IT HAS been widely reported in recent months that Cornwall Council is on a financial precipice; a “cliff edge” as its deputy leader David Harris has told Westminster in increasingly desperate calls for fairer funding for the Duchy from central government.

The local authority is millions in debt due to the pressure of statutory duties such as providing adult social care, home to school transport and temporary and emergency housing; areas in which expense is increasing each year.

In total, the council is around £856-million in debt when it comes to borrowing used to deliver the capital required for its public services such as housing, regeneration and local infrastructure. Unlike central government, local authorities cannot borrow to finance day-to-day spending.

In order to help plug the gap, Cornwall Council’s part of the council tax increased by 4.99 per cent for 2024/25, which is the maximum amount that can be raised without a referendum.

Unlike councils such as Birmingham, Cornwall Council is not due to declare bankruptcy, but if the financial situation doesn’t improve drastically over the next couple of years that could be a very real prospect.

So why doesn’t it use the whopping £332.2-million it held in reserves at the start of the financial year in April (which is forecast to drop to £269-million by the end of the financial year) to make up for any shortfalls in budgets? It’s certainly a question a number of our readers have asked in comments on previous council finance stories.

Here’s just one example. “It’s astonishing that there’s not more of an outcry about the council tax going up and up while they’re busily squirrelling away our money.”

The simple answer as to why the millions in reserves can’t be used to help budgetary pressures elsewhere is due to legal reasons or the money being held in reserve for very specific reasons.

The council’s reserves balance for 2024/25, which was presented to its Conservative administration at the last Cabinet meeting in September, can broadly be broken down into sections.

Capital Reserves currently total around £80-million. There are two separate elements included here. The Grants Reserve is where the council has received grants from the Government for a specific purpose but hasn’t spent the money yet. An example of this is the Northern Access Road being constructed at the new Langarth Garden Village on the outskirts of Truro.

Other Capital Reserves are principally Usable Capital Receipts; that’s the money from the sale of an asset, say a property, where the cash is put in the bank. Cllr Harris, who as well as being the council’s deputy leader is also its head of resources, explained: “By law we can only use capital receipts for capital spending, i.e. we cannot use these to fund our revenue account.”

Earmarked Reserves total £120-million. This is largely money that has been put aside for a specific purpose, such as public health, children’s grants and household waste collection. A large part of this is Private Finance Initiative (PFI) reserves totalling £47-million, which is money put aside to meet the bills when PFI contracts finish. PFIs can be used to finance a variety of public-sector projects, such as hospitals, schools and other public buildings.

This area of reserves also includes Unapplied Grants, which are grants received for specific revenue purposes. Cllr Harris said: “The only one that we can ‘use’ is the Financial Sustainability Reserve which is monies put aside from previous years for ‘rainy days (or years)’ and we had already forecast pulling some money out of this to balance this year’s books. Indeed you will have heard me say at meetings that if things cannot be pulled around this year we might have to use all of this reserve to balance the books.”

The Financial Sustainability Reserve is forecast to stand at £8.5-million by March 31, 2025.

The School and Partnership Reserves total £28-million. This is money set aside for specific purposes which cannot properly be spent elsewhere. This includes money set aside for a whole raft of areas, from the Ports of Penryn and Truro and Tamar Bridge and Torpoint Ferry to the Area of Outstanding Natural Beauty and the Youth Offending Trust.

Cllr Harris added: “Finally we have the General Fund Reserve. This is not committed to anything specific, it is to cover off a figure set down by Tracie Langley [the council’s chief operating officer] which she computes very carefully and scientifically each year as the amount we must hold against any sort of risk you can imagine. Details of the actual computation are set out at Budget time.”

The General Fund Reserve currently stands at £41.184-million.