The level of the council's general reserves
Reserves are sums set aside to meet possible future costs where there is no certainty about whether or not the costs will actually be incurred. They provide the council with a safeguard against any unforeseen circumstances.
Section 25(1)(b) of the local government act 2003, requires the chief financial officer to report to the authority on the adequacy of the proposed financial reserves and guidance from the chartered institute of public finance and accountancy (cipfa) who are the leading professional accounting body for public services is that local authorities, on the advice of their chief finance officers, should make their own judgment on a minimum level of reserves. CIPFA states that a well-managed authority with a prudent approach to budgeting should be able to operate with a relatively low level of general reserves and that chief financial officers should take account of the strategic, operational and financial risks facing the authority.
A risk assessment has therefore been undertaken to establish what should be a minimum level of general reserves for the council. A summary of this risk assessment is given below:
| 2009/10 Reserve needed for Low level of risk (£m) | 2009/10 Reserve needed for Medium level of risk (£m) | 2009/10 Reserve needed for High level of risk (£m) | Likeli-hood | Minimum Reserve Needed | |
|---|---|---|---|---|---|
| Pay - current budget assumes 0% increase | 0.3 | 0.5 | 1.0 | Medium | 0.5 |
| Prices - budget assumption is that price increase can be managed within existing budget allocations | 0.2 | 0.5 | 1.0 | Medium | 0.5 |
| Adult social care - volatility of demand led budgets | 0.5 | 1.0 | 1.5 | High | 1.5 |
| Planning income/ land charges - adverse housing market conditions | 0.3 | 0.5 | 1.0 | Medium | 0.5 |
| Children in care - continual risk of demand led pressures | 0.5 | 1.0 | 1.5 | High | 1.5 |
| Special educational needs transport - potential increase in special needs children requiring transport provision | 0.3 | 0.5 | 1.0 | Medium | 0.5 |
| Non-achievement of savings - Think efficiency programme risk of some savings not being delivered on time | 1.0 | 2.0 | 3.0 | Medium | 2.0 |
| Other unforeseen expenditure - general contingency | 0.5 | 1.0 | 1.5 | Medium | 1.0 |
| Total | 3.6 | 7.0 | 11.5 | - | 8.0 |
Whilst the assessment is not an exact science, and views may differ on what constitute key financial risks and their evaluation, it indicates that the minimum level of general reserves during 2010/11 should be in the region of £8.0 million and the desirable level is £11.5 million.
2009/10 budget performance
The level of our general reserves at 31st March 2009 was £9.8 million and allowed for a planned use of reserves in 2009/10 of £2.9 million, this comprised a £1.6 million pay back as the first year of a two year plan to replenish the £3.3 million use of reserves used to support the 2008/09 revenue budget and £4.5 million to be used in general support of the 2009/10 revenue budget.
The 2009/10 projected outturn figures revealed a net under-spending of £2.3 million on the revenue budget which would increase reserves to £9.2 million at 31st March 2010. The position can be summarised as follows:
| Movement in reserves 2009/10 | (Million pounds) |
|---|---|
| Actual reserves as at 31st March 2009 | 9.8 |
| pay back of the planned use of reserves to support the 2008/09 revenue budget | 1.6 |
| general support to the revenue budget | -4.5 |
| net underspending 2009/10 | 2.3 |
| Revised projection of reserves 31st March 2010 | 9.2 |
2010/11 proposed use of reserves
The council was determined to balance the budget in 2010/11 by identifying efficiencies to avoid any cuts in service, without compromising the level of general reserves whilst minimising any increase in the level of council tax. The 2009/10 underspend gave us the flexibility to utilise reserves to support the 2010/11 revenue budget whilst still keeping to the planned level of reserves. The impact on the overall level of reserves held is as follows:-
| Estimated reserves for unforeseen circumstances | (Million pounds) |
|---|---|
| Revised projection of reserves 31st March 2010 | 9.2 |
| Final pay back of the planned use of reserves to support the 2008/09 revenue budget . | 1.6 |
| Restoration of reserves to the 2009/10 planned level per budget strategy | -2.2 |
| Estimated reserves as at 31st March 2011 | 8.6 |
The budgeted level of reserves as at 31st March 2011 of £8.5 million is above the minimum level of reserves that should be held for the key financial risks facing the council as given in the risk assessment.
The strategy for the use of reserves is that the amount held must not fall below the minimum level, whilst the desirable level should be seen as the target to aim for in a 3-year strategy. The table shown above indicates that the projected level of reserves meets this criteria and illustrates how this strategy can be managed without reducing reserves to a vulnerable level and over-burdening any one year's budget with an excessive contribution to reserves.
Budget Consultation 2010/11
This page was last updated on 8 March 2010
