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 and 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 it can set its Precept, and both must be agreed by the full Parish Council.
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 and must explain and justify large Precept increases, which could impact heavily upon some residents.
This is where contingencies and reserves come into play.
A contingency is an amount held for unexpected or unplanned expenditure. Contingencies aren’t built into each budget item as this would mask the real position of the budget against the actuals.
A reserve is the sum of money kept for unexpected expenditures or to ease cash flow problems. The Parish Council ensures the general reserve is maintained at an appropriate level – if reserves are too low, the council 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.
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 has resolved to use a proportion of its financial reserves to reduce the impact of increasing costs on the Precept demand and the subsequent increase in council tax paid by residents. It is unlikely this option will be available in future years, but the council felt this was not the time to impose a large rise in the Precept.
You can view the budget for the current fiscal year and the previous two years by following this link to our budget (pdf document.) The link will open in a new browser window.