Purpose of Report
To update the Executive on the latest Medium Term Financial Strategy position for the Council, including the challenges in preparing for the 2021/22 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.
That the Executive:
(1) Notes the significant financial challenges and risks that the Council faces, primarily as a result of the Covid 19 pandemic.
(2) Notes the projected budget parameters for 2021/22 and future years and the planning assumptions set out at Appendix A of the report.
(3) Notes the level of projected budget shortfalls forecasted for the General Fund from 2021/22.
(4) Notes the budget, strategic and service planning preparation programme, as set out in Appendix B of the report.
Alternative Options Considered and Rejected
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.
In March 2020, Council agreed the budget for 2020/21 and Medium Term Financial Strategy 2020-2025, which recognised that there was a funding gap forecast in 2020/21 and across the remaining years of the Strategy. This was refreshed annually and rolled forward one year.
The refreshed Medium Term Financial Strategy would include financial projections for the five-year financial planning period through to 2025/26. 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 2021/22.
The refresh of the Medium Term Financial Strategy needed to be seen in the context of significant inherent uncertainty for the Council against the backdrop of the long term, and in many cases unknown, impact of the Covid 19 pandemic on income and expenditure assumptions, together with a lack of any form of clarity on the funding settlement from Government.
The Covid 19 pandemic was having immediate effects on the Council’s budgets as a result of increases in spending on local services and plummeting income from sales, fees and charges and commercial activities. However, there would be longer term implications for the Council to consider such as reductions in council tax and business rates revenues collected this year, which would feed through to budgets over the next three years. Additionally, some Covid 19 related spending pressures and reductions in revenues were likely to persist and could potentially grow in some cases.
It had also been confirmed that the UK had fallen into recession, the impact of which was likely to be exacerbated as the furlough scheme and eviction protections were unwound by Government. This inevitably created an ongoing uncertainty over the future levels of Government funding for local authorities after a long period of cuts and changes to funding. In addition, the lack of clarity about post-Brexit arrangements created further uncertainty. The implications of the Government’s future spending plans with regard to local government, and other areas of the public sector from 2021/22 onwards, would be heavily influenced by the Government’s response to the significant increase in borrowing that had been undertaken in response to the Covid 19 pandemic.
Against this backdrop of significant uncertainty, the report set out the Council’s financial planning assumptions that would form the basis of the Medium Term Financial Strategy 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. Financial planning facilitated strategic choices around service delivery, efficiency and service reductions.
Based on the current financial planning assumptions it was estimated that the Council would need to make reductions in the net cost base of the General Fund of approximately £2.75 million by 2022/23 which equated to an increase to the existing target of £1.25 million. This was a significant target for the Council to achieve, particularly in light of the annual revenue reductions of £9 million that had been delivered over the past decade. It was noted that the Council would ultimately have to make some difficult decisions over the next 12 months as it prioritised which services it could afford to continue to deliver.
Councillor Ric Metcalfe thanked the Chief Finance Officer and her team for the work they had done in respect of the Council’s financial management, adding that they had done the best possible job alongside so many uncertainties. He said that the Council faced an immensely challenging period and what was suggested within the report as part of a proposed budget and Medium Term Financial Strategy was a sensible way forward to minimise the effect on jobs and services. Councillor Metcalfe added, however, it was inevitable that some pain would be endured, acknowledging that authorities elsewhere in the country were in the same or worse situations, with some even going through special measures.