Reserves are a vital part of the Council’s financial strategy and are held to create long term budgetary stability and to manage risk. They enable the Council to manage change without undue impact on Council Tax and are a key element of its financial standing and resilience.

The Council continues to face a number of financial risks and therefore holds earmarked reserves and a general fund reserve in order to mitigate future financial risks. There are two main types of reserves:

• earmarked reserves – which are held for identified purposes and are used to maintain a resource to provide for expenditure in a future year(s)
• general reserves – these are held for ‘unforeseen’ events
• the Council maintains reserves both for its General Fund activities and in respect of schools. School balances belong to maintained schools and will be subject to localised plans
• details of the Council’s reserves (excluding the Dedicated Schools Grant) and their forecast balances are summarised in the table below.  These will be reviewed in light of the outturn and future calls on the reserves

Reserve balance forecast

The amount of reserves held is a matter of professional judgment by the Director of Finance & Corporate Services. This considers the reasons why reserves are maintained, and the Council’s potential financial exposure to risks including the current high level of inflation. The Council holds reserves in order to mitigate future risks, such as increased demand and costs; to help absorb the costs of future liabilities; and to enable the Council to resource policy developments and initiatives without a disruptive impact on Council Tax. Capital reserves play a similar role in funding the Council’s capital investment strategy.

Reserves are one-off money and therefore the Council must avoid using reserves to meet on-going financial commitments other than as part of a sustainable budget plan. The Council must balance the opportunity cost of holding reserves in terms of Council Tax against the importance of interest earning and long-term future planning. Reserves are therefore held for the following purposes:

• providing a working balance
• smoothing the impact of uneven expenditure profiles between years e.g. local elections, structural building maintenance and carrying forward expenditure between years
• holding funds for future spending plans e.g. Capital Expenditure plans, and for the renewal of operational assets e.g. Information Technology renewal.
• meeting future costs and liabilities where an accounting ‘provision’ cannot be justified
• meeting future costs and liabilities to cushion the effect on services e.g. the Insurance Reserve for self-funded liabilities arising from insurance claims.
• to provide resilience against future risks
• to support the delivery of transformational savings, where additional capacity and/or expenditure is required. There will be an update on the use of individual reserves over the Medium Term Financial Strategy in the report to Public Cabinet in late 2025

The Council does not hold significant reserves to smooth the budget for any significant further reductions in income or increased expenditure. It is imperative that reserves are replenished in the short to medium term in order to improve financial resilience against future increasing uncertainty. However, opportunities are limited as this can only be achieved if the Council were to identify further saving, efficiency and transformational opportunities or income opportunities.

Alongside the reserves the Council includes within its recurring revenue budget a revenue contingency which is utilised before reserves. There is no change to the assumptions reported to Public Cabinet in February 2025.  Contingency of £2.700m is currently set aside for each year of the Medium Term Financial Strategy.