Agenda item

To note the attached report which was approved by Cabinet on 12^th February 2025.

The Council considered 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, regarding the 3-year projections of income and expenditure for the Council ahead of formulating its 2025/28 Revenue and Capital Budgets.

Councillor Aziz gave a brief introduction to the report.    A copy of the report had also been provided to the Cabinet on 12^th February 2025.

The Council required an update on its medium-term financial outlook ahead of setting the Budget for 2025/26 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 focus on continuing to deliver its major capital projects, which had included the Levelling Up / Town Centre regeneration, its Leisure transformation through the construction of the new Leisure Centre at the Wilson playing fields site and securing almost £30m in funding to facilitate the development of over 1,800 new homes at Huncoat.  These activities had been carried out along-side of 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 2025/26 based on the 2024/25 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 2025/26.  To achieve a balanced Budget, the Council would need to generate £163,900 of internal savings during the year.  Overall expenditure would need to be contained at around £17.314m in 2025/26 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 consequence of both national and global issues.  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 was unclear at this time, which produced great uncertainty and potentially significant variance around the forecasts contained in the Medium Term Financial Strategy (MTFS).

With the change in Government in May 2024, the new Deputy Prime Minister and Secretary of State for Housing, Communities and Local Government had stated that there was a vision for change, with local government at its very heart, although there were no illusions about the scale of problems facing local government with funding cuts since 2010 disadvantaging the most deprived areas.  It had also stated that the Government would reform how councils were funded and would deliver funding where it was needed most.  As a result, 2026-27 would mark the first multi-year funding settlement for local government in ten years.

Central Government had indicated that there would be significant reform of funding for Local Government before the 2026/27 Finance Settlement was produced, as well as a reset of the business rates system.  Therefore, there were high levels of uncertainty over funding for future years, about which the authority did not have enough information to be able to accurately predict at the current time.  Should the future funding changes reduce the income received from Central Government, the Council would need to take tough decisions around the future shape of its services.

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 any reform in the finances of Local Government still existed.  Government had indicated they wished to reallocate funding to reflect an updated assessment of local need and revenues to now move away from the previous funding allocations that seemed to disadvantage the deprived areas with the greatest need.

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 might present 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 detailed 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;
• Other Assumptions;
• Equality Impact Assessment;
• Scenarios (including Breakdown of Pessimistic, Standard and Optimistic Models and a Suggested Course of Action);
• Robustness of the Forecast;
• Overall Net Position;
• Statutory Obligations of the Responsible Financial Officer (s151 Officer); and
• Meeting Future Funding Gaps.

Councillor Khan noted that, at Section 20.1 of the Appendix, the robustness of the forecasts had been affected by the Government’s lack of a long-term financial settlement.  Councillor Aziz responded that this would impact upon the 2025/26 Budget, but that the Government had announced its intention to provide multi-year settlements going forward.

The Chief Executive indicated that the recommendation section in the report contained a minor error, in that the Strategy was for noting only.  He clarified that consideration of the Strategy was an executive function and that the MTFS had been approved by the Cabinet at its meeting on 12^th February 2025.

Resolved                                    -    That the Council notes the report and the accompanying Medium Term Financial Strategy (MTFS), as approved by the Cabinet on 12^th February 2025.