Acceptable levels of reserves

A Smaller Authority must be able to justify the level of reserves it is budgeting for in line 7 of Part 2 or Part 3 of the AGAR. 
These reserves may be held for one or more of the following purposes:
  1. Working capital – i.e. enough to keep the Authority’s finances afloat to allow for normal day to day / month to month fluctuations in the available cash.
  2. Earmarked projects – where an Authority has approved a future project, e.g. playing field improvements, it will want to save up for this over a number of years before commissioning the improvements. 
  3. Known expenditure – where the receipts and payments basis is used, you need to have enough cash to pay your creditors.
  4. Risk mitigation – all Authorities face risks.  As part of your review of the risks, you should be considering how to mitigate each risk to acceptable levels.  Some of this will be by insurance, but some may be ‘self-insured’. You should consider this in connection with your assessment of risk (see line 5 of the Annual Governance Statement).
If, after preparing your budget, you are projecting a higher level of reserves than you can justify, you may want to consider reducing your precept.