Determining the level and use of reserves is a matter for individual local authorities, taking into account local challenges and priorities. There is no prescriptive national guidance on the minimum or maximum level of reserves, either as an absolute amount or as a percentage of the budget.
Reserves are either: (a) earmarked, as a result of a policy decision by a local authority to use them for specific purposes (it should be noted that some earmarked reserves have to be set aside for specific purposes under statute); or (b) unallocated, these reserves are part of a local authority’s risk management process, which would be called upon in the event of unexpected costs and emergencies.
A recent report by the Audit Commission found that this year the vast majority of councils have sound financial management and are strongly placed to manage funding reductions. Further, the Audit Commission found that, on average, single tier county councils held unallocated reserves equivalent to two-thirds of their grant reductions. District councils held unallocated reserves of twice the value of their reduction. If earmarked reserves were included, district reserves were 6 times the value of their reduction, and, for county councils, nearly 3 times.
Source data for the councils’ reserves table is from the Revenue Budget (RA) 2010 to 2011 and 2011 to 2012 as sent to DCLG by local authorities.