Agenda item

To submit a report by the Director of Function (Resources)/Section 151 Officer.

The report of the Director of Function (Resources)/Section 151 Officer incorporating the Medium-Term Financial Plan for 204/25 to 2025/26 was presented for the Executive’s consideration.

Councillor Robin Williams introduced the report as setting out the Council’s likely resources requirement for the next two financial years along with details of how the Council plans to balance the resource requirement with the funding available.

The Director of Function (Resources)/ Section 151 Officer drew attention to information in the report which included the Council’s current financial position as regards the budget that was set in  March 2023 and how it was funded, a comparison with previous years dating back to 2018/19 as regards the variation in the funding gap over the six year period, the wider context in relation to the national economic outlook and budget and changes in Welsh Government funding over the past decade. It was noted that pressures on the Welsh Government budget at the present time mean that the scope to provide additional funding for local government in the next two years is limited and that for every 1% reduction in Welsh Government funding the Council Tax has to increase by 3 to 4% to make up the difference. The Welsh Government has announced an indicative all Wales local government funding settlement for 2024/25 of 3% with no indication given for 2025/26. This is based on the UK Government’s spending review on 2021 which did not factor in the significant rise in inflation seen in 2022 and 2023.

At the end of the 2022/23 financial year the Council reported a net underspend of £1.212m (2.37%) with all services except Adults and Children’s social care and Housing reporting an underspend against their budget. This resulted in an increase in the Council’s general balances to £13.966m. As £3.789m of these reserves have been allocated as funding for the 2023/24 budget, the level of reserves moving forwards stands at £10.186m which is equivalent to 5.83% of the net revenue budget for 2023/24. This compares to the target figure of £8.7m (5%) which was approved by the Executive.

The Section 151 Officer guided the Executive through section 5 of the report which set out in detail the areas considered to be the main budget pressures facing the Council over the tenure of the Plan and their potential impact on the Council’s budget going forwards. These include pay increases, energy costs, demand in Children and Adults’ services, a rise in homelessness and general inflation as well as a number of other headings where there are pressures in the form of increasing costs, commitments and/or need for services. By taking account of all the issues described in section 5 and the Council’s income position referred to in section 6  and using the assumptions set out in Appendix 2 to the report it is estimated that the Council’s net revenue expenditure budget will increase by £13.072m in 2024/25 (to £187.641m) and by £5.368m in 2025/26 (to £193.082m), an increase of 10.6% over the two-year period.

Table 3 of the report shows the additional income that various changes in the Aggregate External Finance (AEF) from Welsh Government and increases in Council Tax would have on the Council’s funding assuming no change in the Council Tax base and with any additional funding generated by the Council Tax premium being used to increase budgets on projects to help with the supply of affordable housing. In order to fund the estimated additional budget requirement of £13.072m for 2024/25 as well as replacing the £3.78m of reserves used to balance the budget in 2023/24 with permanent funding, it would require the AEF to rise by 7% and Council Tax to increase by over 20% to generate sufficient funding. If the AEF only rises by 3% as the indications suggest, it will require Council Tax to rise by around 30% in order to generate sufficient permanent funding to meet a net budget requirement of £187.64m.  If the AEF was to rise by 3% and Council Tax by 5% the additional funding generated is £6.11m after adjusting for the increase in CTRS leaving a gap of £6.96m. However, the use of reserves in 2023/24 must be taken into account and, if no reserves are used in 2024/25 then the funding shortfall increases by £3.78m to £10.74m.

Section 10 of the report discusses potential ways of bridging the funding gap. Whilst the Council does have some capacity to use general balances and reserves to reduce the gap this option carries its own risks in that money held in reserve is not a recurring source of income and using reserves does not address the need to close the funding gap in the long-term. Using reserves also depletes the reserves held by the Council and weakens its financial position and resilience to respond to unexpected events. Given that the Council is required by law to set a balanced budget if the level of funding (from Welsh Government, Council Tax and reserves and balances) is insufficient to meet the cost of providing services in the year then the only option is to reduce the net expenditure budget to the level of funding available. Assuming that the funding gap is £10m then that equates to revenue savings of 5.7% of the 2023/24 net expenditure budget.

Paragraph 10.9 of the report looks ahead to 2025/26 where a budget shortfall of £11.51m is estimated of which £9.93m relates to the budget shortfall carried forward from 2024/25 plus an additional shortfall on the 2025/26 budget itself.

The Medium-Term Financial Plan highlights the fact therefore that the Council is currently facing its most challenging and uncertain financial position and difficult decisions will have to be taken in order to set a balanced budget in 2024/25 and 2025/26.

The Executive in noting the position as reported acknowledged the very real challenges that lie ahead recognising that there are some stark choices to be made and difficult decisions to be taken. Most councils are facing similar, or even greater challenges. The hope is that the Welsh Government settlement for 2024/25 will be better than that expected.

It was resolved to note the contents of the Medium-Term Financial Plan 2024/25 to 2025/26 and to approve the assumptions made.