever possible.  The Committee was advised that the following needed to be considered in relation to decision making around reserves

 

           Undertaking an annual review to ensure reserves align with Medium Term Financial Strategies; and

           Having clarity about what earmarked reserves are for; and

           Ensuring earmarked reserves held to mitigate financial risk reflected an up-to-date assessment of risk; and

           Monitoring the level and use of reserves over recent years and comparing the Council’s approach to other organisations facing similar circumstances; and

           Budget monitoring and forecasting to give Elected Members greater awareness of likely year-end movements on reserves; and

           Ensuring significant or unexpected variations to budget are dealt with.

 

The Committee was assured that the Council meets the criteria as detailed above through the regular review of reserves, the Revenue Budget Monitoring reports presented to Cabinet, the Statement of the Chief Financial Officer on Reserves, Robustness of Estimates and Affordability and Prudent of Capital Investment Reports presented alongside the Revenue Budget Report to Council and the production of the Annual Reserves Policy.

 

It was reported in the second CIPFA Resilience Index published in February 2021 (presenting information in relation to the financial year 2019/20), that none of the Oldham indicators were considered as extremely high risk or a cause for immediate concern.  However, there is a challenge in that the Index is a backward look and that consequently the information contained in the Index as at the end of 2020/21 was likely to be out of date by the time it was published and would also be greatly impacted by the issues arising from Covid in 2020/21. 

 

The future impact of the pandemic is unclear.  The reserves of the Authority were therefore important in providing support for the financial position giving time for any required budgetary adjustments to be made. 

 

The Committee was advised that the 2020/21 to 2021/22 reserves policy, which was attached to the report at Appendix 2, had been prepared, following the finalisation of the financial outturn position at the end of 2020/21 and after a risk-based review by the Director of Finance, having regard to Corporate Priorities.  Fourteen major Earmarked Reserves had been included in the Policy which were detailed in Appendix 1 as attached to the report.  Details pertaining to the 14 major Earmarked Reserves were also outlined within the report.

 

It was reported that the accounts were closed with a balance of Earmarked Reserves of £113.512m (an increase of £34.152m), Revenue Grant Reserves of £20.145m (an increase of £12.212m) and Schools Reserve of £9.306m (an increase of £3.819m).  In total, reserves are £142.964m, an overall increase of £50.183m.  Overall, reserves were increased in part due to the receipt of some Covid specific grants (including £25.182m compensation for Business Rates reliefs awarded in 2020/21). Covid specific reserves will be used in 2021/22.

 

It was reported that the level of reserves held at the end of 2020/21, which were detailed within the Summary of Earmarked Reserves 2020/21 were deemed sufficient to ensure the Council’s financial resilience for 2021/22.  The Committee noted that there had been an immediate call on Earmarked Reserves at the beginning of the year to reflect the use of reserves to balance the budget for 2021/22 of £42.012m (37%) leaving a balance of £71.501m.  Of this balance, a further £12.297m was proposed to be used to support the revenue budget in 2022/23 leaving a remaining balance of £59.204m available for use.

 

The Policy sets out the rationale for the creation of the reserves, the arrangements for their management and the approval process for use. 

 

In response to queries from Members, it was confirmed that:

 

           There is no set formula for deciding the appropriate level of reserves,

           Applications to use reserves are considered on a case-by-case basis.

           The Council remains financially resilient.

           There was no timescale for the use of reserves but if left unused, the retention of the reserve will be challenged

           Whilst there was concern in the past that some Authorities had very high reserves and were therefore not utilising their resources effectively, there is now concern that some Authorities have insufficient reserves.  This has been demonstrated by a number of Authorities recently requesting financial support from the Ministry of Housing, Communities and Local Government.

 

In response to clarification sought by Members, it was acknowledged that overall reserves had been increased due to the receipt of the Covid specific grants (including £25.182m compensation for Business Rates reliefs awarded in 2020/21 and retained for use in 2021/22) and that this has had the effect of abnormally increasing reserves.  However, the position is the  same for all Authorities awarding Business Rate reliefs and with unspent Covid specific grant at the end of 2021/22.

 

In response to concerns regarding use of reserves to support the budget, the Committee was advised that the current Medium-Term Financial Strategy has been prepared on the basis of utilising reserves to allow time for transformational activity to be undertaken to address the underlying budget challenge.

 

RESOLVED – That the Audit Committee approve the proposed Reserves Policy for 2020/21 to 2021/22.

 

 

 

 

 

 

Supporting documents: