Medium Term Financial Strategy (MTFS) 2025/26 - 2029/30
Appendix 2 - reserves
Local authorities must consider the level of reserves needed to meet estimated future expenditure when calculating the budget requirement. The Strategic Director, Resources and Digital is required, as part of the budget setting process each year, to provide a statement on the adequacy of reserves that is subject to an external audit review to assess value for money and a going concern opinion.
The Council keeps a level of reserves to protect against the risk of any uncertainties or unforeseen major one-off events. This is considered best practice and demonstrates sound financial planning. The use of financial reserves will not in itself resolve a budget issue, but it can allow for smoothing of impacts or allow the Council time to address the issue.
The Statement of Accounts 2023/24 (subject to audit) shows all the reserves balances held by the Council, but it should be noted that not all of these can be used to support the budget.
Reserves can be:
- Held for accounting purposes. These are not true cash balances and are unable to be used to support the budget and are classed as unusable in the Council's statement of accounts and therefore will not be detailed in the sections below.
- The General Fund is split between a General Reserve and reserves attributable to schools (LMS Budget Share Reserve).
- Strategic earmarked reserves the Council has chosen to hold for a specific purpose.
- Ring fenced reserves which can only be used for a specific purpose and are not available to support council tax or budget setting of general Council services.
Reserves Policy
The Council's policy on reserves is as follows:
- The Council will maintain its general reserve at a minimum of 3%of the net revenue budget to cover any major unforeseen expenditure. The Council will aim to balance its revenue budget over the period of the MTFS without reliance on the use of the general reserve.
- The Council will maintain earmarked reserves for specific purposes which are consistent with achieving its key priorities.The use and level of earmarked reserves will be reviewed annually.
- The Council's general reserve is available to support budget setting over the period of the MTFS and usage should be linked to the achievement of financial sustainability over the medium term.
Review of Reserves
A review of reserves was undertaken as part of the 2023/24 Revenue Outturn and covered:
- The purpose for which the reserve is held,
- An assessment of the appropriate level of the reserve to meet potential future liabilities, in line with the Council's reserves policy and aligned to the risk management framework,
- Procedures for the reserve's management and control,
- A process and timescale for future reviews to ensure continuing relevance and adequacy.
The balances at 31 March 2024 remain subject to audit.
A breakdown of each reserve and the reason it is needed is outlined below;
Reserve | Why Needed | Available to support Council budget | Balance as at 31 March 2024 |
|---|---|---|---|
Council General Reserve | This is a statutory fund that acts as a contingency and allows the Council to meet any unforeseen costs. If the Council overspends in a year this fund will meet that liability. The minimum balance on the reserve is 3% of the net revenue budget | Yes (subject to minimum levels being maintained) | £16.2m |
Schools Balances | Use of this reserve is ring-fenced to schools and there is a duty to report planned use to Schools Forum. The balance is for schools collectively, but this includes both surplus and deficit balances of individual schools | No - ringfenced to schools | £7.5m |
The Strategic Director, Resources and Digital has reviewed the level of the General Reserve and it is considered that a 3% minimum level should be retained given the current level of risk and uncertainty.
Reserve | Why Needed | Available to support Council budget | Balance as at 31 March 2024 |
|---|---|---|---|
Financial Risk and Resilience | This reserve is held in respect of key financial risks identified through the risk management process and the savings required as part of the Council MTFS. This includes Insurance (£6.9m), grant clawback (£4.0m), workforce development costs (£4.1m), commercial risk (£3.0m), and budget flexibility (£5.6m)
£0.299m of this reserve is committed within the 2024/25 budget | Yes | £23.6m |
Thrive | This reserve is held support to Council thrive priorities of Economic, Housing and Environmental Investment (£2.7m) Poverty, Health and Equality Investment (£3.0m), and Discretionary Social Fund (£0.5m)
£1.535m of this reserve is committed within the 2024/25 budget | Yes | £6.2m |
Budget Sustainability | This reserve was created in 2021 to help support the timings of achieving significant budget savings and Thrive outcomes whilst still dealing with pandemic impacts.
