Medium Term Financial Strategy (MTFS) 2021/22- 2025/26

This is the annual review of the council's Medium-Term Financial Strategy (MTFS). It is based on a financial forecast over a rolling five-year timeframe from 2021/22 to 2025/26 which will help ensure resources are aligned to the outcomes in the council's strategic approach "Making Gateshead a Place Where Everyone Thrives".

The 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. Financial forecasts determine the likely level of revenue resources available to the Council over the medium term and estimates the financial consequences of the demand for council services. It improves financial planning and strategic financial management through providing the financial context within which the council budget will be set.

The MTFS sets the financial context for the council's resource allocation process and budget setting. The council has responded to the financial challenges in a planned way through an approach based around four inter-related areas: economic growth, priority investment, cost prevention and identifying savings/efficiencies. The world pandemic brings new challenges to be considered. 

Gateshead's strategic approach of Making Gateshead a Place Where Everyone Thrives was agreed with the council's purpose and beliefs in mind, along with what matters most to the people of Gateshead. Due to insufficient funding the council faced being forced to make very difficult choices in the years ahead about which services to prioritise investment.

During 2020 the council and its residents have been impacted by the COVID-19 Public Health crisis. The lives and livelihoods of all residents have been severely affected by the impact of the Coronavirus pandemic and the measures that have been put in place to control the infection. From a financial perspective some of the cost pressures and loss of income will have both an immediate and longer-term impact on the council finances. As a result, it is likely that the Council will accelerate current work on a priority driven approach to the Budget that will deliver outcomes consistent with Thrive principles.

The UK's vote to leave the European Union (EU) and the current uncertainty is likely to herald a degree of continued instability in the short to medium-term and the consequences are still to be understood over the MTFS period.

Alongside this the Council still has no further clarity on the changes being proposed to local government funding. On 6 February the council received a one-year financial settlement for 2020/21. On 28 April 2020, the government announced that the Review of Relative Needs and Resources (Fair Funding Review) and the move to 75% business rates retention will no longer be implemented in 2021/22. A spending review is expected in the Autumn setting out Government spending plans for revenue for 2021/22 until 2023/24 and capital budgets to 2024/25. As part of their preparations for the CSR departments have been asked to identify opportunities to reprioritise and deliver savings.

HM Treasury have announced that the next Budget will not take place this autumn due to the continued impact of COVID-19. This means that there is a possibility that the current plan for a 3-year Spending Review might be replaced by a 1-year rollover exercise similar to last year's settlement.

Local authorities are legally obliged to set a balanced budget each year and to ensure they have enough reserves to cover any unexpected events. Therefore, to legally balance the budget the council must make spending plans affordable by matching it to the estimated funding available over that time. The gap between the two amounts is referred to as the "funding gap". Thus, the funding gap is a combination of the council's best estimate of the future budget needed to cover rising cost pressures and demands for services alongside a reduced amount of income. Action is required now to enable the council to satisfy the legal requirement to balance the budget both next year and in future years.

There are acute problems nationally in funding the increasing demands of both adults and children's social care. Adult social care is a vital public service that promotes wellbeing and independence and helps support some of our most vulnerable people. There also continues to be a huge strain on children's social care budgets the impact of which is growing both nationally and locally. Early intervention can help limit the need for children to enter the social care system, lay the groundwork for improved performance at school and even help to ease future pressure on adult social care by reducing the pressure on services for vulnerable adults. Councils are struggling to invest in this vital early help and support, as a result of the severe funding reductions. Nationally the care and support system remain under enormous pressure.

Budget cuts across other areas of the public sector have a negative impact on local government. Councils often act as a safety net when people hit crisis point, and more people are reaching this point due to cuts to other sector budgets alongside welfare reform and the introduction of universal credit added to this the impacts of the world pandemic.

Based on local estimates outlined in this report, this council estimates that overall, it will need to close a financial gap of £58.4m to 2025/26. This gap can be summarised as follows (there may be slight differences due to rounding's):

The council aims to ensure that reducing resources are used to maximum effect and allows the council to continue to deliver new and better ways of working and invest to improve the efficiency of services provided. It is evident however the continuing reductions in funding and increases in demand will have an inevitable impact on both the nature and scope of services that the council is able to deliver. The council will aim to manage the process of change to its services effectively.

The council will continue to have significant revenue and capital budgets to invest and deliver priority services consistent with achieving the outcomes of "Making Gateshead a Place where Everyone Thrives".