Agenda item
Update on the Medium-Term Financial Strategy 2025/26 to 2027/28
Report attached.
Minutes:
Members considered a joint report of Councillor Noordad Aziz, Deputy Leader and Portfolio Holder for Transformation, Education and Skills, and Councillor Vanessa Alexander, Portfolio Holder for Resources and Council Operations, providing an update on the financial position for the Council’s Revenue and Capital Budgets for 2025/26 and the impact on the Medium-Term Financial Strategy (MTFS) 2025/26 to 2027/28.
Councillor Aziz gave a short verbal introduction to the report.
Approval of the report was not considered to be a key decision.
Reasons for Decision
The Council had approved its Revenue Budget for 2024/25 and Medium-Term Financial Strategy (MTFS) 2024/25 – 2026/27 at the Full Council meeting on 27th February 2024.
Since the MTFS 2024/25 – 2026/27 had been produced the economic and political climate had changed. Therefore, the assumptions, pressures and risks required updating as a number might have evolved.
A report had been presented to Cabinet on 18th September 2024, detailing the current assumptions, risks and pressures and the process for the budget 2025/26.
This report was to inform Cabinet of the revised MTFS for 2024/25 – 2026/27 to incorporate the information presented in the report mentioned above and to extend this for an additional year into 2027/28.
Update of the Medium-Term Financial Strategy 2024/25 – 2027/28
Since the revenue budget had been approved at full Council on 27th February 2024 and recognising that the Council was operating in an ever-changing environment, work had continued to update the MTFS and extend it to include the 2027/28 financial year.
The table below showed the updated standard scenario MTFS:
Table 1: Medium Term Financial Strategy 2024/25 – 2027/28
|
2024/25 Budget £'000 |
2024/25 Forecast £'000 |
2025/26 Estimate £'000 |
2026/27 Estimate £'000 |
2027/28 Estimate £'000 |
Service Budgets |
15,399 |
16,110 |
16,629 |
16,869 |
17,139 |
Non-Service Budgets |
1,268 |
143 |
969 |
1,069 |
1,069 |
Corporate Savings Target |
(107) |
- |
- |
- |
|
Net Revenue Expenditure |
16,560 |
16,253 |
17,598 |
17,938 |
18,208 |
Transfers to Usable Reserves |
616 |
888 |
350 |
350 |
350 |
Transfers from Usable Reserves |
(965) |
(1,015) |
(553) |
(419) |
(409) |
Net Revenue Expenditure after use of Reserves |
16,211 |
16,126 |
17,395 |
17,869 |
18,149 |
Less: Government Grants |
(2,388) |
(2,388) |
(2,436) |
(2,485) |
(2,535) |
Less: Business Rates Retained |
(8,069) |
(8,069) |
(8,519) |
(8,395) |
(8,563) |
Less: Council Tax Income |
(5,754) |
(5,754) |
(6,104) |
(6,375) |
(6,618) |
In Year Funding 'Gap' |
- |
(85) |
336 |
614 |
433 |
Cumulative Funding 'Gap' |
- |
(85) |
336 |
950 |
1,383 |
The MTFS figures were based on the assumptions set out in the report presented to Cabinet on 18th September 2024 including the following:
- Pay award of 3.0%;
- General inflation of 3.0%;
- Utilities inflation of 2.0%;
- Increases in sales, fees and charges income of 3.0%;
- Increase in non-ringfenced Government grant income of 2.0%;
- Increases in retained business rates income of 2.0%; and
- Increase in Council Tax base of 0.8% with a 2.99% increase in Council Tax rate.
The figure contained in the report now provided assumed that the Council would accept the Homes England Brownfield Infrastructure and Land Fund grant and that the Council would not receive its allocation of UK Shared Prosperity Funding from 2025/26 onwards.
It was also assumed that the Housing Benefit caseloads relating to the pressure of the Housing Benefit supported / exempt properties would not increase beyond the current levels due to future introduction of planning controls and housing regulation.
