Question

How do I get my Council to stop having a reserve beyond it's 12 month precept?

Answer 1

Report them to the external auditor. The EA can't actually stop the PC doing it but can serve an issue notice which would urge them to act with more responsibility. The notice would go in the public domain.

Comments

Should the Council vote annually on the amount of General Reserve that is kept?

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Reserves policy (General reserves, Earmarked Reserves abd Sinking Funds) should be reviewed with the budget as far as I'm aware.
It should be reviewed annually as far as I'm concerned. Again, something the internal auditor could flag up if it isn't

Answer 2

If your council's reserves amount to more than twice the precept, the council must provide an explanation as part of the external audit process. It's one of the supporting documents to the AGAR form. There may be a valid reason for high reserves, such as raising funds for a capital project, but if the council is unable to provide a satisfactory explanation, the auditor will highlight the issue as a concern on the external audit report, which is a public document. The auditor has no power of enforcement in this regard. The hope is that residents will ask their council why they are taking money they appear not to need.

Comments

I assume this applies to  general reserves only?  There again if 12 months was exceeded then they could simply vire any excess  to earmarked reserves which I assume are without  limit.?

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Earmarked reserves are without limit only if earmarked to be spent. You can't earmark reserves you have no intention to spend.

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But how do you prove it ?  And how long are you allowed to "hang on" before you spend. it. Any criticism I would suggest can be easily countered .

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The external auditor has the benefit of an increasing number of years of back data and is entitled to seek clarification of the specifics.

Answer 3

There must be millions of pounds rotting away in Parish Council reserves “ just in case of a rainy day “
The answer is get effective Councillors who understand how to prepare a Budget and risk assess reserves
I discovered a local Parish Council which took out a loan  when they already had substantial reserves
Internal Auditors are totally ineffective and their main role appears to be to give Parish Councils the false impression all is well

Comments

The RFO has a key role in these matters, but they too are often under-qualified to understand the finances.

Answer 4

This is a timely question as I have just had the same discussion with my parish councillors about the reserves they hold and I have insisted that they reduce their reserves in the next financial year to a level that I consider covers all short term liabilities.  In previous years, we had a pavilion renovation that we had to save for but thanks to grant funding, we didn't need to spend all the allocated reserves.  So next year, we are renovating a playground, installing solar panels and an outdoor gym.

It was a battle but really, how can you justify any precept increase if the parish council is holding public money and not spending it?

Reserves should reflect the liabilities that the council has - so it is right to have money aside to cover any contractual commitments, rent, elections, emergency building repairs etc.  It is the unearmarked reserves that are the black hole.
Also bear in mind that when applying for grants, you have to state how much you have in reserves and that would certainly have an effect on your success rate.

Comments

Can I be clear RPC what do you mean by collection rates?, Does it  mean the number of houses that actually pay their council tax ?. I say this as last year I checked the number of properties in our area and multiplied them by the precept and discovered that  the total exceeded the precept by about 15%. The Council then explained that of course some houses are empty some don't pay so they make sure they get more than enough in. I certainly got the impression that the precept demand would be  met come what may  and if it came up short that  was not the PCs problem. What is the legal position ?

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Openspaces - The collection rate is the percentage of the actual Council Tax payable that is paid by Council Tax Payers (i.e. collected by the Principal or collecting authority). This would normally be a very high percentage of well over 90% and Principal authorities would include an expectation in their original budget planning. But there will always be a small amount of ‘bad debt’. I have not been aware of any Prinicipal authority passing this on to a Parish or Town Council. ( Which is something I thought was being referred to in the comment I originally replied to) As you say the precept you request is what you get.
What you are describing in your comment is the Council Tax Base - which is the number of Band D equivalent properties with your area. Very close to number of actual properties but adjusted by the number of other CT bands and also by some discounts such as single person discount. Your principal authority advise you of what your Council Tax Base is each year around early/mid December. It can vary slightly year on year even if you do not have any new houses built.

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The amount decided by the PC as the precept they require is initially an amount sent to the LA as a budgeting exercise for them to include in the levy of council tax to properties in their region. Collection of this tax is purely a matter for the management of the LA. As the proportion of the PC precept is a small proportion of the overall council tax it has had the benefit of being met in full by the LA( because it has been good value for money). Unfortunately as parish councils increase their demands ( for whatever reason including being made responsible for more matters) the precept requirements will come under increasingly closer scrutiny as LA's have to meet pressure on their budgets. Keep your reserves but at a reasonable unquestionable level. Plan ahead well.

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On the contrary RPC you can find out via the ERO the precise number of properties in your area and the bands they are allocated to .  You can then work out the theoretical income if  they all paid . But as we agree all of that is the Principal Authority's problem

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Apologies, I worded it badly - we are raising our precept a little but mainly using some reserves to cover an expected shortfall this coming year. We have a large development that was starting to come online in early 2020 - this has been held up so the considerable tax base increase we expected from that for 2021 onwards has been delayed hence the need to use reserves.

Answer 5

Let me give an example of rainy day syndrome,  during one of my PC’s meetings the Clerk claimed one of the reasons for having what I felt were excessive reserves was because we needed to have enough money to cover her wages and a substitutes wages if she was off sick

Firstly this would be a drop in the ocean when we had over £200,000, secondly another member of staff could cover and thirdly I pointed out we had insurance to cover exactly this situation
Using NRE is a cop out PC’s should be able to explain in detail why their reserves are what they are not just use a meaningless formula
Let’s face it the real reason so many PC’s perform poorly is because the Parishioners are apathetic

Comments

I agree absolutely with the apathy syndrome. Such a scenario also breeds Councillors who take advantage of the prevailing conditions to ensure that their vision of how the area should be managed  is adequately funded and delivered.  Some form of better control and monitoring must be introduced or else we get what we deserve. .

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It seems from my investigations that with my Council that the precept roughly  equals the year round budget . General  (and earmarked) Reserves seem to sit there permanently  as cash in the bank .
All reserves are largely unspent throughout  the year although ER seem to grow in total  each year. While there will always be an argument for general reserves it strikes me that Earmarked Reserves are the weak link .
Clearly more information is needed to direct PCs as to whats what

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What would be considered a reasonable wages bill, although understandably the Council is its own leadership until its next election process.