EAST BERGHOLT PARISH COUNCIL

RESERVES POLICY

1. Introduction

1.1 East Bergholt 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.

1.2 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.

1.3 Reserves can be categorised as either general, earmarked or restricted.
1.4 Proper Practices to be applied to Annual Governance and Accountability
Returns require all authorities to have regard to the need to put in place a General
Reserve Policy and have reviewed the level and purpose of all Earmarked Reserves.

1.5 Furthermore, it is stated that whilst authorities should have sufficient Reserves
(General and Earmarked) to finance both its day-to-day operations and future
plans, it is important, however, given that its funds are generated from taxation/public
levies, that such reserves are not excessive.

1.6 Restricted Reserves are ring-fenced for a particular purpose and may not be
transferred to another reserves category.

1.7 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 indicates an appropriate level of Reserves.

1.8 The level of reserves and the purposes for which they are held is reported to
Council on a monthly basis. The Council may instigate a full review of reserves to be
conducted by the Strategy, Policy and Finance Committee which will be reported to
Council with recommendations.

2. Types of reserves

General Reserves

2.1 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.

2.2 The level of general reserves is a matter of judgment. 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. Underspent budgets will be added into reserves at
the year end.

2.3 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.

2.4 Even at times when extreme pressure is put on the council’s finances the
council must keep a minimum balance sufficient to pay one month’s worth of
contractual obligations to staff and contractors in general reserves at all times,
though the recognised requirement is between 3 and 12 months for an authority with
revenue in excess of £200,000. For East Bergholt Parish Council, three months
minimum is required.

2.5 In order to fulfil its financial obligations and to be able to accommodate the
unforeseen, the Council will retain general reserves equivalent to 50% of the precept
at all times.

2.6 General reserves making up the remaining 50% equivalent of the precept may
be earmarked for nominated Council Projects and other infrastructure funding which
benefit the community.

Earmarked Reserves

3.1 Earmarked reserves can be used to cover items such as:

• Renewals – to enable services to plan and finance an effective programme of
vehicle and equipment 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 year. Reserves are used as a mechanism to
carry forward these resources.

• Funding for major Council Projects which cannot be accommodated in the
revenue budget.

• Other earmarked reserves may be set up from time to time to meet known or
predicted liabilities and may include an insurance reserve to enable the
Council to meet the excesses of claims not covered by insurance.

3.2 Earmarked reserves will be established on a “needs” basis, in line with
anticipated requirements. Any decision to set up an earmarked reserve must be
given by the Council.

3.3 Reserves should not be held to fund ongoing 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 in 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.

3.4 All earmarked reserves are recorded by the Responsible Financial Officer
who lists the various earmarked reserves and the purpose for which they are held
and reports to Council.

Restricted Reserves

4.1 The Council holds Community Infrastructure Levy (CIL) funds as Restricted
Reserves available only for awards pursuant to the Council’s CIL Policy and
Procedure.

4.2 Neighbourhood CIL is passed to parish or town councils by Babergh District
Council when development is taking place. The amount will be 15% or 25% of the
total CIL payment depending on whether the community has an adopted
Neighbourhood Plan. In East Bergholt the amount is 25%.

4.3 The CIL Regulations 2010 as amended state that the parish council must
spend the CIL income they received from the District on either:

• The provision, improvement, replacement, operation or maintenance of
infrastructure; or

• Anything else that is concerned with addressing the demands that
development places on an area.

4.4 Providing CIL is spent in accordance with the above, CIL monies may be used
to provide seed or match funding with other income streams and / or may be spent
collaboratively with other parish councils, community interest companies or other
providers to make the most efficient use of funding to benefit the community.

4.5 East Bergholt Parish Council has a five-year period in which to spend CIL
monies from the date received, thus funds may be accumulated to provide for major
projects.

4.6 These sums must be held in a designated reserve (restricted reserve) to
support the expenditure on facilities and services to ensure that there is the capacity
to sustain such growth.

5. The Use of Reserves

5.1 The Council will hold Reserves for these four main purposes: –

• A working balance to help cushion the impact of uneven cash flows and
avoid unnecessary temporary borrowing – this forms part of the General
Reserves.

• A contingency to cushion the impact of unexpected events or emergencies
– this also forms part of the General Reserves.

• A means of building up funds to meet known or predicted requirements –
Earmarked Reserves

• A means of using funds to address the demands that development has
placed on the area – Restricted Reserves.

6. Council Procedures for managing Reserves

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

6.2. Expenditure from reserves can only be authorised by the Council.

6.3. The reserves will be reviewed by the Council as part of the annual budgeting
process.

6.4. The Responsible Financial Officer will maintain details of all reserves which
will be reported to Council at regular intervals.

APPROVED AND ADOPTED BY EAST BERGHOLT PARISH COUNCIL:
REVIEW: