Can you please cite the legislation/Guidance confirming the range General Reserves should fall in

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Parish Council with Precept of £50K and Annual Expenditure of £50K - £60K excluding vat
asked by (120 points)

2 Answers

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There isn't a legal limit, however you auditor may ask what you are planning to do with large amounts of reserve, if there is a plan or good reason, this is accept.

Our council is a similar size, we maintain a reserve of £17,000, to cover the cost of elections, and unforeseen events. Our district council estimates a standalone election (no other elections at the same time) costs £12,000.
answered by (3.6k points)
Thanks somebodyelse
Our PC has held General Reserves of £55K for a number of years and has justified this by saying "The Practioners' Guide to Local Council Governance recommends a General Reserve equating to between 3 and 12 months of gross expenditure".  I cannot see this stated anywhere.  Can you please help me - perhaps this was the case at one time?
There is nothing in legislation that settles the size of the reserve.  A council can choose to set aside reserves for particular purposes, such as future repairs to a council asset. By convention, an amount of around half the precept is considered reasonable as a reserve for unspecified purposes. That's simply a buffer against miscalculation or unexpected demands. It does not have to be followed rigidly. As somebody else says, the auditors will query excessive or inadequate reserves, but will agree to reasonable specified reserves and a general reserve approximately of the size indicated. There is some discussion of precept setting in Local Government Finance Act 1992 sectioin 50, but no figures. Otherwise, it is down to the council to settle the appropriate figure.
So many councillors and clerks like to put something away "for a rainy day" without knowing what that rainy day will look like.  Insurance covers all foreseeable rainy day events and I am currently working with a council that uses the rainy day fund to remove the need for advance planning, which is very frustrating.  Anybody can suggest anything at any time, as the money is always available, even if it wasn't budgeted expenditure.
I concur with the suggestion of half the precept, although I've just noticed that the very last paragraph of  Governance and Accountability for Smaller Authorities in England offers rather vague guidance as follows:-
"As authorities have no legal powers to hold revenue reserves other than those for reasonable working capital needs, or for specifically earmarked purposes, whenever an authority's year-end general reserve is significantly higher than the annual precept or rates and special levies, an explanation should be provided to the auditor."
Thank you all for your help.  Our PC has about £120K for earmarked reserves, Insurance premiums are known as we have a 3 year agreement and election costs are budgetted for in the precept.  It looks as though the only recourse is to ask the External Auditors to have a look.  A General Reserve amount of £10K in excess of the Precept looks a bit odd.  Thanks again - if I find the refernce to The Practioners' Guide to Local Council Governance, I will post again
I presume that's a reference to the snappily-titled "Governance and Accountability for Smaller Authorities in England - A Practitioners’ Guide to Proper Practices to be applied in the preparation of statutory annual accounts and governance statements."
DavetheClerk - I have no idea.  That is the reference given by the parish Clerk to justify the General Reserve.  I cannot see this recommendation in print anywhere.
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Councils should raise what they need to provide their admin, electoral costs and services and hold a small contingency.  But our Town Council has a huge reserve, larger than a years precept which earns minimal interest.   With inflation, it is actually losing value and should be spent on things the parish wants and needs to maximise it's benefit.  Precepting residents for large sums of money and failing to spend it is unjustifiable.  The Cllrs didn't challenge the former Clerk on it as it kept growing year on year. I am going to refer this to the external auditor and will share their response.
answered by (5.2k points)
One thing that can cause trouble is that such legislation as there is (LGFA 1992 mentioned above) talks about adding provisions when calculating the precept. Unfortunately, some clerks keep doing this year after year, without taking account of the fact that if expenditure is estimated accurately (at least in aggregate) forever adding provisions results in an escalating reserve. The precept should be calculated either without provisions (relying on the reserve to cover variations) or unused provisions need to be deducted from the next year's calculations. Where the reserve is too big and there are no future plans for sizeable expenditure, it's best to run it down steadily with a lower precept. Doing it too quickly results in a nasty shock when the precept has to be increased again!

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