Why the council has £233m in its reserves

Caerphilly County Borough Council’s reserves has long been a contentious issue, but what does it mean to have £233 million in the pot?

According to the Welsh Government’s guidance on reserves an “adequate level” can only be assessed at a local level, , there is no prescriptive guidance on minimum or maximum reserves in Wales.

Local authorities should look at their own local circumstances and potential risks when determining how much to keep in reserves.

As of March 31, 2022, the council has £233.308m in reserves – this figure is expected to be updated as the financial accounts for 2022/23 are published later this month.

In terms of spending it though, the council’s hands are tied with most of it protected or ‘ringfenced’ – only to be spent for certain things.

There is £27.2m in the council’s general fund, this is the amount of money the council holds which is unallocated and which the council can spend as it sees fit. In the draft budget for 2023/24 its proposed that £15m of this is to be spent.

Reserves for housing and schools are ring-fenced and cannot be spent elsewhere – these add up to £24m and £17m respectively.

There is £75.8m in capital reserves which is allocated to highways, new schools and for future projects such as the £3.1m respite centre in Pontllanfraith.

Just over £7m is allocated to risk-management initiatives and insurance – this reserve is reviewed by insurance brokers Marsh.

Underspending in service areas accounts for £8.8m of the reserves. Underspends typically build-up due to vacancies, the biggest underspend is in social services which is currently experiencing significant recruitment and retention issues across Wales and the UK.

‘Other earmarked reserves’ add up to £72.8m. The Welsh Government’s guidance states councillors have a fundamental democratic right, and a responsibility, to challenge officers about financial decisions.

The amount the council has in reserves has been widely criticised by opposition councillors and some Labour councillors.

Leader of the Plaid Cymru group, Cllr Lindsay Whittle described the council’s reserves as “obscene” as the amount has nearly doubled in the past three years.

Plaid Cymru councillor Greg Ead has requested a quarterly report on reserves be brought to the council, as opposed to an annual report.

Cllr Ead, who represents Penyrheol, has argued the reserves could be better used by plugging the budget gap with last year’s underspends and reducing the amount of the Welsh Government’s settlement for 2023/24 that’s put in reserves.

Independent councillor Nigel Dix said: “It would take just a tiny amount of the millions and millions in reserves to set a far lower council tax.”

The Labour-led council has repeatedly defended the amount it holds in reserves.

Council leader Sean Morgan highlighted the one-off use of £15 million from the reserves for the proposed budget for 2023/24. Some of this is being spent on pay awards (£6.9m), the cost of living crisis (£5.1m), and school transport (£460,000).

Deputy leader, Cllr Jamie Pritchard, said: “They ask us to spend the reserves but not one specific reserve is chosen to give up. I think it would be difficult to look at the list of earmarked reserves and tell us to spend it elsewhere.”

Welsh Government guidance states: “Balancing the annual budget by drawing on general reserves may be viewed as a legitimate short-term option. However, it is not normally prudent for reserves to be used to fund shortfalls in current funding.”