Is there a definitive minimum amount held for General Reserves?

Question

Is there a definitive minimum amount we (Parish Council) need to hold for General Reserves?

What is the actual purpose of these reserves, I understood they were to cover for unforseen expenditure (risks) that may occur during the year, but our Clerk thinks they are for making sure we can continue to run our services for up to 3 months if the Precept is not forthcoming from the Town Council on time? These are two different things because my assumption would be that the Precept is always paid on time to us.

Answer 1

That's an interesting angle! Without your clerk's comment, I'd have agreed that the reserve is to cover unanticipated expenditures. Insurance will cover straightforward risks, but it's quite possible for situations to arise where the council wants to act, despite a lack of relevant budget. Another reason for it is that budgets are always only estimates and a cushion is needed to cover any variations. It is not good to add provisions to budgets - they tend to result in an ever growing reserve.

So far, I've never heard of a principal council failing to hand over the precept promptly. But I have no experience of dealing with the apparently growing number of authorities declaring themselves effectively bankrupt. So I don't know whether there may now be a greater likelihood of disruption of routine payments.

The usual advice is for the general reserve to be half the annual precept. You can also hold earmarked reserves in addition to specific future purposes.

Comments

Agree with all you have said but was going to add that many principal authorities pay the precept in stages so maybe half in April and half in September.  It can help cash flow to hold some reserves, particularly if a project is aimed at the first half of the year.

Answer 2

Three months is I feel reasonable although NALC claim smaller PC’s should have a higher amount

The claim that the higher authority won’t pay the precept is an urban myth used to justify excessive reserves

As mentioned by Conterpoint there’s insurance especially key person if as with many PC’s the Clerks wages represent a large amount of the total expenditure
Our Clerk claimed we needed a large reserve to cover her wages in case of absence even though on questioning she knew we had key person insurance
Look around how many PC’s were seriously impacted by Covid? Mine not only saved money but claimed a large support grant
How many PC’s have gone bust ?
It’s too complicated to go into here but a lot of Councils lose money because of the difference between interest rates and inflation when if there was a real unforeseen emergency they could borrow money at extremely beneficial rates

Having said that I’ve seen a local PC that took a loan out whilst holding excessive general reserves

The questions to ask are “ why do we have this amount and not a higher or lower amount ?”

“ are we forward planning and is our insurance covering all major risks? “

Comments

Re. borrowing, whilst a very short term loan or overdraft is permissible to cover expenses pending the receipt of revenues receivable by the council in respect of the period of account in which the expenses are chargeable is possible. In all other circumstances, borrowing approval from the Secretary of State is required.

Answer 3

If your clerk thinks the precept comes from the town council I'd be more worried about their general lack of awareness of how the whole process works....

Comments

Thanks, but the Town Council reference was my wrong assumption, not our Clerk.