Introduction

The Smaller Authorities Proper Practices Panel. (SAPPP) Practitioners Guide (latest edition) advises

 

“As with any financial entity, it is essential that authorities have sufficient reserves (general and earmarked) to finance both their day-to-day operations and future plans.

 

Smaller authorities have no specific right to accumulate funds via the precept. All reserves should be reviewed and justified regularly (i.e. at least annually). It is good practice to transparently publish both the level and rationale of all reserves.”

 

St Stephen in Brannel Parish Council is required by statute to maintain adequate financial reserves to meet the needs of the business and ensure financial security. The purpose of this policy is to set out how the Council will determine and review the level of reserves.

 

Sections 32 and 43 of the Local Government Finance Act 1992 require local authorities to have regard to the level of reserves needed when calculating the budget and precept requirement. However, legislation does not specify the level of reserves that an authority should hold meaning it is the responsibility of the Responsible Financial Officer to follow current best practice and advise the Council whilst ensuring there are procedures to follow.

 

Types of Reserves

Reserves fall into two categories – earmarked or general.

 

Earmarked Reserves can be held for several reasons. The money is held for specific items of expenditure to meet known or predicted liabilities or projects. Earmarked reserves can be used to ‘smooth’ the effects of certain expenditure commitments across multiple years thereby reducing the unnecessary burden and impact of significant expenditure in any one year. Common uses include –

 

  1. a) Renewals: Funding for major repairs or asset replacements.
  2. b) Carry-forwards: Funds from an underspent budget allocated to a subsequent year.
  3. c) Capital projects: Commitments to significant future projects.
  4. d) Liabilities: Covering predicted costs, such as legal or contractual obligations.

 

 

Other reserves may include capital receipts. Capital receipts (proceeds from the sale of assets) are subject to statutory restrictions requiring their use for capital expenditure only. (Note: where disposal proceeds are below the de minimis threshold currently applied in proper practices, these restrictions may not apply).

General reserves are unrestricted funds, available to address uneven cash flows, emergencies, or unanticipated costs. These reserves ensure the Council has adequate financial flexibility to meet day-to-day and unforeseen needs.

 

Earmarked Reserves (EMRs)

The Practitioners Guide advises that there are no upper or lower limits for EMRs, but they must have a genuine purpose, be reviewed annually, and be transparently identified to prevent queries from internal and external auditors.

 

EMRs will be established on a “needs” basis and require approval from Full Council. If EMRs are used to address short-term funding gaps, they must generally be replenished in the following financial year unless they were used for their designated purpose.

 

Earmarked Reserves during 2026/7 include

 

  • Major Asset Work – to fund repairs or improvements on Council’s major assets including the replacement of the Brannel Room building.
  • Cemetery extension – to fund the future purchase of land to be used as an extension to St Stephen Churchtown cemetery.
  • Community Benefit Fund – subject to contract restrictions requiring the funds only be used for certain kinds of expenditure.
  • Staff Contingency Fund – to fund any additional staff costs.
  • Elections – to fund the future elections and any subsequent by-elections
  • Parish Community Assets – to fund community projects previously agreed by the Council
  • AQM Monitoring – subject to contract restrictions requiring the funds only be used for certain kinds of expenditure.
  • Youth Council – to fund any projects suggested by the younger generation of the parish.
  • Neighbourhood Plan – to review the adopted NDP after five years to ensure continued compliance.
  • Equipment – to reduce unnecessary burden when purchasing new equipment.
  • Allotments – to fund expenditure at the allotment site
  • CIL – subject to statutory restrictions requiring the funds only be used for certain kinds of expenditure.

 

Earmarked Reserve schedule and controls

To support transparency and audit assurance, the Council will maintain an EMR schedule. As a minimum, the schedule will record for each EMR: purpose, whether funds are restricted, current balance, target balance (if applicable), expected spend date/trigger, and a replenishment plan where relevant. The schedule will be presented to Full Council at least annually as part of budget setting and will be published (or summarised) on the Council’s website.

 

Where EMRs include restricted funds (e.g., CIL or contractually restricted funding), the schedule will identify those restrictions and the Council will keep separate records sufficient to demonstrate compliance (including date of receipt and ‘first in, first out’ expenditure where required).

 

General Reserves

The Practitioners Guide advises that

 

“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- and twelve-months Net Revenue Expenditure. The reason for the wide range is to cater for the large variation in activity level between authorities.  The smaller the authority, the closer the figure may be to 12 months expenditure, the larger the authority, the nearer to 3 months. In practice, any authority with income and expenditure in excess of £200,000 should plan towards 3 months equivalent general reserve.”

 

The primary means of building General Reserves will be through a reallocation of funds (underspend on project) and allocation from the annual budget. This will be in addition to any amounts needed to replenish reserves that have been consumed in the previous year.

 

If in extreme circumstances General Reserves were exhausted due to major unforeseen spending pressures within a particular financial year, the Council would be able to draw down from its EMRs to provide short term resources.

 

Calculation and justification of the General Reserve

Each year, the RFO will calculate the General Reserve target by reference to the approved budget and forecast Net Revenue Expenditure (NRE). The calculation and rationale will be documented in the budget papers and minuted.

 

The Council recognises that sector guidance indicates that councils with income/expenditure in excess of £200,000 should plan towards 3 months’ equivalent general reserve. St Stephen in Brannel Parish Council has set a target of four (4) months of predicted expenditure as a risk-based decision reflecting (for example) the breadth of services delivered, the extent of assets maintained, and cashflow timing. This target will be reviewed annually.

 

Review of Reserves

The level of financial reserves held by the Council will be agreed during the discussions held regarding the setting of the budget for the next financial year.

 

The current level of General Reserves to be held by the Council is set at four (4) months of predicted expenditure, calculated annually and evidenced in the budget report to Full Council.

This policy will be reviewed on an annual basis to ensure this level remains appropriate as changes in activity levels/range of services provided will inevitably lead to changes in the requisite minimum of General Reserves in order to provide working capital for those activities.

 

[1] Adopted by Full Council at the meeting held on Wednesday 6th May 2026 under minute number FPC56/26. Due for review annually.