Medium Term Financial Strategy 2022/23 to 2024/25 - February 2022 Update
Councillor Joyce Plummer, Portfolio Holder for Resources, provided a report to inform Cabinetof the 3-year projections of income and spending for the Council ahead of formulating its 2022/23 Revenue and Capital Budgets.
Councillor Plummer highlighted a number of key issues within the Medium Term Financial Strategy (MTFS) report, as follows:-
- The report set out the financial position of the Council for the next few years.
- The information would help the Council to set its Budget and identified its medium term prospects.
- A key aim was to provide stability year on year.
- Forecasting was difficult, in part due to austerity and reductions in public spending. COVID-19 had added a further dimension to complexity around forecasting.
- It was not yet clear if the Government would reform local government finances and any impact could be positive or negative.
- The 2021 Announcement of the Local Government Financial Settlement had indicated that some funding would be provided, but no future commitments had been made, meaning that the approach could change in 2023/24. If there was no change the Council would have to make savings in 2023/24, but would then have a small surplus.
- Projections around growth in the Council Tax Base were good, but if there were changes to Business Rates Retention rules the Council could have to make large savings.
- Further clarity was expected in the autumn 2022, which potentially might identify no reform of finances.
In summary, there was a degree of uncertainty in the projections. The Leader of the Council commented that the MTFS was a very understandable document given the subject matter. Hyndburn had consistently kept its Council Tax bills below the rate of inflation and was one of only seven authorities in the country to achieve this. The authority needed to maintain reserves at a minimum of £2M. Government financial support was worth around £1.5M to the Council but, by way of contrast, in 2010 the level of support had been around £7.1M. The Council might have to make savings of around £45k in 2023/24 to balance the Budget. The Council collected around £16M-£17M in Business Rates, but was only allowed to keep around 25% of that income. Future commercial growth at Frontier Park, Altham and Whitebirk estates, along with additional housing developments, should help the Council’s financial position.
Approval of the report was not a key decision.
Reason for decision
The Cabinet required an update on its medium term financial outlook ahead of setting the Budget for 2022/23 and determining the level of Council Tax for the new financial year. This report also ensured those decisions were taken with a view to the overall position of the Council going forward and were not limited to a narrow one-year perspective.
The substantive report included the following summary information.
The Council’s activities and finances had been dominated this year by the continuing impact of COVID-19 and it was expected that COVID-19 and its consequences would continue to have a major impact on the Council’s finances for at least the next financial year as a minimum, with the potential for the effects to continue much longer.
In response to the great uncertainty the Council faced it would operate a roll forward Budget for 2022/23 based on the 2021/22 Budget adjusted for changes to salary and wages, pension contributions and increased income from the Government and the Council Tax Base. This provided Service Managers a fixed reference point from which to continue to respond to the crisis and allowed a degree of stability for one further year, while the Council recovered from the most significant challenge it had ever faced. To achieve a balanced Budget during the year the Council would need to generate £294,000 of internal savings during the year. As with previous years, the Government was encouraging Councils to increase Council Tax by up to a maximum of 2%. It was proposed that the Council follow this direction. Overall expenditure would need to be contained at below £12m in 2022/23 to set a balanced budget.
The Council would face significant financial challenges over the next two years as it sought to overcome the consequence of COVID-19 and addressing the impact of any proposed Government funding reforms and increased pressures on its spending. As the extent of the Government financial reforms was unclear at this time and details were unlikely to emerge until December 2022, this produced great uncertainty and potentially significant variance around the forecasts contained in the MTFS.
Previously, for the last four years the expectation had been that the Government would implement what it termed as a “Fair Funding Review of Local Government Finance” and this would effectively end the Revenue Support Grant to the Council and potentially redistribute the amount of Business Rates the Council was allowed to retain. The expected impact of these changes if they went ahead were expected to cause a significant decrease in the funding available to the Council and require it to make substantial reductions in its expenditure levels as a consequence, 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 4 years in which these reforms had been postponed for various reasons and in the light of the Government signalling a potential change in its view of public spending commitments during the pandemic, the certainty around the introduction of Fair Funding was no longer as sure as it once seemed, with the potential that current levels of funding to the Council would continue.
As a consequence, the modelling now recognised that there was a real possibility that a largely continuation Budget might be the single most likely outcome over the next few years of all the potential different scenarios that could occur. However, the strong prospect of a Fair Funding Review which significantly reduced the Council’s funding remained a very real prospect. Ministry of Levelling-Up, Housing and Communities (MLUHC) officials continued to indicate they wished to introduce some kind of Fair Funding Review during 2022 to re-shape Council finances and the prospects of this occurring remained high.
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 some financial pressure, 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 results up to outcomes which would be large and very dramatic in terms of the challenges it presented to the Council.
These 2 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.
Detailed information was provided in the report on the following matters:-
- Elements of the MTFS;
- Service Planning to support overall strategy;
- Integrated resource planning with services;
- Background information;
- Financial analysis 2022/23 to 2024/25 (resources; Government grant; business rates; Council Tax; expected loss of income; and changes in costs)
- Other assumptions;
- Robustness of forecast; and
- Overall net position.
There were no alternative options for consideration or reasons
Resolved - That Cabinet approves the report and the accompanying Medium Term Financial Strategy (MTFS).