PITSTONE PARISH COUNCIL

9 Warwick Road, Pitstone, Beds, LU7 9FE
Tel: 01296 767261.  Email: parishclerk@pitstone.co.uk
Facebook: “Pitstone Parish Council” and “Pitstone Youth”
Twitter: @pitstone_pc    Web: www.pitstone.co.uk
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Reserves Policy

Introduction

Pitstone 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.

Sections 32 and 43 of the Local Government Finance Act 1992 require local authorities to have regard to the level of reserves needed for meeting estimated future expenditure when calculating the budget requirement.  However, there is no specified minimum level of reserves that an authority should hold and it is the responsibility of the Responsible Financial Officer to advise the Council about the level of reserves and to ensure that there are procedures for their establishment and use.

Types of Reserves

Reserves can be categorised as general or earmarked.
Earmarked Reserves can be held for several reasons:
•	Renewals – to enable services to plan and finance an effective programme of vehicle, equipment and infrastructure replacement and planned property maintenance.  These reserves are a mechanism to smooth expenditure so that a sensible replacement programme can be achieved without the need to vary budgets.
•	Carry forward of underspend – some services commit expenditure to projects but cannot spend the budget in the year.  Reserves are used as a mechanism to carry forward these resources.
•	Insurance reserve – to enable the Council to meet the excesses of claims not covered by insurance.
•	Specific purpose – some funds held by the Council can only be utilised for the purpose specified in the associated legal agreement (such as S106 funds provided for the maintenance of the Castlemead play area).
•	Capital projects – some major capital projects will require several years of accruing funds before they can be delivered.  These reserves are a mechanism to smooth expenditure so that projects can be delivered without the need to significantly vary budgets.
•	Other - earmarked reserves may be set up from time to time to meet known or predicted liabilities.
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.

Earmarked Reserves

Earmarked Reserves will be established on a ‘needs’ basis, in line with anticipated requirements.

Any decision to set up a reserve must be made by the Council.

Expenditure from reserves can only be authorised by the Council.

Reserves should not be held to fund on-going expenditure.  This would be unsustainable as, at some point, the reserves would be exhausted.  To the extent that reserves are used to meet short term funding gaps, they must be replenished the following year.  However, earmarked reserves that have been used to meet a specific liability would not need to be replenished, having served the purpose for which they were originally established.

All Earmarked Reserves are recorded on the ‘Bank Reconciliation & Financial Report’ compiled by the Responsible Financial Officer, which lists the various Earmarked Reserves, any receipts/payments against that reserve, and the purpose for which they are held.  This report is provided to all members monthly, noted within the minutes, and initialled by the Chairman.

Reviewing the Council’s Financial Risk Assessment is part of the budgeting and year end accounting procedures and identifies planned and unplanned expenditure items and thereby indicate an appropriate level of Reserves.

General Reserves

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.

Setting the level of General Reserves is one of several related decisions in the formulation of the medium-term financial strategy and the annual budget.  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 always keep a minimum balance sufficient to pay one month’s salaries to staff in General Reserves .

Current level of Financial Reserves

The level of Financial Reserves held by the Council will be agreed by the Parish Council during the discussions held regarding the setting of the budget and precept for the next financial year.

Best practice indicates that a level of between 3 and 12 months of General Reserves to cover operating costs would be reasonable for most Parish Councils.  The current level of General Reserves to be held by the Council is three twelfths of the annual precepted figure once contributions to capital projects have been removed ie the recommended minimum level.

Changes to the Earmarked Reserves are reviewed monthly when considering the Bank Reconciliation & Financial Report, and Earmarked Reserves for the forthcoming year are determined as part of the discussions held regarding the setting of the budget and precept for the next financial year.

Review

This Policy was adopted by Pitstone Parish Council on 

..............................................  minute reference ................................................ and will be 

reviewed on at least an annual basis.

Signed on behalf of Pitstone Parish Council by:

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Chairman