Medium Term Financial Strategy (MTFS) 2024/25 - 2028/29

The Medium-Term Financial Strategy (MTFS) is a key part of the Council's Budget and Policy Framework which aims to ensure that all financial resources are directed towards delivery of Council priorities. The Strategy describes the financial direction of the Council for financial planning purposes and outlines the financial pressures over a five-year period but is reviewed annually to reflect the dynamic nature of local government funding.

A three-year Budget Approach was agreed in December 2021 for planned use of reserves of £20m to allow time to identify cuts and efficiencies required over the three year planning. 2024/25 is the final year of this three-year approach and this report proposes an extension to the planned use of reserves for a further two years to 2026/27.

On 6 February 2023 a one-year financial settlement was received for 2023/24. The settlement for 2023/24 included some high level figures in relation to 2024/25 social care grants, but there is still a great deal of uncertainty for funding beyond the current years settlement. Medium term financial planning continues to be challenging given the current financial climate. There is continued uncertainty in relation to the level of future funding, stubbornly high inflation amidst uncertainty around international issues, the national economy and cost of living crisis, notably around food, fuel and utility prices across the country. As such, the assumptions in the refreshed MTFS have been completely reviewed.

Funding of local authorities and demand pressures is a national issue with a growing number of local authorities reporting significant financial issues and failures. The challenges that the Council is facing should not be under estimated but the starting point for the refresh of the MTFS is built on the solid foundation of:

• a strong track record of delivering Revenue Outturn within budget. The 2022/23 Revenue Outturn was positive but there were a number of one-off issues that masked overspending in some areas. The positive outturn remains a significant achievement given the financial pressure faced by services and enables the Council's sound financial position to be maintained with an extremely challenging economic and financial context
• the 2023/24 Finance Settlement was considered to be more positive than anticipated. However, the impact of inflation has eroded the spending power which has a cumulative impact over the MTFS
• despite the funding challenge, the Council agreed £13.5m of budget cuts for 2023/24 to achieve a legally balanced budget, recognising active management of the funding position and that use of reserves cannot be the solution to the funding gap
• the active management of reserves has enabled some flexibility on the current 3- year approach to enable a 5-year position to be proposed
• the funding assumptions in the refreshed MTFS are considered to be a more realistic estimate. Nonetheless, the caveat of significant uncertainty remains; and
• the 2023/24 base budget includes capacity to deliver on the transformation challenge. In addition, this is strengthened by a proposal to add a further £2m in 2024/25

Despite the 2023/24 Finance Settlement awarding some areas of funding for 2024/25 in relation to social care, and confirmation of council tax referendum principles, it remains the case that there is significant uncertainty about funding beyond the current year. Many government funding sources are short term or come with additional burdens. Economic conditions remain turbulent impacting on cost pressures and funding sources such as business rates.

The Council has a strong track record of delivering a balanced budget and managing within resources, however it is important to remember that the 2022/23 and 2023/24 budgets were balanced using £5.8m and £10m of Budget Sustainability reserve. The use of reserves is a one-off solution and only postpones the need to make permanent cuts rather than preventing them being needed. The scale of the challenge to agree a sustainable financial position over the medium-term without reliance on reserves remains significant.

There are many assumptions that will need clarification between now and February, in particular:

• the Local Government Finance Settlement expected late December
• confirmation of retained business rates and associated relief grants at the end of January
• the impact of the pay award in 2023/24 and assumptions for 2024/25
• confirmation of Council Tax Support Scheme
• confirmation of the Collection Fund surplus or deficit in mid-January
• Council tax base to be reported to Cabinet in January
• agreed Capital Programme
• devolution budget implications
• agreed increase in Council Tax in line with referendum principles
• delivery of the 2023/24 budget