Budget Setting – Practitioners Guide 2024

From practitioners guide 2024:

5.28. The key stages in the budgeting process are
● decide the form and level of detail of the budget;
● review the current year budget and spending;
● determine the cost of spending plans;
● assess levels of income;
● bring together spending and income plans;
● provide for contingencies and consider the need for general and earmarked reserves;
● approve the budget;
● confirm and submit the precept or rates and special levies;
● review progress against the budget regularly throughout the year – at least quarterly in all but exempt authorities – including a year end projection and a clear minuted commentary of likely significant variances from the budget;
● virements (transfers between budget lines) are permitted but not required – they should be used to clarify the situation of the authority alongside budget variances arising from unforeseen circumstances.

General reserves:

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.