The report puts Dundee City Council’s reserve at the end of the 2003-4 financial year as £8.6 million, an increase of £2.2 million on the previous year.

But a spokesman from Dundee City Council said this figure was misleading due to it including housing revenue, which would already have been allocated.

The council say the total balance at the end of the current financial year (2004-5) will be £4.1 million, of which £1.6 million will be used to keep council tax rises to a minimum.

The spokesman said that if this money had not been used, then the council tax next year (2005-6) would be 3% higher. Finance convener George Regan said the council’s level of cash reserves was “prudent” compared to other local authorities.

“In Dundee we have constantly kept working balance to a prudent level so that we can keep council tax reduced to a minimum,” he said today.

“This has proved successful as over the last six years our council tax increase is the lowest of all 32 local authorities in April.

“£1.6 million out of the total balances of £4.1 million at the end of the 2004-5 financial year will be used to reduce council tax.

“Compared to other local authorities locally and nationally, we do not carry large reserves.”

Reserves held at the end of the 2003-4 financial year for Perth and Kinross was £11.7 million, £10.1 million for Angus and £18.3 million for Fife, according to the Accounts Commission report.

Dundee’s shadow finance convener Joe FitzPatrick supported the administration view, claiming the reserves held by Dundee City Council were at a good level. “I think the most important thing to look at is how any surplus is used. In the budget for 2005-06 only £2.5 million of the reserve was left — the rest was used to keep the increase in council tax low,” he said today.

“If the council’s reserve increases during the year because of efficiency savings, that is a good thing, and something the SNP has been encouraging.

“The council tax is still too high and ultimately it should be scrapped. It’s not affordable for many people in Dundee. We do encourage the council’s reserve be kept low and any excess put back into keeping council tax as low as possible.”

Accounts Commission chairman Alastair MacNish called for Scotland’s 32 local authorities to have “clear strategies” about their finances.

He said, “While it is for each local authority to decide what levels are needed locally, we want councils to ensure clear strategies and policies are part of the robust financial planning and that efforts are made to communicate this information to the public.”

Pat Watters, president of the Convention of Scottish Local Authorities, hit back saying, “Reserves and balances are something that should be treated on a case-by-case basis.

“Councils are accountable to their local electorate and will be held to account by their electorate. Councils hold balances in accordance to local needs and a strategy for long-term investment into the future.”