Questions about town and parish councils
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0 votes
Parish Council with Precept of £50K and Annual Expenditure of £50K - £60K excluding vat
by (120 points)

4 Answers

0 votes
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.
by (9.0k 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.
I suspect this is a suggestion from NALC
0 votes
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.
by (34.9k 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!
0 votes
The Practitioners' Guide is updated annually and issued by the Joint Panel on Accountability and Governance. It relates primarily to the annual audit but also finance in general. Section 5.32 reads the following:

General Reserve — The generally accepted recommendation with regard to the appropriate minimum level of a Smaller Authority’s General Reserve is that this should be maintained at between three (3) and twelve (12) months Net Revenue Expenditure (NRE).

The internal auditor will use this guide to undertake the audit (assuming you have appointed a competent auditor) and will pull you up if your General Reserve is not suitable.
by (140 points)
I agree with the sentiments on this subject as Parish and Town Councils are sitting on millions of pounds of other peoples money for no reason
According to NALC 3 months general reserve is all you need if your precept is over £250,000

Auditors don’t like to rock the boat so only rarely do they intervene

Even if in an extreme circumstance a PC ran out of money it can raise a loan and interest rates would be rock bottom
Clinging onto other people’s money for no reason is not prudent and encourages waste

Just ask the following questions
Why have we got x sum instead of y sum

How much are we loosing with inflation

What circumstances could arise where we need a reserve
Incidentally a reserve for an election should be specific not general but why hold one when in our case we’ve had one election in one ward in over 30 years?
With base rates at 0.1% even if the reserves were put in an interest bearing account they would have to earn 1.74% interest to keep rise with Inflation. At the moment the best is 1.55% but that might not be open to Parish Councils and will have withdrawal penalties etc. Sitting on piles of reserves as you say is wasteful if that money loses purchasing power.
Graham I explained this point to our Clerk who then mislead the Council by claiming I said let’s spend all the money as we can borrow more money cheaply
As far as the precept not being paid my theory is that if Local Government precepts are not collected then the Country will be in such a mess no one will bother about Parish Council finances
I can see a possibility that precept income will drop as more people go into arrears
I’ve got a NALC Budget briefing tomorrow and I’ll see if I can ask about this
0 votes
As the others have stated, it is down to the council to justify their reserves.  We have a reserves policy that details what is held and for what reason.  We have high reserves at the moment as we are saving for a children's playground and that might be a reason for the OP.

It is correct to say that you need to cover your short term liabilities - we have 3 year grounds maintenance contracts and so our reserves cover this liability in the event that the sky falls in and we don't get our precept.

As the other have said, councils shouldn't hold onto money for the sake of it - it is not their money after all but for larger projects, there may be a requirement to build up money over a number of years to achieve their aims rather than rely on a public works loan board loan...
by (24.0k points)
In view of low interest rates have you considered borrowing the money for the playground rather than waiting until you’ve accumulated the cash
No because we have the reserves already and have been trying to get them down over the year but lockdown has restricted our activities to a degree.  My understanding is that the only borrowing you can do is via the PWLB anyway.

We can justify our reserves and our auditor and external auditor are happy with the explanations.

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