Although the Council had identified that there might be capital investment required to repurpose sites under the Council’s control, such as Oswaldtwistle Civic Theatre and Mercer Hall, the Medium-Term Financial Strategy worked on the assumption that there would be no additional Council funds above those already approved. It was the Council’s direction that it would engage with providers and external funders to enable these buildings to be brought back into community use.
The above table also took account of the risks set out in the same report. The table below set out the details of cumulative movements in each year of the MTFS table:
Table 2: Medium Term Financial Strategy Movements and Pressures
|
2024/25 Forecast £'000 |
2025/26 Estimate £'000 |
2026/27 Estimate £'000 |
2027/28 Estimate £'000 |
Pay Award |
- |
268 |
538 |
813 |
General Inflation |
- |
227 |
393 |
562 |
Utilities Inflation |
- |
22 |
45 |
68 |
Increases in Sales, Fees and Charges Income |
- |
(130) |
(220) |
(311) |
Increase in Non-Ringfenced Government Grants |
- |
(48) |
(97) |
(147) |
Increase in Retained Business Rates Income |
- |
(428) |
(593) |
(761) |
Increase in Council Tax Income |
- |
(210) |
(444) |
(687) |
Total Inflationary Movements |
- |
(299) |
(378) |
(463) |
Additional Costs for Leisure Services |
850 |
700 |
500 |
350 |
Revenue Costs for Levelling Up Fund Projects |
- |
150 |
150 |
150 |
Savings on Transfer of Market Operations |
- |
(225) |
(225) |
(225) |
Use of Contingency to Fund LUF Project Costs |
- |
(150) |
(150) |
(150) |
Loss of External Funding |
- |
120 |
134 |
138 |
Additional Housing Benefits Costs |
284 |
350 |
385 |
425 |
Waste Transfer Costs (if no Transfer Station) |
- |
- |
500 |
510 |
Food Waste Collections Revenue Costs |
- |
- |
475 |
485 |
Grant for Food Waste Collection Revenue Costs |
- |
- |
(475) |
(485) |
Potential Pension Contribution Savings |
- |
- |
(477) |
(487) |
Other Costs Previously Funded from Reserves |
- |
22 |
22 |
22 |
Additional Investment Interest |
(1,047) |
(298) |
(199) |
(199) |
Change in Minimum Revenue Provision |
(78) |
- |
- |
- |
(Surplus)/Deficit Business Rates |
- |
(289) |
- |
- |
(Surplus)/Deficit Council Tax |
- |
37 |
- |
- |
Other Variations from Budget |
(94) |
- |
- |
- |
Total Additional Service Pressures |
(85) |
417 |
640 |
534 |
Other Changes in Reserves Movements |
- |
218 |
352 |
362 |
Total in Year Movements in MTFS |
(85) |
336 |
614 |
433 |
The table above incorporated the current estimates of the cost for each of the risks presented to Cabinet in September 2024, showing the significant pressures the Council was facing over the next 3 years. Some of the most significant pressures were as listed below, further details of which were set out in the report:
- Additional Cost of Leisure Services;
- Revenue Costs for Levelling up Projects;
- Loss of External Funding;
- Additional Housing Benefits Costs;
- Waste Transfer Costs;
- Revenue Costs of Food Waste Collections;
- Potential Pension Contribution Savings;
- Additional Investment Interest; and
- Surplus and Deficits in the Collection Fund
The values of these risks in the MTFS would be updated as more information became available.
Reserves
Development of the Council’s MTFS also needed to consider the reserve balances available.
Details of the Council’s reserves were regularly reported to Cabinet. An updated analysis of reserves was set out in the report at Appendix A, which showed the current forecast movements in reserves for 2024/25, along with the movements in the standard scenario tables above for the 3-year period of the MTFS. The strategy for the use of reserve balances was as follows:
Usable Reserves
Unallocated Reserves – This balance should be maintained above the minimum level of £1million. This minimum level was held for use in unexpected and unforeseen circumstances and was part of the Council’s various measures to maintain financial resilience.
Underspends/Invest to Save Reserve – This reserve had been accumulated through previous years underspends to be used to fund short term pressures and projects which would help reduce the net costs to the Council.
