Net Revenue Expenditure - definition.

Question

Our council has traditionally used a minimum level of General Reserves as being 12 months of "net revenue expenditure". This to me seems excessive - but in trying to get to the bottom of all of the figures I'm now going down the rabbit hole of needing to get a clear definition of "Net Revenue Expenditure".... but I'm struggling ! (I'm also not an accountant).
The JPAG refers to it but doesn't define it and Googling hasn't yielded much.
Looking at the Reserves Policy of other councils, Knutsford Town Council do provide a definition and they use:

"Net Revenue Expenditure is the difference between budgeted income and expenditure less any budgeted capital expenditure, expenditure from earmarked reserves and budgeted transfers to reserves"

But to me this suggests that councils operating a balanced budget (ie budgeted income = budgeted expenditure) would have a zero NRE.
Clearly I missing something ! Should the precept not be included ? Does anyone have a clear definition of what comprises the NRE ?
Many thanks.

Answer 1

Phrases such as this may have different meanings according to where and how they are used. The JPAG definition is "Net revenue expenditure is defined as precept, less amounts included in precept for loan repayment, capital projects & transfers to reserves." This may not be appropriate for parish councils, particularly the smaller councils that tend to live a more hand-to-mouth existence.

Many smaller charities describe their reserves policy in simpler terms such as 12 months operating costs or 12 months recurring expenditure. This may provide a more meaningful measure.

Comments

I suggest if you try and get a definition you will end up with a "it's whatever the PC decides it is" from some sources.  To me its total budgeted expenditure less total budgeted income.  What to me is the greater "sin" is the undefined flexibility of general reserves amounts.  There is an overall "between 3 and 12 months" guide with a suggested "towards the 3 months" for £200kpa budgets. It's as clear as mud and often Cllrs/Clerks will opt for the 12 months no matter what  budget and Internal Auditors will brush over it.  We all know that in real world Parish Councils have no real accountability.  Read the Redmond Review’s conclusions which read “ During the course of this Review it has become increasingly apparent that the current local audit arrangements fail to deliver, in full, policy objectives underpinning the 2014 Act. As a result, the overriding concern must be a lack of coherence and public accountability within the existing system. For local audit to be wholly effective it must provide a service which is robust, relevant, and timely; it must demonstrate the right balance between price and quality; and be transparent to public scrutiny. The evidence is compelling to suggest that the current audit service does not meet those standards”

https://assets.publishing.service.gov.uk/media/5f58b7cd8fa8f5106d15633b/Redmond_Review.pdf

Answer 2

Rather than a fixed formula Councils should ask why keep large amounts of the publics money in low interest accounts loosing value every year with inflation “ just in case “
The excuse I got was what if the precept isn’t paid over ?

If specific reserves are used properly and the Council run effectively why would you need a large amount of cash on hand ?
Search this site for “ Jules reserves “ for more details