Agenda item
Medium Term Financial Strategy 2024/2025 to 2026/2027
Report attached.
Minutes:
The Cabinet considered a report of Councillor Peter Britcliffe, Deputy Leader and Portfolio Holder for Resources, setting out the 3-year projections of income and expenditure for the Council ahead of formulating its 2024/25 Revenue and Capital Budgets.
Councillor Britcliffe highlighted that the Medium Term Financial Strategy (MTFS) identified the financial outlook for the next three years. In setting its Budget, the Council should have regard to the medium term situation and not take a narrow one year view.
Approval of the report was not considered to be a key decision.
Reasons for Decision
The Cabinet required an update on its medium term financial outlook ahead of setting the Budget for 2024/25 and determining the level of Council Tax for the new financial year
In summary, the Council’s activities and finances had been dominated this year by the impact from the War in Ukraine and focussing on the Levelling Up / Town Centre regeneration along with ensuring it delivered its day-to-day services and other key strategic projects. It was expected that these key events and their impact on the Council’s finances would continue over the next few financial years, with the potential for the effects to continue much longer.
The Council would operate a roll forward Budget for 2024/25 based on the 2023/24 Budget with adjustments for changes to salary and wages, energy and other cost pressures. This provided Service Managers the ability to respond to inflationary pressures and allowed a degree of stability for 2024/2025. In order to achieve a balanced Budget the Council would need to generate £106,300 of internal savings during the year. Overall expenditure would need to be contained at around £15.999m in 2024/25 to set a balanced budget.
If necessary, the Council might have to use some of its Reserves to help balance the Budget. This was particularly likely if the Government reduced the amount of financial support it provided the Council or reduced the amount of Business Rates it was allowed to retain. Additionally, it might be necessary to use Reserves if it was believed that in the current economic climate it would be inappropriate to raise Council Tax.
The Council would face significant financial challenges over the next three years as it sought to overcome the consequences of the War in Ukraine and ongoing conflict in the Middle East. Addressing the impact of any proposed Government funding reforms and increased pressures on spending would present it with further challenges over this period. As the extent of the Government financial reforms were unclear at this time, this produced great uncertainty and potentially significant variance around the forecasts contained in the MTFS.
Previously, for the last five years the expectation had been that the Government would implement what it termed as a “Fair Funding Review of Local Government Finance.” This proposal would effectively end the Revenue Support Grant to the Council and potentially redistribute the amount of Business Rates the Council was allowed to retain to other Councils. The expected impact of these changes, if they were to go ahead, was a likely significant decrease in the funding available to the Council.
In these circumstances, the Council would need to make substantial reductions in its expenditure levels as a consequence. The changes would need to be made either immediately in the aftermath of the announcement or over a short period, if some form of transitional arrangements accompanied these changes to assist those councils most dramatically impacted.
After 5 years in which these reforms had been postponed for various reasons and with a new Government with Rishi Sunak as Prime Minister, the certainty around the introduction of Fair Funding was no longer as sure as it once appeared, and it might be the case that these reforms were postponed for a number of years or dropped altogether. This would allow the potential current levels of funding to the Council to continue.
As a consequence, the modelling now recognised that there was a real possibility that continuation of Government funding at current levels might be the most likely outcome over the next few years of all the potential different scenarios that could occur. However, many of the drivers around the need to reform the finances of Local Government still existed. Department of Levelling Up, Housing and Communities (DLUHC) officials continued to indicate that they wished to introduce some kind of Fair Funding Review to re-shape council finances and the prospectus of this occurring over the next few years remained a distinct possibility.
This presented the Council with two very different future budget scenarios. The first was a scenario in which funding from Government remained largely in its current shape and where the Council, while under financial pressure from high pay inflation and a steep rise in its energy costs, should be able to largely cope. While the second scenario, would see reform of local government finance, with a wide range of possible outcomes for the Council potentially occurring, from changes that were relatively small in consequence, all the way through a whole series of potential results, some of which would be large and very dramatic in terms of the challenges it presented to the Council.
These two scenarios were modelled within the report - the more severe of the two, as the Pessimistic Scenario and the other as the Standard Model. A third model was also presented which indicated the Council’s potential position if the Government chose to provide local government with an injection of cash over and above current levels and locally the Council was able to boost its own tax revenue as a consequence of a buoyant tax base. This Optimistic model was considered to have a much lower probability of occurring compared to the other two models, but was provided to illustrate the wide range of potential outcomes.
In these circumstances, it was prudent for the Council to look to increase its reserves and revenue streams such as Council Tax and Business Rates whenever it could and to avoid committing to any new revenue expenditure while continuing to concentrate on its work to reduce internal costs.
The main MTFS document, provided as an Appendix to the report, included the following sections:
- Snapshot View;
- Corporate Strategy Summary;
- Summary;
- Elements of the MTFS;
- Background;
- Resources (including Government Grant, Council Tax, Business Rates);
- Changes in Costs;
- Budget Pressures;
- Capital Costs;
- Growth;
- Reserves;
- Oher assumptions;
- Equality Impact Assessment;
- Scenarios (including Breakdown of Pessimistic, Standard and Optimistic Models);
- Robustness of the Forecast; and
- Overall Net Position
There were no alternative options for consideration or reasons
Resolved - That the Cabinet approves the report and the accompanying Medium Term Financial Strategy (MTFS).
Supporting documents: