It’s not a loss, it’s a ‘negative reserve’

Cheshire East Council has applied to the government for support in the form of a ‘capitalisation direction’ to create a negative reserve of nearly £18 million.

In layman’s terms a negative reserve is the same as a loss – but it sure sounds better!

Under this arrangement the council doesn’t receive any money from the government but it is able to itemise this as a ‘negative reserve’ – equivalent to what used to be called Accumulated Losses on a balance sheet.

The council claims that its dire financial situation comes as a result of high needs education spending, the impact of the cancellation of HS2 and inflation.

Quite how or where Cheshire East spent so much in preparation for HS2 isn’t clear.

The Labour group leader of the Council, Sam Corcoran, proposed the recommendations saying: “Nothing we say today is to in any way deter officers and members from going to government and saying Cheshire East residents should not have to pay for the money we spent preparing for HS2.”

“We do want reimbursement from government for HS2 and also the high needs education budget.”

ilovemacc interprets that as saying “Not our fault guv!”

Counc. Corcoran said he supported the proposal as the low reserves left the council vulnerable.

He continued: “The budget before us results in our reserves going to a very low level, I think the word used was inadequate.”

“Therefore we need to make contingency plans and part of that contingency plan is to seek a capitalisation direction from central government.”

“We receive no money under capitalisation. We receive nothing other than the ability to move money into a negative reserve, so in that sense it’s quite similar to the special educational needs negative reserve.”

“What it would do is restore the general reserve to a more sustainable level.”

ilovemacc suggests this could be interpreted as ‘we’re re-arranging the deck chairs on the Titanic.‘

Cheshire East’s total deficit could potentially be £100m by the end of the current financial year.

Conservative group leader Janet Clowes said she had ‘deep concerns’ about the capitalisation proposal when the council already had a negative deficit for high needs.

“We are proposing setting up another negative deficit to get us through this financial crisis with a payback period of 20 years when we are still going to have to deal with the day-to-day budget requirements which we already still present pressures to us,” she said.

“I am concerned we are simply digging another deep hole for ourselves.”

The Conservative councillors voted against but the proposal was approved.