Indeed. Could it be something to do with adding to reserves to help deal with second tranche of cuts after the first year's budget cuts?
From the Office for Budget Responsibility:
Last year’s budget deficit has been revised down by almost £6 billion to just under £120 billion. Local authorities spent less than we and the ONS expected in 2011-12, adding £2.6 billion to their reserves rather than drawing them down.
First sentence is obviously good news. Second sentence however is rather strange given all the talk about cuts.