Revenue Funding for Capital Schemes – This reserve contained amounts set aside for use funding the capital programme. Whilst a significant amount of this reserve had been committed to fund the current approved capital programme, remaining balances might be required to fund schemes should capital receipts not be obtained.
Business Rates Volatility Reserve – This reserve was to be used to smooth any surpluses or deficits in the collection fund.
Other Earmarked Reserves – These reserves would only be used for the purposes for which they had been set aside and would be subject to annual review. The balance of these reserves, in the main, was committed for specific issues.
It must be noted that reserves were a finite source of funding and should not be relied upon to support the Council’s budget, other than as part of the clear strategy to achieve a sustainable budget in the medium term.
The Council also held what was known as “Unusable Reserves”. These reserves were held for accounting processes and did not represent balances available to use to fund Council services. The Council held circa £29.9million at 31st March 2024, which included certain reserves such as the revaluation reserve, capital adjustment account and pensions reserve.
Scenario Analysis
As mentioned above, the MTFS was prepared using a range of assumptions which impacted on both income and expenditure. Changes in these assumptions could have a significant effect on the Council’s forecast funding gap and the level of savings which might be required over the medium term.
It was good practice to undertake sensitivity analysis by changing some of the key assumptions used in the MTFS. Whilst the purpose of this analysis was not to forecast the future, it was to better understand the Council’s sustainability in an uncertain environment.
For Hyndburn this was achieved by preparing 3 scenarios, pessimistic (worst case), optimistic (best case) and standard (base case). The tables shown above represented the standard scenario, which was the scenario that best represented what were currently thought to be the most likely outcomes and was the scenario on which the revenue budget was set each year.
The table below summarised the expected funding gap for each of the 3 scenarios over the MTFS period:
Table 3: Scenario Analysis – Funding ‘Gaps’ Over MTFS Period
|
2025/26 £'000 |
2026/27 £'000 |
2027/28 £'000 |
Optimistic Scenario |
(200) |
(473) |
(1,233) |
Standard Scenario (in tables above) |
336 |
614 |
433 |
Pessimistic Scenario |
1,378 |
2,813 |
3,850 |
As the table above indicated, the range of potential scenarios for the 2025/26 financial year was a surplus of £0.200m to a deficit of £1.378m. Over the MTFS period, this rose to a potential surplus of £1.233m to a deficit of £3.850m by 2027/28.
Details of the variances from the standard scenario to the optimistic and pessimistic scenarios were set out in the report at Appendix B. All assumptions for each of the 3 scenarios were detailed in the report presented to Cabinet on 18th September 2024 and were summarised in Appendix B.
Next Steps
The timetable for the budget process had been set out in the report to Cabinet on 18th September 2024.
The Finance Team continued to work with budget holders to undertake a thorough review of all budgets to identify any potential additional budget pressures or savings.
These would be discussed with the Corporate Management Team and Cabinet over the coming months and decisions made on which items would be put forward in the final revenue budget and MTFS.
A series of Cabinet budget working group sessions had been timetabled to ensure engagement and communication was effective throughout the budget process.
Corporate Management Team and Service Managers would work with Cabinet members to develop an action plan to achieve the identified budget gap of £1.383m over the next 3 years as shown in Table 1. This action plan would be linked to the Council’s Corporate Plan and establish the requirements for the efficient future delivery of Council services
There were no alternative options for consideration or reasons
Resolved - That the Cabinet:
(1) Notes the updated financial position for the 2025/26 revenue budget.
(2) Notes the updated Medium Term Financial Strategy 2025/26 to 2027/28.
(3) Notes the risks and pressures included in the Medium-Term Financial Strategy, to be considered through the further development of the MTFS.
(4) Notes the forecast general fund reserves position over the period of the Medium-Term Financial Strategy.
(5) Notes the next steps highlighted in section 7 of the report and the requirement to produce an appropriate action plan that will ensure the Council can meet its legal requirement to set a balanced budget in 2025/26 and address budget gaps in future years.
Supporting documents: