Medium Term Financial Strategy (MTFS) 2023/24 - 2027/28
Supporting information
Sensitivity analysis
Pay inflation
The base assumption is pay inflation of 1.75%. Each percentage costs £1.4m
| Pay Inflation | 1% | 1.50% | 1.75% | 2% | 2.5% | 3% | 4% | 5% | 6% |
|---|---|---|---|---|---|---|---|---|---|
| Cost (£m) | 1.390 | 2.084 | 2.474 | 2.779 | 3.474 | 4.169 | 5.559 | 6.948 | 8.338 |
| Additional/(reduced) cost fro MTFS | -1.085 | -0.390 | 0.000 | 0.305 | 1.000 | 1.695 | 3.084 | 4.474 | 5.864 |
Council Tax
The base assumption is a Council Tax increase of 1.99%. Each 1% of Council Tax generates £1m of income.
| Council Tax | 0% | 1% | 1.99% | 2% | 3% | 3.5% | 4% | 5% |
|---|---|---|---|---|---|---|---|---|
| Income Generated (£m) | -1.044 | -2.077 | -2.087 | -2.609 | -3.131 | -4.174 | -5.218 | |
| Additional/(reduced) cost from MTFS | 2.077 | 1.033 | 0.000 | -0.010 | -0.532 | -1.054 | -2.098 | -3.141 |
Energy
Using an estimated base as forecasted, each 5% of Increase would be an additional £0.6m
| Energy | 2% | 5% | 8% | 10% | 15% | 20% | 25% | 30% |
|---|---|---|---|---|---|---|---|---|
| Cost (£m) | 0.241 | 0.602 | 0.962 | 1.203 | 1.805 | 2.406 | 3.008 | 3.609 |
| Additional/(reduced) cost from MTFS | 0.000 | 0.361 | 0.722 | 0.962 | 1.564 | 2.166 | 2.767 | 3.369 |
Funding
The base assumes CPI increase on Revenue Support Grant. For each percentage lower than assumed is £0.158m less Funding
| Government Funding | 0% | 1% | 2% | 4% | 6% | 8% | 9% | 10% | 11% |
|---|---|---|---|---|---|---|---|---|---|
| Income Generated (£m) | 0.000 | -0.158 | -0.316 | -0.632 | -0.948 | -1.264 | -1.422 | -1.580 | -1.738 |
| Additional/(reduced) cost from MTFS | 1.580 | 1.422 | 1.264 | 0.948 | 0.632 | 0.316 | 0.158 | 0.000 | -0.158 |
Borrowing
Based on average borrowing costs over the medium term, the average annual impact for each 0.25% increase/decrease is £0.290m/(-£0.290m)
| Borrowing Rates | 2.75% | 3.25% | 3.5% | 3.75% | 4% | 4.25% | 4.5% | 4.75% | 5.75% |
|---|---|---|---|---|---|---|---|---|---|
| Cost (£m) | 15.856 | 16.436 | 16.725 | 17.015 | 17.305 | 17.595 | 17.885 | 18.175 | 19.334 |
| Additional/(reduced) cost | -1.159 | -0.580 | -0.290 | 0.000 | 0.290 | 0.580 | 0.869 | 1.159 | 2.319 |
Risk assessment of key threats
A series of potential changes in the inflationary outlook, the Spending Review, Local Government Settlement, Business Rate reform and the results of the fair funding review inevitably means there are many uncertainties and sources of risk attached to the forecast.
A comprehensive financial risk assessment is undertaken for the revenue and capital budget setting process to ensure that all risks and uncertainties affecting the Council's financial position are identified. These are reviewed each year as part of the refresh of the MTFS. The key strategic financial risks to be considered in developing the MTFS are as follows:
| Risk | Likelihood | Impact | Risk Management |
|---|---|---|---|
| 1. Future available resources are less than assumed | Possible | High | Annual review of reserves and reserves policy to identify future resources. Assumptions on funding for 2023/24 and beyond are based on best estimates at this time. A prudent approach has been adopted based on previous years' experience as well as using regional network contacts to inform modelling. Savings plans and areas are identified early |
| 2. Volatility of Business Rates funding including uncertainty around impact of appeals | Likely | High/Medium | Volatility of funding stream outside of council control but impact mitigated by the financial monitoring framework. Modelling of potential impacts is used to inform internal financial planning. Dependency on government funding in this area |
| 3. Public Health funding is insufficient to meet responsibilities | Possible | Medium | Funding confirmed for 2022/23 but not in future years. The lack of certainty of continuation of grant going forward is a significant risk of circa £17m. Public Health responsibilities will be rolled into the new system under the move to 75% rate retention. Networks and regional lobbying to ensure a sustainable transition of funding is agreed |
| 4. Pay Awards, fee increases and price inflation higher than assumed | Possible | Medium | Impact of potential increases mitigated by central contingency budget for pay, price increases and care fees. Where pay awards have been agreed these are factored into the estimates where affordable. With current high inflation and cost of living crisis the potential impacts can be seen within the sensitivity analysis |
| 5. Future spending plans are underestimated | Possible | Medium | Service planning process identifies future budget pressures, and these have informed the indicative budget forecasts. An effective budget monitoring framework is in place to identify in year and potential future cost pressures |
| 6. Anticipated savings/ efficiencies are not achieved | Possible | High | Regular monitoring and reporting take place but the size of the funding cuts increase the likelihood of this risk. Nonachievement of savings requires compensating reductions in planned spending within services. Greater scrutiny of savings will take place with senior management oversight |
| 7. Revenue implications of capital programmes are not fully anticipated | Unlikely | Low | Capital bid approval framework identifies revenue implications and links to Council priorities. Full analysis of revenue implications assessed and considered in the MTFS projections |
| 8. Income targets are not achieved | Possible | Medium | Current economic climate likely to impact. This forms part of the regular monitoring and reporting that takes place. Full review of fees and charges is undertaken on an annual basis. Reduced income requires compensatory reduction in spending plans |
