Agenda item

Report attached.

Members received a report of Councillor Joyce Plummer, Portfolio Holder for Resources, informing the Cabinet of the 3-year projections of income and spending for the Council ahead of formulating the actions it needed to take to produce its 2023/24 Revenue and Capital Budgets.

Councillor Plummer provided a brief introduction to the report.   She summarised the background to the Strategy, including high levels of uncertainty due to COVID-19 and the war in Ukraine, as well as pressures caused by demand for food, oil and gas, as well as inflation and global recession.  The Government was required to balance the demands of public expenditure and its own financing.  It was hoped that some of these uncertainties would diminish over time to provide economic stability.   The Medium Term Financial Strategy (MTFS) presented three different scenarios for the next three years based on standard, pessimistic and optimistic models.  Each scenario would have different financial consequences for the Council.

Overall, good financial management needed to be maintained, income maximised and reserves maintained.

The Leader added that the Council would operate a roll forward Budget for 2023/24 based on the adjusted 2022/23 Budget.  The Council would need to generate £104,000 of internal savings during the year.  Overall expenditure would need to be contained at around £14.5m.  The intention was still to freeze Council Tax for 2023/24.  The Council would also need to maintain Reserves of £2M.  An update to the MTFS to take account of any new information or changes, would be provided in February 2023, prior to the setting of the Budget for 2023/24.

The Capital Programme for 2022/23 had been around £23M due to anticipated Levelling Up and Leisure Transformation funding.  The Programme for 2023/24 would be more modest, although the Council would still seek to deliver its existing commitments.  Spending would be limited to available resources (including grants and capital receipts), so as to avoid borrowing and the consequential impacts on the Revenue Budget.

Councillor Noordad Aziz enquired about how much Revenue Support Grant (RSG) had been lost over the last decade.  The Leader responded that in 2010, George Osborne MP, as Chancellor of the Exchequer, had announced the ending of RSG.  The Council’s income up to that time was broadly split between ? Government grant, ? non-domestic rates and ? Council Tax.  Since that date the Council’s RSG had reduced from c.£7M to c.£1.5M and the Fair Funding review was still awaited.  Councillor Plummer referred Councillor Aziz to Table 1 at Page 21 of the report.

Councillor Aziz also queried what the impact of a possible second period of austerity might be on the Council’s capital finances.  The Leader indicated that the Capital Programme was proposed to return to its previous annual level of around £1M in future years.  The programme was always oversubscribed with bids, which meant that projects would always need to be prioritised.  Councillor Aziz asked if delivery of the Capital Programme was reliant on bids such as Levelling Up, as no announcements had yet been made, and whether the Programme should be reconsidered now.  The Leader responded that the anticipated Chancellor’s Statement on Halloween might give further clarity.  However, there were other bids to and potential grants from a variety of organisations which supported the Capital Programme.  No adjustment was required to the Capital Programme at present.

Approval of the report was not deemed a key decision.

Reasons for Decision

The Cabinet required an update on its medium term financial outlook ahead of commencing its Annual Budget process for the 2023/24 financial year and determining the level of Council Tax.  The Strategy 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 MTFS report included the following summary.  The Council’s activities and finances had been dominated this year by the continuing impact of COVID-19 and the economic consequences of the Russian invasion of Ukraine. It was expected that these two linked key events and their 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, the authority would operate a roll forward Budget for 2023/24 based on the 2022/23 Budget adjusted for changes to salary and wages, energy and other cost pressures and anticipated changes to the Council’s income from the Government.  This would provide Service Managers a fixed reference point from which to continue to respond to the inflationary pressures now faced and allowed a degree of stability for one further year, while everyone recovered from another year of significant challenges.  To achieve a balanced Budget during the year the Council would need to generate £104,000 of internal savings during the year.  Overall expenditure would need to be contained at around £14.5m in 2023/24 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 COVID-19 and the War in Ukraine.  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 were unclear at this time and were unlikely to emerge until December 2023 at the earliest, 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.”  This proposal would effectively end the Revenue Support Grant to the Council and potentially redistribute the amount of Business Rates the Council was allowed to retain to other Councils.  The expected impact of these changes if they went ahead were expected to cause a significant decrease in the funding available to the Council.  In these circumstances, the Council would need to make substantial reductions in its expenditure levels as a consequence.  The changes would need to be made either immediately in the aftermath of the announcement or over a short period, if some form of transitional arrangements accompanied the changes to assist those Councils most dramatically impacted.

After 4 years in which these reforms had been postponed for various reasons and with a new Government under a new Prime Minister in power, the certainty around the introduction of Fair Funding was no longer as sure as it once seemed and it might be the case that these reforms would be postponed for a number of years or dropped altogether.  This would allow the potential current levels of funding to the Council to continue.

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 the need to reform the finances of Local Government still existed.  As such the strong prospect of a Fair Funding Review which significantly reduced the Council’s funding remained a very real prospect.  DLUHC officials continued to indicate they wished to introduce some kind of Fair Funding Review to re-shape Council finances and the prospectus of this occurring over the next few years remained a distinct possibility.

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, saw 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 they 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 MTFS in relation to the following:

• Introduction;
• Objectives;
• Elements of the MTFS;
• Service Planning;
• Integrated Resource Planning with Service Plans;
• Background Information;
• Financial Analysis 2023/24 to 2025/26;
• Changes in Costs;
• Growth;
• Reserves;
• Other Assumptions;
• Equality Impact Assessment;
• Scenarios;
• 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).