Decision details

Purpose of Report

To update the Executive on the latest Medium Term Financial Strategy (MTFS) position for the Council, including the challenges in preparing for the 2023/24 and future years budget, setting out the parameters within which the Council would prepare these budgets and confirm the Council’s approach to development of the budget and Medium Term Financial Strategy.

The report included an update on the current economic position and developments in national policy, specifically the recent fiscal statement and the implications for public sector and local government spending. This, along with the unavoidable and unprecedented, costs pressures, cost of living crisis and rising demand for Council services, would inform the development of the MTFS. Further details in respect of budget parameters for 2023/24 and future years, planning assumptions, together with budget strategic and service planning preparation was outlined at Appendices A and B of the report.

Decision

1.               That the significant financial challenges and risks faced by the Council, particularly the unplanned, and unavoidable increasing cost pressures be noted.

2.               That the projected budget parameters for 2023/24 and future years and the planning assumptions, as set out in Appendix A of the report, be noted.

3.               That the budget, strategic and service planning preparation programme, as set out in Appendix B of the report, be noted.

Alternative Options Considered and Rejected

None.

Reason for Decision

The Council’s Vision 2025 and five strategic priorities drove the medium-term financial planning process, with changes in resource allocation determined in accordance with policies and priorities. The Medium Term Financial Strategy provided the framework for the development of annual budgets in line with the aims of the Council’s strategy and priorities.

The refreshed Medium Term Financial Strategy would include financial projections for the five-year financial planning period through to 2027/28. It would set out the financial parameters within which the Council was required to work and the recommended approach to addressing the financial challenges the Council faced to develop a balanced, sustainable budget and set at Council Tax for 2023/24.

In March 2022, Council agreed the budget for 2022/23 and Medium Term Financial Strategy 2022-2023; at that point the Council was in a robust financial position with a balanced MTFS, based on delivering a remaining budget gap of £0.750m, in the General Fund by 2024/25.

Much had changed since March 2022, with spiralling inflation, soaring energy prices and nationally agreed pay proposals set to add significant cost pressures to the Council’s budgets. These were in the main part caused by national issues, beyond the Council’s control, and were impacting all councils. In addition, the current cost of living crisis had the potential to increase demand for the Council’s services by those who relied on the safety net provided by local government.  These unforeseen and unavoidable pressures had seriously impacted the assumptions that underpinned the MTFS.  These new pressures came at a time when the Council was still recovering from the detrimental financial effects of Covid-19 pandemic and after facing a decade of austerity measures.

Furthermore, there still remained uncertainty around the level of funding for local government beyond the current financial year.  The Fair Funding Review and Business Rates Retention Policy remained unresolved, whilst plans for the re-set of the Business Rates tax base originally planned for 2020 were also still unknown. Despite a three-year Spending Review announced for 2022/23 to 2024/25 the Local Government Financial Settlement was for only one year. These reforms had the ability to fundamentally alter the course of the MTFS. Providing certainty on these issues would make a significant difference to the Council’s financial planning and therefore the services it delivered.

As a result of these factors, the Council, and local government as a whole, was yet again having to update their medium-term financial strategies in a very uncertain environment. The rise in inflation (of over 6%) since the Spending Review had all but wiped out any real terms increase in core spending power. With inflation still yet to peak, with latest forecasts predicting this to reach 11% by October 2022, the impact on the Council’s running costs were forecasted to be hugely significant.  The LGA had warned that the impact on council services could be extremely challenging with reductions to services due to £3.6bn of inflation and energy price pressures across local government over the next few years.

Against this backdrop of significant uncertainty and volatility, this report set out the current financial planning assumptions that would form the basis of the MTFS refresh. This medium-term financial planning was critical to ensuring that the Council had an understanding of the likely level of available resources and the potential costs of delivering services, identifying budget shortfalls at the earliest opportunity to ensure appropriate action could be taken in advance.

Based on the current financial planning assumptions it was estimated that the Council would need to make reductions in the annual net cost base of the General Fund of £2.75m. This was a significant target for the Council to achieve, particularly in light of the annual revenue reductions of £10m that had been delivered over the past decade.  The Council would ultimately have to make some difficult decisions over the next twelve months as it prioritised which services it could afford to continue to deliver, doing so in the midst of a cost of living crisis.

Now more than ever, careful and prudent financial management would be required if the Council was to balance the reductions required in the net cost base, ensuring it remained in a sustainable financial position, whilst still aspiring towards Vision 2025.