Agenda item

Process for the Development of the Revenue and Capital Budgets for 2026/2027

Meeting of Cabinet, Wednesday, 10th September, 2025 5.00 pm (Item 147.)

Report attached.

Minutes:

Members considered a report of Councillor Vanessa Alexander, Portfolio Holder for Resources and Council Operations, providing an update on the development of the Council’s Revenue and Capital budgets for 2026/27 and outlining how current risks and assumptions were affecting the Medium-Term Financial Strategy (MTFS) for 2026/27 to 2028/29.

Councillor Alexander provided a brief introduction to the report, highlighting the purpose of the report, the main risks and pressures within the MTFS, the timetable for setting the Budget and the three financial models included in the MTFS.

Councillor Zak Khan expressed a view that the Fair Funding Review would have a devastating effect on the Council’s finances and could reduce available resources by some £5m. He acknowledged that this was not a situation caused by the controlling group, but asked how they intended to deal with the consequences of any loss of funding. This was important because Hyndburn was the 16^th most deprived district in England. He asked if this would mean an increase in Council Tax, the sale of assets and changes to business rates. He also offered to work with the controlling group to help to identify possible solutions.

The Leader of the Council indicated that the authority had responded to the Government’s consultation on 15^th August 2025 and had engaged with the MP to lobby on the Council’s behalf. He considered that the figure of £5m quoted was incorrect and that any assumption that Council Tax would need to be raised beyond the referendum threshold was flawed. Notwithstanding the engagement undertaken with the Minister and MP, Cabinet members were already working to consider how best to produce a viable budget.

Councillor Alexander expressed the view that comments such as ‘devastating’ were not helpful, when communicating the current position to staff and the public, as the final financial implications were not yet known. The Government’s provisional funding announcement would be made in November/December 2025. Councillor Pritchard and Whitehead also spoke about the importance of not sensationalising the situation and of their personal commitment to work to ensure the best financial situation possible for the residents of Hyndburn. Councillor Alexander summarised by stating that she had experience of dealing with funding reductions when necessary and that, in any event, there might be some transitional arrangements introduced to minimise the impacts.

Councillor Dad gave an undertaking to meet with Councillor Khan about this matter and reaffirmed that Cabinet members had already been considering potential solutions for the last few weeks.

Approval of the report was not deemed a key decision.

Reasons for Decision

The Council had approved its annual Revenue Budget for 2025/26 and the Medium-Term Financial Strategy (MTFS) for 2025/26 to 2027/28 at the Full Council meeting on 27^th February 2025.

Since the budget had been approved, the Government had launched the Fair Funding Reform 2.0 consultation and had signalled a multi-year settlement from 2026/27. Early analysis suggested Hyndburn Council might be disproportionately affected.

Therefore, to ensure a credible and robust budget could be delivered for the forthcoming year, the Council had begun early work to develop its financial plans for 2026/27. This early start would allow sufficient time for Officers and Members to shape a budget that aligned with the Council’s corporate priorities, explored a range of options, and responded to emerging risks and pressures.

The budget was a key financial planning tool that supported delivery of the Corporate Plan. It had to demonstrate value for money, be subject to robust scrutiny, and stand up to external audit. The Council’s approach to budget development was a core component of the External Auditor’s assessment of its Value for Money (VfM) arrangements.

A sustainable budget over the life of the MTFS was essential. Where savings were required, the Council must have a credible and deliverable plan in place. Achieving a balanced and sustainable financial position not only supported service delivery but also provided assurance to External Auditors and helped to avoid adverse commentary in the VfM report.

Key Risks and Pressures in the Medium-Term Finance Strategy

The main risks/pressures to be considered were as listed below, with a more detailed description as set out in the report:

Fair Funding Review;
Local Government Reorganisation (LGR);
Capital Programme – Funding Risk;
Crematorium/Cremators;
Waste Disposal Site/Transfer Station;
Hyndburn Leisure;
Huncoat Garden Village;
Future Revenue Costs for Levelling Up Fund Projects;
Supported Housing - Housing Benefit Claims; and
Posts Funded from Reserves or External Grants.

Assumptions for the Medium-Term Financial Strategy

The Medium-Term Financial Strategy for Hyndburn Borough Council presented three scenarios:

Standard – the most likely outcome for the year.
Pessimistic – a “worst case” scenario.
Optimistic – a “best case” scenario.

Given how early it was in the budget setting process and the unknowns at this point, (e.g. there were no indications of changes in Government funding yet) these scenarios could differ significantly at this stage.

There were several assumptions which were used as part of producing the budget. The estimates to be used in the construction of the budget were set out below:

Pay Award

The agreed pay award for 2025/26 was 3.2% for Hyndburn Borough Council, which was 0.2% over the budget and resulted in additional costs of c.£27k p/a. For financial modelling purposes, a 2.5% increase would be assumed in the standard scenario, with 4.0% used in the pessimistic case and 1.0% in the optimistic case.

