The budget setting process consists of listing all the working income and expenditure you expect in the next financial year, looking at the expectations of the public and working out how much precept you will ask for. This is for operational expenditure. Regarding reserves, it is good practice to have around 25% of income as a reserve. This is in various Parish Council Reserve docs on the web, and is a number the auditor should repeat back to you when you ask them the question. I guess your council does not have a reserves policy? The clerk is correct in that if your reduce your precept, then its harder to get back to what it was later, without causing a fuss. However, that answer is not in the SLCC book of excuses for not reducing precept and you have been fobbed off, or there is a forthcoming project to be funded from precept (which would be in the Council Plans ). The precept is not there to create a wall of cash to fund an 'as yet to be determined' wish list (or vanity projects ). If projects turn up the council should seek to fund them from grants, and have a pot of ring fenced reserves for that purpose.