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

The refresh of the MTFS estimates that a funding gap of £49.7m by year 4 will need to be closed by delivering demand management interventions in social care totalling £11.5m. Alongside proposed corporate interventions totalling £6m, there remains a requirement to identify a pipeline of savings totalling £32.2m by year 4 of the MTFS to achieve sustainability. This can be summarised below:

The Council continues to operate in the context of an unprecedented period of financial and economic uncertainty. Set against the backdrop of over a decade of austerity, cuts to funding, increasing demand, spiralling inflation, and delays to reforms and continuing uncertainty over sustainable funding. Notwithstanding this context, the Council must be proactive in its approach to financial planning that allows for services that support residents in the borough. The need for an organisational plan to achieve a sustainable financial position without the reliance on reserves is vital and has led to a review in the approach to the presentation of the MTFS.

Preventative interventions and demand management will be key components of a sustainable budget strategy. However, these will often have a long lead in time and possibly require pump-priming support. The MTFS now sets out the financial context of the levels of demand management and cuts that will possibly be required to balance the budget over the medium term. This will provide a planning framework for an approach to budget setting.

The Council's new Corporate Plan and Group Plans should be the conduit for allocating resources to priority areas in a collaborative approach. Given the current financial context, this will require an assessment of relative priorities, with some difficult decisions to be made.

The positive 2022/23 outturn has informed the review of reserves and it is proposed that the planned use of reserves is extended to a 5-year approach to 2026/27. Crucially this should only be supported where there is confidence the organisation can deliver against reduced demand and budgets through active interventions and transformation to preventative strategies for service delivery. This approach extends the significant use of reserves to continue to smooth the timing of interventions and transformation necessary to deliver a sustainable budget over the MTFS period. The risk of continuing to use reserves of this magnitude is significant and it is therefore critical that the outcome of this approach enables the Council to deliver, secure, and maintain a sustainable position in the medium-term without further reliance on reserves.

The MTFS reflects a balance between long-term and short-term planning; the longer-term transformational and demand management interventions alongside the short-term immediacy of a legally balanced budget for 2024/25.

In summary, the MTFS strategy is built upon on the following approach:

• Intervention of demand / cost pressures - The MTFS outlines significant demand and cost pressures, particularly in social care. A fundamental approach to a sustainable budget is to propose positive interventions and transformation to manage down the demand. The approach must be underpinned by credible delivery plans with clear timescales.
• Planned Use of Reserves - Recognising the timing required to achieve this approach, it is proposed to actively manage the volatile financial position and continue to use reserves to allow time for these interventions to be delivered. 2024/25 is the final year of the 3-year approach agreed by Cabinet in December 2021. Following the 2022/23 Revenue Outturn, and review of reserves, it is proposed that the use of reserves is extended for a further two years into 2026/27. The proposed timing of the application of Budget Sustainability Reserve in the MTFS is aligned to options to close the gap to minimise cuts while permanent solutions to the funding gap are found. The extension is predicated on the following:
  • the impact that high inflation is having on the MTFS since the original strategy was agreed in December 2021
  • the active management of reserves that allows this flexibility;
  • the current Capacity Fund and a further £2m in 2024/25 to drive through to sustainability
  • a budget approach to identify a pipeline of unidentified budget cuts estimated at £32m over the next 4 years
  • the identification and delivery of £21.2m in budget cuts over the previous 3 years
  • replenishment of reserves - the MTFS forecast includes budget growth of £5m in 2026/27 to replenish reserves as part of the strategic approach to achieve a sustainable budget
• Fundamental Review of Base - this was agreed as part of the 3-year approach to budget in December 2021. This approach has commenced in social care, aligned to transformation. The framework will commence in other Service areas. Even with interventions and use of reserves, there is still an estimated funding gap of £32.245m over the four years 2024/25 to 2027/28, including £7.634m in 2024/25 after use of reserves, which will need to be closed to achieve a legally balanced budget. It is proposed that all Council Service areas are subject to fundamental review over the four years to 2027/28.

The proposed MTFS for 2024/25 to 2028/29 is attached at Appendix 2. This presents a continuing challenging financial position over the medium term due to continued uncertainty on funding and increasing demand.

To assist in meeting the financial challenges ahead the principles which underpin the MTFS have been reviewed and these are proposed as follows:

• the overall financial strategy will be to ensure that the Council's resources are directed to the thrive agenda framework. Financial sustainability will be achieved and maintained through targeted investment, demand management interventions, reducing costs and more efficient ways of working. The Council's MTFS will be reviewed on at least an annual basis
• the Council will consider a range of delivery mechanisms and funding sources to support capital investment to deliver thrive priorities, including the use of prudential borrowing, and will ensure that the full costs associated with financing the investment are considered when investment decisions are taken
• the Council will maintain its general reserve at a minimum of 3% of the net revenue budget to cover any major unforeseen expenditure. The Council will aim to balance its revenue budget over the period of the MTFS without reliance on the use of the general reserve
• the Council will maintain earmarked reserves for specific purposes which are consistent with achieving its key priorities. The use and level of earmarked reserves will be reviewed at least annually
• overall Council spending should be contained within original estimates. If following monthly revenue monitoring, service budgets are projected to exceed original estimates, accountability plans should be prepared setting out the actions required to ensure spending at the end of the year does not exceed original budget estimates
• the Council recognises the impact of increases in council tax levels and fees and charges in an area of relatively low income and low wealth and will therefore balance the need for increases against the delivery of the thrive framework and the need for services
• the Council will meet its financial obligations and maintain financial sustainability through the setting of a balanced budget and the delivery of outturn within the overall budget each year

A detailed review of the reserves will be undertaken as part of the budget and council tax setting. General Reserves and Strategic Earmarked Reserve balances as at 31 March 2023 can be found in appendix 1. Full breakdown of reserves can be found in the full MTFS document at appendix 2.

The Council recognises that usage of reserves is one-off in nature and must be linked with expenditure and income plans to support financial sustainability in the medium term. Therefore, using reserves in this way means that it is essential to have a planned pipeline of budget cuts and efficiencies to achieve a balanced budget in future years and reinvest to achieve thrive priorities. The Investment Plan and HRA Business Plan will also be aligned and prioritised to ensure affordability and to manage risks.