Inflation

The Consumer Price Index (CPI) rose by 3.6% in the 12 months to June 2025. As inflation varied across cost types, utility cost forecasts would be calculated separately and were addressed below. For general inflation modelling, a rate of 3.0% would be used in the standard scenario, with 5.0% in the pessimistic case and 2.0% in the optimistic case.

Utilities

The Council had entered a new energy contract in October 2025, which ran until September 2027. While this provided short-term price stability, future costs remained uncertain due to potential market volatility and unpredictable usage patterns. To reflect this, inflation for gas and electricity would also be modelled at 3.0% in the standard scenario, 5.0% in the pessimistic case and 2.0% in the optimistic case.

Sales, Fees and Charges

The Council charged customers for a range of services, and the cost of delivering these was expected to rise due to inflation and pay awards. To help offset these pressures, it was considered prudent to increase fees accordingly. In the standard scenario, a 3.0% increase in fees and charges would be assumed, consistent with general inflation. In the pessimistic scenario, a lower increase of 1.0% would be assumed, reflecting potential constraints on the Council’s ability to raise charges. In the optimistic scenario, a 4.0% increase would be assumed, reflecting greater flexibility and demand.

Following the recent Corporate Peer Challenge, the Council was reviewing its Sales, Fees and Charges income targets and developing a strategy for inclusion in the Medium-Term Financial Strategy. This might include increasing existing charges or introducing new ones, subject to the outcome of the Fair Funding Reform consultation.

Government Grant Income

As previously mentioned, the Fair Funding Review (FFR 2.0) was expected to significantly impact Hyndburn Borough Council, primarily through a reduction in retained business rates income. The Council was working with LG Futures to model the potential financial implications of these changes.

In the standard scenario, a reduction of £1.75m was anticipated over the three-year multi-year period, phased with two-thirds of the reduction occurring in 2026/27 and the remaining third in 2027/28. A flat cash position was assumed for 2028/29.

In the optimistic scenario, the same phasing applied but with a reduced overall impact of £1.5m. The pessimistic scenario assumed a larger reduction of £2.0m over the same period.

A consultation response outlining the impact on Hyndburn and district councils more broadly had been submitted in August. The Government was expected to publish early funding indications in November, followed by the provisional settlement and policy statement in December.

Income from Business Rates

Hyndburn Borough Council currently retained 40% of locally collected business rates and participated in the Lancashire Business Rates Pool, which allowed for a more efficient distribution of growth and risk across participating authorities.

However, due to the funding reset outlined in the Fair Funding Review (FFR 2.0), the future of the pooling arrangement remained uncertain. Any assumptions regarding future business rates income, including potential reductions, had already been incorporated into the funding scenarios detailed above.

Income from Council Tax

The main area of income over which the Council had direct control was Council Tax. As the billing authority, Hyndburn Borough Council was forecasting to collect a total of £52.748m in Council Tax during the 2025/26 financial year. Of this, only £6.141m (11.64%) was retained by Hyndburn, with the remainder distributed to Lancashire County Council, the Lancashire Police and Crime Commissioner, and Lancashire Fire and Rescue Service as precepting authorities.

Increases in Council Tax income was driven by two key factors:

Changes in the Council Tax base: Each year, the Council calculated its tax base, which reflected the number of chargeable domestic properties, adjusted for discounts (e.g. single person discount) and Council Tax Support. This figure was converted into Band D equivalents to standardise comparisons. Growth in the tax base could result from new housing developments or bringing empty properties back into use. For Hyndburn, growth had been modest in recent years, with an increase of just 0.31% in 2025/26.

Changes in the Council Tax rate: Each year, the Council decided whether to increase the rate of Council Tax it charged. Central Government set a referendum threshold, which limited how much councils could increase rates without triggering a local vote. In recent years, this had been 2.99% for district councils like Hyndburn, and 4.99% for upper-tier and unitary authorities.

The assumptions to be used for changes in Council Tax income in the revenue budget were as set out below:

	Pessimistic	Standard	Optimistic
Growth in Council Tax Base	0.31%	0.66%	1.13%
Increase in Council Tax Rate	1.00%	2.99%	2.99%

Council Tax Base

Under the Council’s draft Local Plan, it was estimated that an additional 201 domestic properties would be built each year. When converted to Band D equivalents, this equated to 146 properties, representing a 0.66% increase in the Council Tax Base. This assumption formed the basis of the standard scenario.

The Government had introduced new annual housebuilding targets for each borough, with Hyndburn’s target set at 313 properties per year. This converted to approximately 250 Band D equivalents, resulting in a 1.13% increase in the Council Tax Base. This assumption underpinned the optimistic scenario.

The pessimistic scenario reflected the growth provided in 2025/26 and assumed a modest growth rate of 0.31%, equating to 69 Band D equivalents or approximately 94 new domestic properties.

