I would dispute the assertion that, across the board, we are looking at reserves and borrowing strategies not progressing or not working. A significant amount of money continues to be held in reserves—not by all 32 councils, but across the piece—which continues to represent some kind of buffer, as you put it, against the vagaries of what funding and other matters might hold for councils.
The situation with borrowing is comparable, although interest rates have recently gone up and it is anybody’s guess—mine is no better than anyone else’s—what that might mean in the longer term. It might turn out to be a step on a journey, or it might be a one-off that could be reversed—we do not know. What we do know is that councils have, by and large, pretty good treasury management strategies that include the amount that they borrow. In the report, you can see the extent to which they make use of the various devices that they have at their disposal to ensure that they are not exposed unduly to things such as fluctuations in interest rates. Therefore, although for you and I, if we have a mortgage, an increase of 0.5 per cent might have a real impact on our pocket the day after tomorrow, that will not necessarily be the case for well-managed councils, because they will have negotiated fixed interest rates.
Councils also have other strings to their bow; they can decide when to borrow, for example. If their crystal ball is a little clearer than mine—they will get good advice on what might happen to interest rates in, say, 12 months’ time—they could decide to borrow now to avoid a possible rate rise, which would give them a further cushion. Our view is always a holistic one: we look at how well councils manage their finances in context, across the piece, rather than at how exposed they might be to one-off changes in interest rates and so on. Therefore, we do not have overwhelming concerns about that.
In the report, we do say that, for the year that we have just audited, there has been a significant shift in the overall amount of debt that local government has, and the key question is what that means for affordability. We say that, broadly speaking, something like 10 per cent of general fund expenditure is committed to repaying debt and the interest that goes with it. However—Tim Bridle will keep me right on this—although that 10 per cent is not an insubstantial figure, it is actually a reduction on the figure for the year before. These things move around a bit, and the fact that there has been an increase in interest rates over the past few months does not mean that local government budgets will commit 13 or 14 per cent to debt repayment next year.
We will have to keep an eye on the issue in the long term, and we work with councils to ensure that they have good strategies behind what they do, but I would not be concerned that the borrowing trend that we have reported for the past year and the movements in reserves mean that councils are more perilously exposed than they were.