Budgets and Precepts
Everyone is talking about budgets at the moment, including your Parish Council! Parish Councils don’t receive direct funding from central government, so they rely on their Precept, plus any other income they generate from services or facilities (e.g., from the hire of sports grounds, venues, interest from bank accounts, etc.) to meet their spending costs – which is why your Parish Council keeps a careful eye on its budget to ensure it spends money wisely and appropriately. Good budgetary control flags any potential issues with cash flow or overspending and allows the council to plan for future projects - not just initial project costs but also the timescales and ongoing future costs.
Budgeting
Put simply, a budget is a financial plan for a period of time, which for the parish council is the fiscal year running from 1st April to 31st March each year. The parish council provides financial accountability and transparency through correct and proper practices. It reports its actual and predicted expenditure on services such as grass cutting, caring for the cemetery, maintenance of street furniture and speed indicator devices, staff costs, donations and grants. It also plans for contingencies and future projects. The Parish Council must agree on its budget before setting its Precept, and both must be agreed by the full Parish Council (i.e., not the Finance Committee).
The Precept
What is a Council Precept? In simple terms, the Precept is the expenditure budget minus the expected income or surplus from previous years. It is a tax that Parish, Town and Community Councils charge their residents to cover spending on service delivery within the community. There is no cap on the amount that Parish Councils can raise via their Precept (District Councils and County Councils are capped), but Parish Councils are expected to demonstrate restraint. They must explain and justify significant Precept increases, which could impact heavily upon some residents.
This is where reserves come into play.
Hemswell Parish Council general reserves comprise the cash flow and contingency funds necessary to cover unexpected inflation, unforeseen events, and unusual circumstances. General reserves have no restrictions on their use and can be used to smooth the impact of uneven cash flows, offset the budget requirement if necessary, or be held in case of unexpected events or emergencies. Contingencies aren’t built into each budget item as this would mask the real position of the budget against the actuals.
The Parish Council ensures the general reserve is maintained at an appropriate level – if reserves are too low, the PC could run out of money before its year-end; if reserves are too high, this must be justified and explained to residents and auditors. After reviewing the budget and reserves, it may be that the Precept does not need to increase or decrease significantly.
Earmarked Reserves (EMRs)
Earmarked reserves (EMRs) can only be held for genuine and intended expenditures that the Parish Council considers likely to be required in the future. EMRs are generally built-up over time for expenditure likely to be higher than can be funded from a single year's budget, e.g., repainting of the village Maypole.
EMRs are established on a ‘needs’ basis, and Hemswell PC Finance Committee may allocate an EMR for subsequent approval by the PC - each one being separately identified and recorded in the PC accounting software. EMRs are subject to annual review and justification as significant levels of EMRs may give rise to enquiries from the internal and/or external auditors.
If an EMR is used to meet short-term funding gaps, it must be replenished in the following financial year. Where an EMR's purpose becomes obsolete or there is an over-provision of funds, the excess may be transferred to the general reserve or one or more other EMRs by approval at a PC meeting.
Setting the Precept
Once the Precept has been approved by the Parish Council, it informs West Lindsey District Council (around January of each year), and an amount is added to residents' Council Tax bill in the coming year. The exact amount is calculated using a ‘Band D equivalent’ figure. Band D is the middle band of Council Tax and is supposed to represent the amount of Council Tax paid on an average property in the area. The Band D equivalent provides a measure which allows precepts among councils of different sizes to be compared. The required Precept sought by the Parish Council is then divided by the number of houses in the tax base to get the Band D equivalent.
Hemswell Parish Council always aims to use a proportion of its financial reserves to help reduce or 'offset' the Precept demand and the subsequent increase in council tax paid by residents. The amount the Parish Council can offset the Precept depends upon the funds available in its general reserves, but residents can be assured that prudent and sound financial measures are in place to keep any increase in the Precept demand to a minimum.
You can view the budget for the current and previous financial year by following this link to our budget (pdf document.) The link will open in a new browser window.