The estimated annual increase in Council Tax income, before any changes to the tax rate, was:

Pessimistic (0.31%) – £19,076
Standard (0.66%) – £40,363
Optimistic (1.13%) – £69,115

Council Tax Rate

The table below showed the current Council Tax charges per annum for each Council Tax band and the annual increase on each band across the three MTFS scenarios, ie. 1.00%, 2.99% and 2.99%:

Council Tax Band	2025/26 Charge	Increase of 1.00% (Pessimistic)	Increase of 2.99% (Standard)	Increase of 2.99% (Optimistic)
Band AA	153.59	155.13	158.18	158.18
Band A	184.31	186.15	189.82	189.82
Band B	215.02	217.17	221.45	221.45
Band C	245.74	248.20	253.09	253.09
Band D	276.46	279.22	284.73	284.73
Band E	337.90	341.28	348.00	348.00
Band F	399.33	403.32	411.27	411.27
Band G	460.77	465.38	474.55	474.55
Band H	552.92	558.45	569.45	569.45

The total changes in Council Tax income for each of the increases in the table above, before any growth in the Council Tax base were:

Increase of 1.00% (Pessimistic) - £61,170 additional income ;
Increase of 2.99% (Standard) - £183,288 additional income;
Increase of 2.99% (Optimistic) - £183,288 additional income.

Total Council Tax Income

The table below showed the overall Council Tax Income which would be assumed under the three scenarios:

	2025/26	Pessimistic	Standard	Optimistic
Hyndburn BC Council Tax Income	£6,127,200	£6,207,600	£6,290,900	£6,381,700
Increase in Council Tax Income from 2025/26		£ 80,400	£ 163,700	£ 254,500

The assumptions mentioned above would be used initially and adjusted as appropriate once more certain information became available.

Revenue Budget Timetable

The Council’s budget-setting timetable was influenced by the approval schedules of major Council Tax precepting authorities, such as Lancashire County Council. Hyndburn Borough Council’s draft budget would be presented to Cabinet on 18^th February 2026, with final approval scheduled for the Council meeting on 26^th February 2026.

The timetable set out below ensured that the Council would meet its legal budget setting deadlines:

Action	Date
Process for the development of the budget report presented to Cabinet	10 Sept 2025
Finance Cabinet Working Group	02 Oct 2025
Initial Medium Term Financial Strategy report presented to Cabinet	22 Oct 2025
Finance Cabinet Working Group	04 Nov 2025
Provisional Finance Settlement expected to be published by Central Government (date to be confirmed)	Nov 2025
Finance Cabinet Working Group	02 Dec 2025
Council Tax Base Setting report approved by Cabinet	21 Jan 2026
Finance Cabinet Working Group	13 Jan 2026
Final Finance Settlement expected to be published by Central Government (date to be confirmed)	Feb 2025
Draft Medium Term Financial Strategy & Revenue Budget reports presented to Resources Overview and Scrutiny Committee	16 Feb 2026
Draft Medium Term Financial Strategy & Revenue Budget reports presented to Cabinet	18 Feb 2026
Final Medium Term Financial Strategy & Revenue Budget reports agreed by full Council	26 Feb 2026

Capital Budget Timetable

At the same Council meeting in February 2026, the Capital Programme for 2026/27 would be approved.

The timetable for the development of the Capital Programme was as set out below:

Action	Date
Process for the development of the budget report presented to Cabinet	10 Sept 2025
Capital Programme bidding process begins	27 Aug 2025
Deadline for submission of Capital Programme bids	30 Sept 2025
Finance Cabinet Working Group	02 Oct 2025
Finance Cabinet Working Group	04 Nov 2025
Finance Cabinet Working Group	02 Dec 2025
Finance Cabinet Working Group	13 Jan 2026
Draft Capital Budget report presented to Resources Overview and Scrutiny Committee	16 Feb 2026
Draft Capital Budget report presented to Cabinet	18 Feb 2026
Final Capital Budget report approved by full Council	26 Feb 2026

There were no alternative options for consideration or reasons

Resolved - That Cabinet:

(1) Notes the key risks and pressures to the delivery of the budget in 2025/26. These issues will continue to be monitored and reported through the regular Budget Monitoring updates presented to Cabinet.

(2) Approves the assumptions outlined in Section 5 of the report, which will be incorporated into the Medium-Term Financial Strategy (MTFS) updated for 2026/27 to 2028/29, to be presented to Cabinet in October.

(3) Notes the timetable set out in Section 6 of the report for the development of the Council’s Revenue Budget for 2026/27.

(4) Notes the timetable set out in Section 7 of the report for the development of the Council’s Capital Budget for 2026/27.

With the agreement of the meeting, Agenda Item 8 was taken next.

Supporting documents:

Budget Development Process - Main Report, item 147. PDF 245 KB