Lancashire County Council has bucked a national trend by giving a boost to its budget reserves.

The authority ended the 2023/24 financial year with £181.1m in its main reserve account – £15.9m more than had previously been expected.

The increase strengthens a safety net which would already be the envy of many local authorities, amid dire warnings about the state of local government coffers across the country.

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A study earlier this year by accountancy firm Grant Thornton found that 40 percent of councils were at risk of seeing their reserves drop to less than five percent of their annual revenue expenditure within the next five years – a position the firm described as “financial failure”. According to the analysis, one in five local authorities faces that fate within the next 12 months.

At Lancashire County Council, the topping up of what is known as the ”transitional reserve” – a cash pot that can be called upon for a variety of reasons, as it is not earmarked for any particular purpose – was attributed mainly to the effect of pooled budget arrangements that the authority has entered into with the NHS.

The overall £14.3m uplift in the amount previously held in the reserve came in spite of the fact that money had also been withdrawn from it during 2023/24. That included the previously-agreed use of reserves to bridge a gap in County Hall’s revenue budget last year of £8.9m, a contribution of £6m to support the cost of the nationally-determined staff pay rise and the transfer of £5.2m to cover the amount by which the authority overspent against its initial budgetary plans.

A report recently presented to cabinet members confirmed that the reserves remained sufficient to support the county council’s budget beyond the period covered by its medium-term financial strategy, which ends in March 2027.  The transitional reserve is forecast to fall to £159m by the end of 2025/26.

The authority has previously stressed its intention to find the savings required to set a balanced budget without having to rely on reserves in future years.

Grant Thornton’s head of public services consulting, Phillip Woolley, said of his firm’s report into local authority reserves back in January: ‘There have been calls for councils to use reserves to plug budget gaps, but this is not a sustainable solution – reserves can only be used once and are intended to be a safety net, used only in exceptional circumstances.”

In addition to the transitional reserve, Lancashire County Council has seven other receive pots available to it – including £23.4m in its County Fund, which is set aside to cover the authority against a serious emergency situation, such as widespread flooding.  It could also be used in the event of a “critical and unexpected loss of income to the authority”, as well as for general cash flow purposes.

The county council also held £112.2m in “service reserves” at the end of March this year and a total of £326.8m across all eight of its reserve funds. That tally is expected to drop to £223.4m by the end of March 2026.

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