Medium Term Financial Strategy (MTFS) 2022/23- 2026/27
Appendix 2 - external context
The Council is facing numerous financial challenges from external factors which it needs to overcome if it is to remain on a sustainable financial footing. (Also see PESTEL analysis in supporting information)
Lack of Funding Reform to Address Areas with High Needs/Low Tax Bases
Longer-term reform of local government funding has been delayed and a structural solution is needed to meet the many statutory duties and demands placed on local authorities. Over the last decade, Government strategy to reduce reliance on grant and localise funding has resulted in moving ever-larger amounts of funding away from councils who have the highest need to those who can grow the most resource locally. The change of emphasis in how funding has been allocated has benefited councils with low needs, a large and growing council tax base, and a thriving business estate, by comparison to authorities like Gateshead with high needs and low council tax and business rate base.
Quantum of Social Care Funding
There are acute problems nationally. The care and support system remain under enormous pressure and the quantum of funding does not meet the increasing demands of both adults and children's social care. The 2021/2022 settlement allowed for the continuation of several previously one-off Social Care grants. This additional funding, whilst welcome, fails to provide both the longer-term stability and level of funding required to meet the continued pressures being experienced within Social Care, exacerbated by the current pandemic. The Prime Minister recently announced (7 September) an additional £12bn per year on average for health and social care across the UK over the next three years. These reforms will be funded by a new UK-wide 1.25% Health and Social Care National Insurance Levy. This will be ringfenced and invested into health and social care across the UK. Implications for local government and Gateshead are yet to be finalised, including what this means for the future of existing grants.
Brexit Impacts
The medium and long-term implications of Brexit remain unclear and are still emerging and will continue to do so for some time to come, but they can be summarised as shortage of labour, shortage of goods and materials including longer lead in times and price increases.
Ten Years of Austerity
An early consequence of a decade of funding cuts has been cuts to preventative spend. As funding fell and demand for services grew, many councils have been forced to abandon spend on preventative measures in order to fulfil their statutory duties. The cumulative impact of years of cuts has a significant impact on communities. This Council has consistently lobbied the Government over the disproportionate cuts to funding which impact unfairly on local authorities with high levels of deprivation, and low tax bases.
Short-term and Late Funding Settlements /One-off tranches of Funding
One-year local government settlements hinders councils' ability to plan over the period of the MTFS, something which is crucial to deliver investment, valued local services and support to vulnerable residents. This situation is compounded by the lateness of financial settlements in the budget setting timetable with major grant funding announcements as late as February and some made after the budget is set in February.
Whilst additional funding is always welcome, short term annual funding leaves councils and partners unable to plan service delivery over the medium/long term. It hinders the ability to recruit and put long term stabilising measures into action. Furthermore, many of these specific grants are competitive, ringfenced, lower value which are then resource intensive to bid for and manage.
Continuing economic uncertainty of the pandemic
The pandemic has both exacerbated and magnified the precarious state and volatility of local government funding which was already under strain. Despite receiving emergency funding, it is likely that the Council will experience longer-term impacts of the pandemic, the impacts of increasing demand for services, and potential reduced Business Rates and Council Tax income. Currently, it is not clear how long government funding support will last not only to the Council directly but support to the wider businesses and residents of the borough.
Pressure on Reserves
Reliance on use of reserves for permanent budget requirements is not a prudent and sustainable approach in the long-term but can be used, where appropriate, to pump prime invest to save initiatives or in a planned approach to bring permanent budget savings. The Council's balances are at a minimum and with many competing demands these must be managed effectively.