£5.0m of this is committed within the 2024/25 budget with a further £8.5m proposed in 2025/26 and £4.0m in 2026/27. | Yes | £22.2m |
The following table shows the projected use of reserves over the MTFS, including a plan to replenish reserves from 2026/27 onwards. Projected use of the Financial Risk and Resilience Reserve, and the Thrive Reserve reflect annual decisions agreed as part of the Budget and Council Tax report in February to temporarily fund specific priority areas of the budget in the short-term. As such, future projected use of these reserves is to be confirmed.
|
Balance 31/03/2024* £000 |
Budgeted Use 2024/25 £000 | Estimated Balance 31-Mar-25 £000 |
Proposed Use 2025/26 £000 |
Proposed Use 2026/27 £000 |
Proposed Use 2027/28 £000 |
Proposed Use 2028/29 £000 |
Proposed Use 2029/30 £000 | Estimated Balance 31-Mar-30 £000 |
|---|---|---|---|---|---|---|---|---|---|
General Reserve | (16,218) | 0 | (16,218) | 0 | 0 | 0 | 0 | 0 | (16,218) |
Replenishment |
| 0 | 0 | 0 | (5,000) | (5,000) | (5,000) | (5,000) | (20,000) |
Earmarked: |
| ||||||||
Financial Risk & Resilience | (23,627) | 299 | (23,328) | TBC | TBC | TBC | TBC | TBC | (23,328) |
Thrive | (6,241) | 1,535 | (4,706) | TBC | TBC | TBC | TBC | TBC | (4,706) |
Budget Sustainability | (22,175) | 5,000 | (17,175) | 8,500 | 4,000 | 0 | 0 | 0 | (4,675) |
TOTAL | (68,261) | 6,834 | (61,427) | 8,500 | (1,000) | (5,000) | (5,000) | (5,000) | (68,927) |
* Subject to audit
Ringfenced Reserves
Ringfenced reserves balances are shown in the table below for information.
Reserve | Why Needed | Available to support Council budget | Balance as at 31 March 2024 |
|---|---|---|---|
Developers' Contributions | This reserve consists of developer contributions in respect of agreed regeneration schemes following Section 38 and 106 agreements. The movement on the reserve will fluctuate depending on the use of the contributions to support regeneration schemes such as play areas in new housing developments. | No | £2.4m |
Unapplied Revenue Grants | This reserve was created to comply with accounting rules where unspent grants and contributions, without grant conditions are to be used in the following years. | No | £2.1m |
Schools PFI | Ring-fenced funds set aside to cover the final year Unitary charge of the schools Private Finance Initiative (PFI) | No | £4.1m |
Highways Enforcement | Ring-fenced surplus enforcement funds required to be held separate and used to carry out highways improvement projects and cannot be used for wider council activities | No | £1.1m |
Public Health Reserve | The responsibility for Public Health transferred to local authorities on the 1 April 2013. The funding is for future Public Health use. | No | £5.0m |
Dedicated Schools Grant Reserve | This is for schools use and cannot be used for other priorities within the Council. Use of this reserve will be agreed by Schools Forum. | No | £2.7m |
Housing Revenue Account | This fund is statutory to maintain a revenue account for local authority Council housing provision. It contains the balance of income and expenditure as defined by the Act that is available to fund future expenditure in connection with the Council's landlord function or (where in deficit) that is required to be recovered from tenants in future years. | No | £11.1m |
Capital Receipts Reserve | This reserve holds the proceeds from the disposal of land or other assets, which are restricted by statute from being used other than to fund new capital expenditure or to be set aside to finance historical capital expenditure. The balance on the reserve shows the resources that have yet to be applied for these purposes at the year-end use and may be earmarked for use in the Council's capital programme. | No, unless approved by Government for transformation | £21.9m |
Capital Grants Unapplied | This reserve holds the grants and contributions received towards capital projects for which the Council has met the conditions that would otherwise require repayment of the funds, but which have yet to be applied to meet expenditure. The balance is restricted by grant terms. | No | £30.0m |
The overall level of financial resources available to the council is finite and therefore the continued use of reserves above a certain level cannot be sustained in the longer term without placing the Council's financial position at risk. The MTFS recognises that the Council's financial reserves are maintained at a prudent level to protect present and future Council services and includes a plan to replenish reserves in years 2 to 5 of this MTFS.
The Council accepts that while balancing the annual budget by drawing on general reserves can be in certain circumstances a legitimate short-term option it is not considered good financial management to finance recurrent expenditure in this way in the medium to long term. The Council recognises that usage of reserves is one-off in nature and must be linked with expenditure and income plans to support financial sustainability in the medium term.