General Reserves Policy 2026

Source page 1

Bradford On Tone Parish Council

Reserves Policy
Approved 16 May 2023
Reviewed 28 January 2025
Reviewed and updated 21 January 2026
This policy sets out the Parish Council’s stance regarding maintaining financial reserves

Source page 2

1. Introduction
1.1 The Parish Council is required to maintain an adequate level of financial
reserves to
• Protect against risk
• Ensure contingencies are in place
• Accumulate funds for known or planned policy initiatives or projects
1.2 Sections 32 and 43 of the Local Government Finance Act 1992 requires local
authorities to have regard to the level of reserves needed for meeting
estimated future expenditure when calculating the budget requirement.
1.2 The 2025 Joint Panel on Accountability and Governance Practitioners Guide
states “As with any financial entity, it is essential that authorities have
sufficient reserves (general and earmarked) to finance both its 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.” (5.31 – 5.32)
1.3 The 2025 Good Councillors Guide to Finance “Local Councils need to hold an
amount in reserves to meet unexpected expenditure, otherwise they could run
out of money before the end of the year……………….Local councils have no
legal powers to hold revenue reserves other than for reasonable working
capital or for specifically earmarked purposes, ………..” (p21)
1.4 There is no specified minimum level of reserves that an authority should hold.
2 Policy Purpose
2.1 The purpose of this policy is to enable the Parish Council to make financial
decisions relating to expenditure and budget proposals whilst keeping the
reserves at an appropriate level.
3 Types of Reserves
3.1 Bradford On Tone Parish Council intends to have two types of reserves
earmarked reserves and general reserves.
3.2 Earmarked Reserves. (EMR)
Earmarked reserves are a way of accumulating funds (“saving”) for use in a
later financial year to meet a known or planned policy initiative or for projects;
such initiatives or projects may well incur expenditure over more than one
financial year.
3.3 An EMR must be for a genuine purpose and separately identifiable.
3.4 Amounts in earmarked reserves are set by the Parish Council as part of the
annual budget process.
3.5 If a specific EMR is no longer considered necessary, or the project has been
completed and there is surplus in the EMR the Parish Council will decide how
the balance in the EMR should be allocated.
3.6 EMRs will increase through decisions of the Parish Council and will decrease
as they are spent on their specific purpose.
3.7 General Reserves
The purpose of the general reserves is
• to provide a contingency to minimise the possible financial impacts to the
authority from situations such as emergencies, unforeseen events, ad
hoc emerging issues

Source page 3

• to operate as a working balance to manage the impact of uneven cash
flows.
3.8 The primary means of building the general reserve will be through reallocation
of funds e.g. where a project comes in under budget or through an allocation
from the precept.
3.9 Balancing the budget by drawing on reserves must be viewed as a legitimate
short term option only.
4 Reserve Levels
General Reserve
4.1 The Good Councillors Guide to Finance 2025 (p 21) says “A council should
typically hold between three and twelve months expenditure as a general
reserve. If the general reserve is too low then it may not be enough to cover
unexpected expenditure or emergencies, whilst if the general reserve is too
high then local electors have paid a tax which is not being used for the benefit
of the local community.
Local councils have no legal powers to hold revenue reserves other than for
reasonable working capital or for specifically earmarked purposes, therefore
the year end general reserve should not be significantly higher than the
annual precept.”
4.2 The 2025 Joint Panel on Accountability and Governance Practitioners Guide
states
“5.33 The general reserve of an authority comprises its cash flow and
contingency funds to cover unexpected inflation, unforeseen events
and unusual circumstances.
5.34 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 of net
revenue expenditure.
5.35. The reason for the wide range is to cater for the large variation in
activity level between individual 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.
5.36 In all of this it is important that each authority adopt, as a general
reserve policy, the level appropriate to their size, situation, risks and
plan their budget so as to ensure that the adopted level is maintained.
Consideration of the minimum level of reserves requires not only
consideration of level of income and expenditure but also the risks to
that income.
5.37. Authorities with significant self-generated income (other than the
precept or levy) should take into account situations that may lead to a
loss in revenue as well as increased costs and adapt their general
reserve accordingly.”
4.3 The Parish Council will set the level of general reserve to be maintained as
part of the annual budget setting process. The level will
• Be between 3 months and 12 months expenditure

Source page 4

•

Generally, will be maintained at approx. 9 months expenditure

Earmarked Reserves
4.4 The 2025 Joint Panel on Accountability and Governance Practitioners Guide
section 5.39 states
“There is, in practice, no upper or lower limit to EMR/CRRs save only that
they must be held for genuine and identifiable purposes and projects, and
their level should be subject to regular review and justification (at least
annually and at budget setting), and should be separately identified and
enumerated. Significant levels of EMRs in particular may give rise to
enquiries from internal and/or external auditors.”
Bibliography
2025 Joint Panel on Accountability and Governance Practitioners Guide
2025 The Good Councillors Guide to Finance