Medium Term Financial Strategy (MTFS) 2024/25 - 2028/29
Appendix 2 - summary of MTFS
This Medium-Term Financial Strategy (MTFS) sets out the estimated financial resources that are needed and available for the Council to deliver its key priorities of the Thrive agenda and the new Corporate Plan. Since the last MTFS was agreed by Council in October 2022, a number of factors continue to affect the financial outlook for the Council. Following on from over a decade defined by the Government's austerity measures and underfunding, the war in Ukraine and the global pandemic has led to inflation increasing beyond the provisions in the previous MTFS, with the cost-of-living crisis notably around food, fuel and utility prices across the country impacting on residents and Council budgets. Although the rate is on a slow downward trend, the forecast for inflation remains stubbornly high and still well above the Bank of England target. As such, the assumptions on both cost pressures and assumed funding have been completely refreshed since the last MTFS in October 2022.
Work is continuing to identify and address the cost pressures that the Council is facing and to progress the final year of the three-year budget approach agreed by Cabinet in December 2021. This approach was in line with the agreed approach for the planned use of reserves of £20m to allow time to identify cuts and efficiencies required over a three-year planning period. Following the 2022/23 Revenue Outturn reported to Cabinet on 20 June 2023 which included a review of reserves, this updated MTFS assumes that the use of reserves is extended for a further two years to allow more time for transformational change. This strategy also includes a plan to replenish reserves in years 3 to 5 of the MTFS, which is considered good financial management.
The medium-term financial outlook remains uncertain and is subject to a high level of volatility characterised by the triple impact of historic underfunding, increasing demand and more recently high inflation. Based on estimates outlined in this report, the Council estimates that overall, it will need to close a cumulative financial gap of £49.7m by year 4 of the MTFS. The MTFS assumes positive interventions to manage demand and cost pressures in social care totalling £11.5m by year 4 and proposed use of reserves of £22m over years 2024/25 to 2026/27 to allow smoothing of transformation work to deliver these interventions. Alongside proposed corporate interventions totalling £6m, this leaves unidentified savings of £32m to deliver sustainability within the MTFS, summarised as follows:
| 2023/24 £m | Indicative budget forecasts | 2024/25 £m | 2025/26 £m | 2026/27 £m | 2027/28 £m | 2028/29 £m |
|---|---|---|---|---|---|---|
| 281.885 | Estimated base budget | 308.070 | 323.426 | 342.445 | 352.570 | 359.413 |
| (264.998) | Estimated funding resources | (281.012) | (287.447) | (295.062) | (302.890) | (309.885) |
| 16.887 | Funding gap (before reserves) | 27.058 | 35.979 | 47.383 | 49.680 | 49.528 |
| (4.524) | Pandemic reserves | (2.000) | (2.000) | (2.000) | 0.000 | 0.000 |
| (10.000) | Budget sustainability reserve | (9.175) | (5.000) | (2.000) | 0.000 | 0.000 |
| (2.363) | Reserves - other | 0.000 | 0.000 | 0.000 | 0.000 | 0.000 |
| (16.887) | Total reserves | (11.175) | (7.000) | (4.000) | 0.000 | 0.000 |
| 0.00 | Minimum cumulative funding gap | 15.883 | 28.979 | 43.383 | 49.680 | 49.528 |
| 0.00 | Minimum annual funding gap | 15.883 | 13.096 | 14.404 | 6.297 | (0.152) |
| Options to close gap: | ||||||
| Adults Social Care interventions | (2.189) | (1.728) | (2.201) | (2.224) | (2.227) | |
| Children's Social Care interventions | (0.394) | (1.105) | (1.244) | (0.392) | (0.392) | |
| Corporate interventions | (5.666) | (0.292) | 0.000 | 0.000 | 0.000 | |
| Unidentified to balance budget | (7.634) | (9.971) | (10.959) | (3.681) | 0.000 | |
| Provisional balanced budget | 0.000 | 0.000 | 0.000 | 0.000 (32.245) | 0.000 |
The budget gap is predominantly driven by the significant ongoing impact from demand pressure for social care and inflation on the Council's cost base. This is forecast to increase core costs by £77.5m over the period of the MTFS with £26.2m in 2024/25. Funding is forecast to increase by £28m over the 5-year period leaving a cumulative gap of £49.5m with £15.9m in 2024/25. After the social care demand interventions, and the corporate interventions, there is a requirement to identify further budget savings of £32.2m by year 4 of the MTFS to achieve financial sustainability. Securing savings to support closure of a gap at this level is a significant challenge but will be assisted by the emerging work on the delivery of the budget approach and through the delivery of change to align resources to priorities to enable residents of Gateshead to thrive.
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. The MTFS makes some assumptions about inflationary increases in grants and assumes that the grants continue (except for New Homes Bonus), but until the Local Government Finance Settlement expected late December, these cannot be clarified with any certainty.
Economic conditions remain turbulent impacting on cost pressures and funding sources such as business rates.
The cumulative funding gap represents the shortfall between the estimated increase in costs less the estimated increase in funding.
Since the start of the Government's austerity measures in 2010, the Council has made substantial cuts and responded to demand pressures to deliver £190m budget savings. Despite ongoing financial challenges, the Council has delivered against its revenue budget since 2012/13 showing strong and stable financial management with an outstanding record of budget delivery.
The budget gap as estimated within this MTFS will continue to present a significant financial challenge that will be met by a Council wide approach driven by the delivery of the Thrive agenda and underpinned by transformation and prioritisation to maximise the efficient and effective use of our resources.