Reserves Policy

1. Introduction

Litton Cheney Parish Council is required to maintain adequate financial reserves to meet the needs of the organisation. The purpose of this policy is to set out how the Council will determine and review the level of reserves and how they will be used. Legislation requires parish councils to have regard to the level of reserves needed for meeting estimated future expenditure when calculating their budget. However, there is no specified minimum level of reserves that an authority should hold and it is the responsibility of the Responsible Financial Officer (Clerk) to advise the Parish Council about the level of reserves and to ensure that there are procedures for their establishment and use.

2. Types of Reserves

Reserves can be categorised as general (to cushion the impact of uneven cash flow or unexpected events or earmarked (held for a specific purpose) or ring-fenced (held for one purpose only and cannot be transferred).

2.1 Earmarked reserves

Earmarked reserves can be held for several reasons:

Renewals – to enable services to plan and finance an effective programme of equipment or infrastructure replacement. These reserves are a mechanism to smooth expenditure so that a sensible replacement programme can be achieved without the need to vary budgets.

Election reserve to meet recharged costs from the Local Authority.

Carry forward of underspend for projects that cannot be completed within the current year.

Earmarked reserves must be reviewed and/or established by the Parish Council at the annual budget setting meeting in January.  The RFO will note earmarked reserves movements at the end of the financial year.

2.2 General Reserves

General Reserves are funds which do not have any restrictions as to their use. These reserves can be used to smooth the impact of uneven cash flows, offset the budget requirement if necessary or can be held in case of unexpected events or emergencies.

The level of General Reserves is a matter of judgement and so this policy does not attempt to prescribe a blanket level. The primary means of building general reserves will be through an 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.

The Council must build and maintain sufficient working balances to cover the key risks it faces, as expressed in its financial risk assessment. 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 earmarked reserves to provide short term resources. Even at times when extreme pressure is put on the Council’s finances the Council must keep a minimum balance in its general reserves sufficient to pay both three month’s salaries to staff and the annual insurance premium.

2.3 Ring Fenced Reserves

Ring-fenced reserves are grants allocated for a specific project only: this money must not be used for any other purpose.  This may include S106/CiL funding for agreed projects or donations, legacies etc received for a specific purpose

3. Review of Reserves

Reserves will be reviewed each year as part of the budget process to confirm they are still required and that the level remains appropriate.

This policy was agreed at the meeting of 12 January 2021 and will be reviewed in January each year.