This is a matter that often causes confusion and different councils have very different ways of approaching the issue.
There is some guidance in the Practitioners’ Guide at paragraph 5.166:
- As authorities have no legal powers to hold revenue reserves other than those for
reasonable working capital needs, or for specifically earmarked purposes, whenever an authority’s year-end general reserve is significantly higher than the annual precept or rates and special levies, an explanation should be provided to the auditor.
This guidance is less than in earlier editions of the guide. However, Councils should beware of storing up significant cash reserves unless they have clear plans for spending them.