| 9. Budget monitoring not effective | Possible | High | Regular monitoring and reporting in line with corporate framework. Action plans developed to address problem areas. Regular reports to CMT and Cabinet. Track record of delivering budget |
| 10. Exit strategies for external funding leasing/tapering not met | Unlikely | Medium | Regular monitoring and reporting |
| 11. Loss of principal deposit | Unlikely | Medium | Limited by the controls in the Treasury Management Strategy which prioritise security of deposit over returns. Impact limited due to the strategy of a diverse portfolio with top rated institutions |
| 12. Collection rates for retained business rates and council tax lower than anticipated | Possible | High | Impact mitigated by the review of bad debt provisions. Proactive approach to stimulating economic growth. Monitoring of Collection Fund is formally incorporated into the revenue monitoring process and key performance indicators |
| 13. Changes to Government policy including Health and Social Care changes | Likely | Medium/High | Best estimates of impact of government policy on funding factored into MTFS. Estimates are prudent and based on recent experience. Specific areas of uncertainty identified and subject to focussed actively, close monitoring and review. Risks of Better Care Fund are managed through the joint Council/ICB Better Care Fund Programme Board. The impacts of welfare reform continue to be planned for and monitored through the Council Scrutiny Framework. Charging reform implementation of 18 (3) of the Care Act is managed by an operational working group |
| 14.Financial budget impacts of potential Brexit | Likely | Medium/High | Continue to work collaboratively with treasury advisors to assess potential budget impacts whilst the Government attempts to ensure an effective transition to a new economic relationship between the U.K. and the EU, including clarifying the procedures and broad objectives that will guide the process |
| 15. All MTFS risks not adequately identified | Unlikely | Low | Council's Risk Management Framework ensures all operational and strategic risks are identified as part of the annual service planning process. Regional networks such as SIGOMA provide ability to assess and compare strategies to ensure assumptions are comprehensive |
PESTEL analysis
This is a strategic tool to evaluate the external environment of an organisation by breaking down opportunities and threats into several factors. The table below highlights some considerations impacting on the Councils medium term strategy and plans
Political
- change in Government policy direction and regulation including social care and NHS can impact on social care models and shared funding arrangements and without adequate funding can be an added pressure
- labour laws /National Living Wage can impact on legal views and costs
- environmental laws impact on planning, council buildings and costs
- stability of political parties will ensure policies do not change regularly
- national infrastructure and transport links decisions can impact on local economy
- PWLB rates can have a significant impact on capital projects and affordability
- Brexit - uncertainty of European Grants and unknown impacts on the economy
- welfare reform/Housing demands /Universal Credit- Governments changes are likely to have an impact in relation to potential bad debt of council tax income and housing rents and the services needed by residents
- Local Government Funding Reform - the aim to making councils more self-sufficient and less reliance on grants
Economic
- national and local economic growth rates
- energy prices increasing or decreasing
- price pressures/ supply chain pressures
- labour market availability and shifts
- exchange rates
- inflation rates both CPI and RPI - Levels of inflation and medium-term trajectories of it have an impact on capital and revenue investment projects on rising costs and contractual commitments.
- interest rates on investments, borrowing and debt
- national and local Unemployment rates
- the Council plays a strong role in ensuring a strong and vibrant local economy which can in turn lead to better jobs and skilled local people.
- levels of employment influence the need for resident welfare support as well as other type of local government support
Socio-cultural
- local health indices
- deprivation levels - Gateshead is currently ranked 47th out of 317 local authorities in England in the overall IMD 2019, where one is the most deprived (rank of average score).
- local population demographics - having a young, healthy workforce or aging population with complex needs changes service needs
- child poverty can influence the levels of looked after children and family support
- health of local workforce
Technological
- pace of change impacts on upgrades to systems and customer expectations for accessing services
- level of digital skills locally will determine who can access online services and who need more support such as telephone or face to face service provision.
- appetite for innovation can influence service adaptation to customer needs
- new technology improves ability to introduce/improve agile working - making workforce more flexible
Environmental
- weather and impacts
- local climate change agendas
- government climate change aspirations
- local pollution
- aspirations to be environmentally friendly
- environmental impacts ripple through everything the Council does and as such all reports to Cabinet must consider these implications
Legal
- discrimination law
- consumer law
- employment law
- health and safety laws
- changes in regulation and legislation in relation to local government
- licenses and permits