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We are approaching budget setting season and I feel that I now have the confidence to stand up and be counted.  The PC Budgetary setting system seems quite straightforward to me.  Firstly, you have the year-round budget.  First question here is should this be built up each year, or should it be last year's outturn or is it usual to have it the same as last year?  Then we have general reserves which is a contingency budget to meet any peaks in expenditure.  I accept that PCs spend isn’t easy to predict but even, so I find a 6 months (50%) contingency generous.  We are constantly fed the, “but we need this should the District Council” fail line. Is that a real possibility?  Has it actually happened anywhere to the extent that the precept has not been paid?     However, the real reason I am writing is to do with Earmarked reserves.   Ours have increased continuously in the last 15 years    i.e., from £60K to over £300k.  It seems to me our financial policy is based on the premise that you can never have too much money and many of the Earmarked pots to me simply cannot be justified in needs terms.  I believe every pot should have a commentary which justifies its existence which should have a wide circulation and be properly discussed.   We have no reserves policy, and the annual review seems to be a 5-minute tick in the box.   Can I ask whether earmarked reserves policies are commonplace and whether anyone has an “earmarked reserves justification process/form”.  PS I have not been on NALC budgetary course. Do I need to ?

by (4.6k points)

2 Answers

0 votes
Last question first - no!  It sounds like you already have the necessary questions and logic to enable a decent scrutiny of existing financial reserves and fiscal policies.
Why run the risk of a decent questioning mind being polluted by NALC think.
Your questions are entirely on trend and appropriate.
EMR “can be” what ever it needs to be - so long as it can reasonably be justified.
I’ve never heard the line that a PC needs reserves in case the district council fails - that is simply a nonsense.  If that were the case then the PC reserves would have to match the DC revenue budget - try selling that to the tax payers.
Prudent operating reserve can be up to 6 months of precept - if that is what the council wants.
Excessive (and or unjustifiable) reserves should be questioned by IA and EA but that process is passive and next door to useless - just an expense with out any tangible benefit.
The practitioners guide gives some good pointers for reserves. Take that as a quantifiable and credible starting point and you will probably already be streaks ahead of your fellow Cllrs.
by (18.2k points)
0 votes
You haven't said what size of council you are but generally it is recommended that you should be holding general reserves of between 3 and 12 months of precept with larger councils holding less and smaller councils possibly holding up to the 12 months.  It does depend on circumstances of course.
With regard to earmarked reserves I'm amazed that external auditors haven't questioned this unless the reserves are clearly held for a specific project and the amounts are reasonable for that project.  Certainly last year our external auditors required a breakdown of earmarked reserves as part of the submission to them; something that was simply part of their required documentation for all councils they review.  They accepted our explanation but I am aware they have questioned other councils.
by (17.5k points)
The EA always asks, but they generally accept whatever response they receive. I served as locum for a parish with a six-figure reserve that was essentially just a rainy day slush fund, but looking back through AGARs from previous years, the council had allocated £50k to highways, £30k to open spaces etc, with no plans to spend any of it. That was enough to satisfy the EA over reserves of 6 years' precept.

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