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 (MTFP) for 2025/26 to 2026/27 was presented for the Executive’s consideration and approval. The MTFP set outs the Council’s likely resource requirement for the next three financial years and details how the Council plans to balance the resource requirement with the funding available. It takes account of all known changes that are required to be built into the 2024/25 base budget and makes assumptions on the main factors that impact on the Council’s revenue budget (pay costs, pensions, general inflation, Welsh Government funding, demographic and demand pressures).

The report was presented by Councillor Robin Williams, Deputy Leader and Portfolio Member for Finance as an annual pre budget statement as required by the Council’s Constitution which outlines the Council’s current financial position and sets out the projections for the following three years along with the assumptions on which the projections are based and the financial issues that are facing the Council over that time. The MTFP has been drawn up during a period of continued economic uncertainty which makes financial forecasting difficult as the situation could change significantly over the period.

The Director of Function provided a detailed exposition of the Council’s financial position and projected budget requirements over the next three financial years as reflected in the report taking into account all the relevant issues including local and national budget pressures as described in sections 5 and 6 of the report. An estimate of the revenue budget for the each of the financial years for 2025/25 to 2027/28 is given in Table 8 of the report based on the most likely scenario for all the assumptions (best and worst case scenario models are set out in Table 9) and shows an additional budget requirement of £11.841m for 2025/26. In order to fund this requirement as well as to replace the £4.425m of reserves used to balance the budget in 2024/25 with permanent funding would require the Council’s Aggregate External Funding (AEF) to rise by 7% and Council Tax to increase by over 17% (Table 10 of the report refers). If there is no increase in AEF, then Council Tax would have to increase by around 36% in order to generate sufficient permanent funding to meet the estimated net budget requirement of £196.005m in 2025/26. A 1% increase in AEF and a 5% increase in Council Tax would only generate an additional £3.88m leaving a gap of £7.958m plus the replacement of the £4.425m of reserves used in 2024/25 which takes the shortfall to £12.382m. Section 12 of the report outlines the possible avenues available to the Council to begin to address the funding gap including the limited use of general balances and reserves. The analysis in Appendix 4 of the report shows that 85.9% of the Council’s net expenditure budget is spent on statutory services which makes it very difficult to achieve budget savings if statutory services are to be maintained. Work has begun to identify any efficiency savings that can be applied but given the previous austerity cuts and rising demand for services, Services have not identified any significant efficiency savings that can be generated. Any savings that can be generated can only be done so through reducing services or by ceasing to undertake services.

The report makes clear that the position for 2025/26 is the worst the Council has faced at this stage of the budget setting process for a number of years and follows on from 2024/25 which was also a financially challenging year as regards setting the budget. While the position does begin to improve in 2026/27 and 2027/28, the improvement is dependent on a number of factors turning out favourably e.g. inflation and pay awards remaining low, demand for services levelling off, budget savings being identified and delivered and the local government settlement keeping pace with inflation. The situation in Anglesey is no different to that of other councils both in Wales and England with some local authorities in a far worse position and some already in financial difficulties.

The Chief Executive in saying that the report sets out a very sobering picture, gave assurance that the Council’s managers are taking the situation very seriously and are tackling it on a daily basis by seeking to manage and reduce current spending so that the Council is in the best possible position to set next year’s budget. Senior Managers are also considering all options for submission to the political and democratic processes that will follow including whether the Council will deliver to statutory expectations or whether it will continue to go beyond those expectations because it is the right thing to do. These are difficult discussions to have and are difficult processes to lead on while also trying to maintain staff morale and goodwill. There are a number of factors that can influence how the budget turns out and these may lead to a better than predicted outcome thereby reducing the need for service cuts. He reiterated that the Leadership Team and senior managers are evaluating the situation in both the short and medium terms including how to ensure the Council remains sustainable while continuing to meet statutory requirements and the expectations of residents.

The Chair acknowledged the financial challenges which the Council is facing in the next few years and he and the Executive’s members thanked the Section 151 officer for setting out those challenges clearly and comprehensively in the MTFP and were grateful for the guidance and direction provided.

Councillor Robin Williams referred to discussions he had had with representatives of two other councils which are contemplating raising council tax by 10% or above as part of addressing budget shortfalls which is reflective of the general difficulties which councils are grappling with.   

It was resolved to note the contents of the Medium-Term Financial Plan 2025/26 to 2026/27 and to approve the assumptions made therein.