Council set to spend whopping £34m of reserves in order to balance its books

Oldham council will spend a whopping £34m of their reserves this year to balance the books for 2023/24.

That’s one of the largest amounts spent from council’s reserves in the last decade. 

The reason is complex, with finance leader Cllr Abdul Jabbar citing long-term underfunding from central government coupled with the skyrocketing costs to deal with growing calls for support from residents.   

Council reserves are traditionally thought of as ‘rainy day funds’ but in the last decade local authority bosses have increasingly turned to them to bridge the gaps in their budgets and cover the costs for local and national crises. 

Cllr Jabbar said: “Reserves are built over a period of time to cater for rainy days.

"But sadly, over the last 13 years, we’ve had pouring rain every day - and we’re trying to survive in that environment.” 

On top of spending more than £13m to plug the hole in last year’s budget, a figure agreed at a meeting last April, the council reported an “unforeseen financial challenge” of more than £16m.

The only way to cover the shortfall without making major cuts to services - which would affect residents - is by dipping into reserves. 

Along with more than four million pounds earmarked for specific spending, that sees the council’s reserves dwindling from more than £70m to below £37m in total. 

But delving into reserves has its risks.

Financial officers in the council have deemed the amount ‘adequate’ to deal with this year’s budget pressures.

But they noted that use of reserves continuing in this way in future years is “unsustainable” and “significantly reduces the Council’s financial resilience”. 

This is a warning for the council, who have used up £105m in reserves to balance budgets over the last eight years.

Levels of reserves are used as one of the benchmarks for Section 114s - the declarations of bankruptcy seen in local authorities like Birmingham and Nottingham. 

“I am very confident that we’re not in that space, and not likely to be in that space in the foreseeable future,” said Cllr Jabbar, who has been a council member for more than 12 years.

“We’re doing everything we can to control expenditure, where it is controllable.” 

The problem for the council, claims Jabbar, is that there are many areas where spending is not ‘controllable’ because local authorities have a statutory duty to look after their residents.

With rising numbers of people forced to turn to their council for support as they are battered by the cost of living crisis, rising rents, inflation and high energy costs, local authorities must find ways to house those facing homelessness and care for vulnerable people.  

Jabbar said: “People can’t cope anymore.

"And when the demand is there, you simply have to respond to it.

"We have a moral responsibility - and more than that, we have a statutory responsibility to look after certain groups of people.” 

More than £13m of the overspend went on children’s care.

The number of kids referred to social services soared last year.

With placement homes overburdened and not enough foster carers to take in young ones, the council has had to fork out premium prices for private placement options - who are sometimes raking in a hefty profit for their services. 

There was also a £2.5m overspend on temporary accommodation and £1.7m on repairs and maintenance to council-owned buildings. 

“Local government finance is broken,” Jabbar said, “It’s not just Oldham that is under pressure from these crises.

"It’s why we’re seeing so many councils issuing Section 114s." 

He added: “Ultimately, the government will have to do something because they can’t continue to cut local government financing the way they have.

"But we’re not waiting for the government to give us additional money.

"We are recognising current circumstances and managing it as best we can.”

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