Agenda item

Purpose of Report

To update Executive on the latest Medium Term Financial Strategy (MTFS) position for the Council, including the challenges in preparing for the 2024/25 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 high level of uncertainty surrounding local government financing and national funding reforms. This, along with the unavoidable and escalating cost pressures, cost of living crisis and rising demand for Council services, would inform the development of the MTFS. Further details in respect of key budget assumptions for 2024-29, together with budget and financial planning preparation timetables for 2024/25 were 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 2024/25 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

There were significant, unprecedented risks to the Council’s budget strategy, particularly in the short-term as detailed within the officer’s report.

Due to the level of uncertainty it was difficult to make a full, definitive and comprehensive assessment of the ongoing financial impact of these issues. As such, the figures in this report were based upon best estimates and forecasts and would therefore be subject to change as the budget process developed.

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 MTFS provided the framework for the development of annual budgets in line with the aims of the Council’s strategy and priorities.

The refreshed MTFS would include financial projections for the five-year financial planning period through to 2028/29. 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 Council Tax and Housing Rents for 2024/25.

The refresh of the MTFS needed to be seen in the context of significant financial uncertainty for the Council. Exceptional economic factors such as the continued and sustained impact of rising inflation on the Council’s pay bill and the cost of goods and services, rising interest rates increasing the cost of borrowing, and the increasing demand for key services as those more vulnerable in the city looked to the Council for support as the cost-of-living crises impacted on households, continued to add significant cost pressures to the Council’s budgets.

These pressures were on top of the continued reduction in core government funding over recent years and increased reliance on council tax for income, which created a particular problem for places like Lincoln, with a predominantly low tax base.

Furthermore, there still remained uncertainty around the level of funding for local government beyond the current Spending Review period, with significant reforms to funding mechanisms due to be implemented, along with likely reductions in public sector expenditure post the next General Election.

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. It was a long time since the Council had any certainty during budget setting and 2024/25 looked set to continue this tradition, which made financial planning, and the subsequent impact on service delivery, in this climate extremely challenging.

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 process 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 c£2m by 2026/27, if it was to remain sustainable in the medium term. The Council had a strong track record of managing its finances, having delivered annual revenue reductions of over £10m over the last 10 years. However, this was a significant amount in comparison to the General Fund budget and with each year the challenge became much more difficult.

Now more than ever, careful and prudent financial management would be required to ensure that the Council maintained a robust and sustainable financial position and was able to respond to the impact of volatile external events and increased financial risks that it faced. The MTFS needed to remain flexible, the council’s reserves resilient and the sound track record of delivering savings needed to be sustained, whilst ensuring that resources were directed towards Vision 2025.