Councillor Stoddart, cabinet member for finance and corporate services introduced the report. 

The Cabinet received a report on the annual review of Earmarked Reserves and the General Fund for 2026/27. The report outlined the rationale for each reserve and the reasons for maintaining them at their stated levels, ensuring the Council can meet known future commitments and mitigate unforeseen financial risks.

It was noted that earmarked reserves support specific priorities, contingencies, and cash?flow management, while the General Fund acts as a strategic reserve for emergencies. As at 31 March 2025, the General Fund balance stood at £10.1m (4.3% of the 2025/26 net revenue budget), within the required 3–5% threshold.

Earmarked reserves totalled £80.7m at 31 March 2025, including reserves for liabilities and risk (£16.8m), budget resilience (£14.1m), strategic priorities (£9.3m), accounting reserves (£1.8m), grants and contributions (£27m), and schools?related balances (£11.7m). This included £18m in unspent grant funding carried forward in line with CIPFA guidance.

Forecast balances indicated that earmarked reserves were expected to reduce to £65.2m by 31 March 2026 and £41.6m by 31 March 2027, before accounting for any new grants received. The Quarter 2 Budget Report (2025/26) projected a £7m overspend, reduced to £3.7m after management action, with any final overspend to be funded from reserves.

The Medium?Term Financial Strategy highlighted ongoing financial risks and the need to minimise and replenish reserve usage to maintain resilience. Annual review of reserves aligns with CIPFA best practice, and the Section 151 Officer’s statutory responsibilities under Section 25 of the Local Government Act 2003 were noted.

No comments from cabinet members.

Group Leaders were invited to offer their views:

The Independent for Herefordshire Group outlined their views and noted:

Concern was expressed about the significant projected reduction in reserves, falling from around £80m to approximately £41 to 42m around a 50% decrease. It was queried how reserves could realistically be rebuilt through grants, with scepticism that substantial additional funding would be forthcoming from central government. It was suggested that the financial position was moving in a worrying direction over the coming years.

The Green Group outlined their views and noted:

It was noted that reserves exist to provide a cushion for unforeseen expenditure and emerging risks. Reference was made to the increasing impact of climate change, including higher levels of rainfall and flooding, which are causing significant damage to council assets beyond what can be managed within normal road?maintenance budgets. It was highlighted that further pressures on assets and residents are likely, and that this may necessitate drawing on reserves. Concern was expressed that the council is moving into an increasingly challenging financial position.

The Liberal Democrat Group outlined their views and noted that:

No comments. 

In responding to the comments raised, the Cabinet Members noted that:

It was clarified that while no additional central government funding was expected, any future financial surpluses identified through the council’s financial strategy will be directed into reserves.

It was further noted that the costs associated with cancelling the bypass had ultimately been borne by Herefordshire residents, with an estimated impact of around £280 per household. Reference was also made to £27m previously returned to the LEP, and it was stated that had the bypass proceeded when fully funded, these financial pressures would not now be reflected in the capital programme.

It was noted that decapitalisation costs of cancelling the bypass were a matter of public record of the full Council meeting of February 2021. 

Leader of the Council concluded the discussions. Councillor Stoddart proposed and the Leader of the Council seconded for the decision before them which is that Cabinet:

Recommendations:

That:

That:

a)    The earmarked reserves and balances held by the council at 31 March 2025 are reviewed and confirmed as prudent to meet future financial commitments and risks; and

b)    The Earmarked Reserves and General Balances Policy Statement 2026/27 is approved and forecast balances to 31 March 2027 are noted.

The recommendations were unanimously approved.

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