Agenda item

Report attached.

Members considered a report of Councillor Vanessa Alexander, Portfolio Holder for Resources and Council Operations, informing the Cabinet of the 3-year projections of income and expenditure for the Council ahead of formulating its 2026/2027 to 2028/2029 Revenue and Capital Budgets.

Councillor Alexander introduced this report, highlighting some of the key financial information included in the Medium Term Financial Strategy (MTFS), the 3 year duration of the projections, the purpose of the document, the Government’s three-year financial settlement and future challenges.  The Council anticipated a loss of grant of almost £6.35m over the MTFS period.  This would be partially offset by significant pensions savings and other identified budget savings, but would still give rise to a total funding gap of £5.062m by 2028/29.  This gap would need to be met by reserves.  Overall, the Council would have sufficient reserves to sustain itself until Local Government Reorganisation and the use of reserves in this way had been approved by the Ministry of Housing Communities and Local Government (MHCLG).

Through good financial management the Council could still meet its commitments, including its Capital Programme and staffing costs.  The Council would be cautious about future expenditure unless any surpluses were identified or additional grant funding received.

The Leader indicated that the Government had announced that the local elections in 2026 would not now be postponed.  To assist those councils affected the Government would make £63m grant funding available nationally.  Hyndburn would receive a share of that allocation.  As the Council’s budget had already included provision for an election, the grant would free up this resource.  Accordingly, the Council was now in a position to freeze the Council Tax, at a cost of £185k compared to a 2.99% increase.  Further details would be included in the final Budget papers due to be submitted to the Council on 26^th February 2026.

Councillor Khan made comments and asked a number of questions as shown below, to which responses were provided, as follows:

• Could the Cabinet confirm that around 5% of the Council’s baseline funding had been lost over a 3 year period, amounting to some £6.35m?  -  Response:  This was correct.
• Would this Council receive a share of the £63m grant announce by the Government?  -  Response:  The Council would receive an allocation from that grant.
• Would the above grant offset the whole of the financial settlement reduction, given that there were 315 councils in England, or would the use of reserves still be required?  -  Response: The grant was only for the 30 councils affected by the reinstatement of the elections.  However, the use of this Council reserves would still be necessary.
• Hyndburn was the 16^th most deprived local authority area in the country, but was doing well in growing businesses.  However, it was being penalised by the Government.  For 2026/27, what was the loss in the financial settlement that needed to be filled?  -  Response: The was no funding gap for the forthcoming year.  The Leader and MP had worked hard to challenge the initial settlement proposals and had been successful in improving the Council’s position.  The Government was focusing on supporting top tier authorities during years 2 and 3 of the settlement period.  However, Hyndburn had received £1.5m Pride in Place additional capital funding, freeing up revenue that would otherwise have been allocated to those schemes.  The future Revenue Budget funding gaps for Hyndburn were as follows: 2026/27 £0m, 2027/28 £2.2m, 2028/29 £2.8m.
• The Portfolio Holder had given a commitment not to borrow to fund capital projects.  Was there a list of assets for disposal available?  Would the Council be willing to borrow if suitable opportunities cropped up?  -  Response: The assets list was still being worked on.  There was no intention to borrow more money, but the Council would keep a close eye on any opportunities emerging.
• Was the forecast underspend in 2025/26 around £6k?  -  Response: That was correct.
• Reduced employer’s contributions to the Pension Fund had provided a large saving in future years.  Officers had previously made some sound financial decisions in relation to this liability and should be congratulated.  This approach had been implemented under an earlier Conservative administration.  -  Response: Various successive administrations had also supported this approach.
• Where would the funding come from to offset losses from the freeze in Council Tax?  -  Response: This would come from the £63m grant distributed across all affected local authorities.  For budgetary purposes the amount of this grant received would be aggregated, rather than aligned to specific budget headings.

Approval of the report was not deemed a key decision.

Reasons for Decision

The Council required an update on its medium-term financial outlook ahead of setting the Budget for 2026/27 and determining the level of Council Tax for the new financial year.

In summary, during 2025/26, the Council’s work and finances had largely been focused on delivering major capital projects, including the Levelling Up/Town Centre regeneration, the new Cath Thom Leisure Centre at Wilson Playing Fields, and progress on the Huncoat Garden Village project, which would provide 1,800 new homes.  These efforts had been delivered alongside the Council’s day?to?day services and other key strategic priorities.

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 beyond the MTFS period.

The Council would operate a roll forward Budget for 2026/27 based on the 2025/26 Budget with adjustments for changes to salary and wages, energy and other cost pressures.  This would provide Service Managers with a degree of stability for 2026/27.  Overall expenditure would need to be contained at around £17. 608m in 2026/27 to set a balanced budget.

The Council, if necessary, might have to use some of its reserves to help balance the Budget.  This was likely given the reductions made to Government funding across Business Rates and grants as part of the Fair Funding Review.  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 both national and global issues.  It would also face the challenges of Government funding reforms and increased pressures on spending over this period.

The 2026/27 local government finance settlement (LGFS) introduced the major reforms consulted on as part of the Fair Funding Review, including a multi-year funding approach (the first in 10 years) and changes to grant funding and business rates.  While national Core Spending Power (CSP) was projected to grow steadily, Hyndburn Council itself faced real-terms reductions due to formula changes and limited tax-raising capacity.

The Government had issued its Fair Funding Review 2.0 consultation paper in June 2025, which proposed fundamental changes to local government finance.  The proposals included:

• A revised funding formula with a stronger link to deprivation levels and population size.
• A full reset of the baseline for retained business rates in 2026/27.
• Ending the New Homes Bonus and reallocating the funding to the core settlement.
• Simplifying and merging multiple grant streams, including those for homelessness prevention, rough sleeping, and temporary accommodation.
• Introducing transitional funding, including a minimum funding floor, to protect councils from the full impact of the changes.

Although most councils would receive cash-flat protection against their 2025/26 baseline, Hyndburn had been identified early in the consultation as being among the authorities furthest from their assessed funding level.  As a result, the Council would lose 5% of its 2025/26 baseline funding by 2028/29.

Despite an anticipated loss of almost £6.35m over the MTFS period, the multi-year settlement offered a level of certainty that enabled the Council to prepare for future challenges.  The Council had addressed the £6.35m reduction through, savings and use of resources.

It was recognised that the 2027 spending round (and those in future years) might bring about alterations, however these were likely to be minor in terms of quantum and would likely only be upwards with the announced 3-year settlement, representing a minimum level of funding.  The certainty that the 3-year settlement had provided around Government funding had resulted in a relatively stable outlook across all scenarios, pessimistic, standard and optimistic.  Any variances would occur due to diverging assumptions over service income and expenditure with the most severe of the scenarios assuming no or low growth in income but an above inflationary rise in expenditure.  The pessimistic model assumed a modest increase in Council Tax below the Local Plan and Government targets.  The standard model assumed growth in the Council Tax base in line with the Local Plan.

A third scenario, the optimistic model, was also presented which showed the Council’s potential position if it was able to boost its own tax revenue due to a buoyant tax base, and expenditure inflation being low.  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 the 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:

• Hyndburn in a Snapshot;
• Corporate Strategy;
• 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);
• Meeting Future Funding Gaps; and
• Appendices showing details of the Pessimistic, Standard and Optimistic Models.

There were no alternative options for consideration or reasons

Resolved                                    -    The Cabinet approves the report and the accompanying Medium Term Financial Strategy (MTFS).