Local councils in England 'have £14bn in reserve'

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Local authorities will have to cope with cuts to spending of 7% per year

Local authorities in England who are facing massive budget cuts over the next four years are sitting on £14bn in reserves, it has emerged.

Following the comprehensive spending review councils have been told to make annual cuts of 7%.

Many have warned of cuts to services but the BBC has learned they have substantial cash amounts between them.

Most of the money is earmarked for projects such as schools but £3.5 billion is "unallocated reserves".

There are no hard and fast rules as to what size of reserves a council should hold, but some experts suggest councils should hold about 2% of their net revenue budgets.

Areas with much bigger reserves - like the City of London Corporation - argue they use the interest they earn on their reserves to provide local services.

Westminster City Council in central London has seen its balances drop by £27m over the past year as it called on reserves to plug funding gaps.

Melvin Caplan, the lead member for finance on the council, said: "We could have made a decision to reduce some of our services but we took a conscious decision to hold our services at the same expenditure level even though our income was falling.

"We had quite a lot of increased demand for a lot of our social services and if we had reacted to the fall in income then that would have been an obvious area to reduce expenditure rather than try to maintain it or even increasing it."

Local authorities will find out next month the size of their grants from central government.

Some authorities want the government to take into account the level of reserves which each authority holds when deciding on their funding.

Stephen Fitzgerald, the finance director at Hounslow borough council in west London, said: "Traditionally central government funding for local government has increased in cash terms in most years.

"Now we are facing a period where central government is making considerable savings. In that situation I think it is appropriate to take account of all relevant factors and surely the level of liquidity in the authority's balances is one of those factors."