BUDGET UNDERSPENDS

Question

We are having a right ding dong about the correct way of setting the precept (35% increase proposed) and part my review has found this statement in our EMR reserves policy .   I would ask whether you  consider this as normal practice  (and reasonable) .  it seems to me that in practice we set an extremely generous budget which underspends considerably and that underspend  is simply retained and   never considered for refunding to the tax payer  by subsidising the next budget 

"At the end of each financial year any money not spent from the budget automatically defaults into the Council’s general reserve unless it is approved as being earmarked".    

     

Answer 1

The statement itself in perfectly fine what you need is a reserves policy for both specific and general reserves setting out how they are arrived and the maximum figures allowed
As for a 35% increase the residents get what they deserve

Answer 2

The statement is quite appropriate...

I suspect the part that is missing from the mechanism however, is the requirement to forecast what the underspend will be (probably in Nov of the current FY) and then INCLUDE that estimate as a credit balance into the budget calculation for the subsequent FY.

Simple example...

forecast operating budget (X) plus allocations to EMR (Y) less rentals or other income (Z) equals the calculation for the following year precept demand (A).

 So say you need £30k to cover operating costs and you want to allocate £10k to cumulative (capital spend) EMR and your forecast income from rental is £5k the precept demand would be £35k.

EXCEPT if there is a SIGNIFICANT forecast underspend in current FY that amount - let's say £5k - should also be deducted from the precept demand leaving the precept at £30k.
Whatever is left in the bank on 31 Mar current FY is magically STILL THERE 1 Apr next FY - who'd have thought it?

Well not my PC since they were happily gobbling up literally £10s of thousands of underspend every year and NOWHERE did that figure ever enter into the budget calculation.  Well not until I introduced the wake up call that is and even the LA internal auditor had to have it explained to them!

28% precept reduction 23/24 FY, 30% precept reduction 24/25 FY.

If the underspend is pocket change it is neither here nor there but when the underspend actually exceeds the ENTIRE precept requirement as presented by the clerk then things have gone desperately amiss.

And is it any wonder that there is £708 MILLION in town and parish coffers for the 22/23 FY?

Comments

I get it now (der) as this would happen in April .  My problem is that we dot include any reserves in our precept calculations so it doesn't matter what time of year the underspend  gets vired to reserves as it will always stay there

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You can’t have a budget consideration without including reserves - well, you ‘can’ but shouldn’t.
Reserves are a material consideration in the budgeting process - how could they possibly NOT be?


That was rhetorical obviously, only in town and parish councils….

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You might find this interesting
https://hansard.parliament.uk/Commons/2024-01-17/debates/0E50042B-FF05-4DE1-9682-96FF711AE022/MorecambeTownCouncilPrecepts

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How can you prepare a Budget if you haven’t calculated how much will be in the bank at the start of the financial year which will include any underspends ?

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Jules .  You can produce any figures  by any means and call it a budget .  You can then play around  with it to generate a "precept " amount .  Who is going to prove you wrong .  In my case I have in the last 12 months identified £100k in various EMR pots which are unlawful i.e. raised for projects for which we don't have the powers .   The response  of the RFO has been to transfer it into Gen  Reserves increasing that to a level she thinks appropriate .  Come precept time the year round budget has been calculated and put forward as the precept figure .  Our EMR figure has not been reviewed as  a part of that process. While the JPAG advises that  they should (para 5.38) our RFO advises that compliance to JPAG is not  is not mandatory .  I have been trying to find a legal reference which spells the required equation/process for calculating the precept .  I have at the death just found that in time for our meeting on Monday .   Behind all of this is the widespread belief that you can never have too much money and you can do this by abusing  Reserves in General and a lack of a monitoring./forecasting process year round

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I know I’ve been down this path myself but if the residents are so foolish that they allow someone to take large amounts of money off them for no reason they only have themselves to blame

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Totally agree last 2 comments!
The house of cards comes tumbling down when a diligent Cllr (or, rarely, a member of public) starts asking awkward questions and seeking justifications.

That's when the clerk / RFO gets defensive / offensive, the talk of undermining and industrial tribunals and 'I work for the council not an individual Cllr' all comes to the fore...

Then comes the code of conduct complaints and the entrenched obstinance from the clerk...

We've all seen it - some of us have travelled that road.

The answer is to generate enough simple, indisputable common sense argument that even the lowest IQ Cllr will find it impossible to disagree.

Be under no illusion though, it can be a long, arduous, lonely and demoralising slog...

But on a brighter note....  What's the worst that could happen....