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

The Council's current financial position and outlook

Revenue outturn 2019/20

Council agreed the original revenue budget for 2019/20 on 21 February 2019. This was set at £206.999m. This was subsequently revised to £207.262m on 20 November 2019 following the receipt of additional funding of £0.263m. The overall service revenue outturn for 2019/20, including transfers to and from reserves and financing, results in an under spend of £0.237m (0.1%). As previously reported the Council has received a refund of VAT in relation to Leisure Services of £3.893m. The Council's stated intention in relation to this one-off benefit has been to transfer this into the General Reserves to support the MTFS. When added to the monitoring position outturn this results in an overall council revenue position for 2019/20 of a surplus of £4.130m.

Revenue Budget 2020/21

Council agreed the revenue budget for 2020/21 at its meeting on 27 February 2020. This was set at £220.761m (excluding schools) and included £0.451m in savings. The report proposed to move forward a priority driven approach to revenue resource allocation. Unlike previous years, 2020/21 was to mark a change from the annual budget proposal cycle to a continuous approach with budget developments brought for consideration to Cabinet throughout the year within a five-year budget planning framework. During 2020 the Council has had to react to the challenges on the pandemic and lockdown restrictions. The quarter one monitoring reports for capital and revenue which included amendments to budget were reported to Cabinet on 15 September 2020.

Beyond 2020

To achieve a long term, sustainable financial position the medium-term strategy and focus for service plan development over the next three to five years will be centred around the following themes. Because of the pandemic It may be that decisions on priority areas are brought forward and addressed now or postponed and more budget savings are required early.

  • increasing /maximising Economic Growth - doing all we can to support economic growth and revenue generation through increased council tax and business rates. Success in this area will enable the council to reinvest resources into activities which protect the most vulnerable
  • investment in Key Priorities to ensure achievement of outcomes for Gateshead residents within desired timescales
  • longer Term Cost Prevention with a targeted approach, emphasising early intervention to mitigate demand pressures
  • making Cuts and Drive efficiencies through changes to the way the council works, for example, through exploiting new technology and cutting lower priority activities to realign resources towards high priorities

Economic growth

Local economies are linked to national economic growth. The council aims to promote a strong and sustainable local economy leading to wellbeing and prosperity for residents, communities and businesses. This will be supported by a planned approach to investment to boost local economic growth such as improving local infrastructure and wider transport links. Supporting residents with sustained employment and skills during the pandemic will be crucial. Success in this area will enable the council to have a stronger medium- and long-term financial position and allow redirection of resource to activities which protect the most vulnerable.

Investing in key priorities

The council aims to strengthen the long-term financial position through investing in key priorities to secure the policy outcomes of the Council in a timely manner in areas such as housing, economy, health, climate change and transport. The council will seek to maximise investment opportunities whilst continuing to seek out and secure other sources of funding such as external grants.

Long term cost prevention

Like many other local authorities, a significant challenge facing the council is increasing demands and expectations for services at a time when funding sources are significantly reducing. In order to manage cost pressures over the medium term it is vital that plans are made to manage future demand and either reduce or stop it.

A particular area facing this pressure is in both children's and adult's social care where costs are increasing and vastly outstrip available budgets. This requires a targeted approach with early intervention and prevention strategies and working close collaboration with partners.

Other areas of demand include demands for online services, welfare and hardship support, access to public health services. This will involve implementing digital strategies, increasing capacity and skills within communities, close working with partners and volunteers to align priorities and increasing collective responsibility by encouraging and supporting local people, partner organisations, businesses and local communities to play a more active role in achieving priority outcomes for Gateshead.

Cuts and efficiencies

The scale of the budget challenge means that the council will still face further significant cost reductions through efficiencies and different methods of service provision and cuts in service provision. This will require redirection of budgets to council spending priorities which in turn may result in ceasing existing activities, scaling down activities or services, renegotiation of contracts or Service Level Agreements. Despite already delivering considerable budget savings to date through cuts to services and efficiencies the council will continue to seek to achieve efficiencies through changes to the way the council works, for example, through exploiting new technology, consolidation of buildings and services, reducing complex processes.

Due the pandemic emerging priorities are providing support into communities, moving services to digital and supporting the voluntary and community sector. It may be that decisions on priority areas are brought forward and addressed now.

The council will also actively look to streamline its processes in order to support effective decision making and make the best use of available capacity. Opportunities for working in collaboration and partnership and different ways of working will be identified and developed where this will support the delivery of the council's outcomes and improve service efficiency and delivery. This will include working collaboratively with key partners to share costs or transfer responsibilities.

Indicative budget forecasts show an estimated funding gap of around £58.4m for the five-year period 2021/22 to 2025/26. Indicative figures have been included for the following cost pressures:

General and contractual inflation

The cost pressures arising from rising costs in utilities and existing contracts.

Council wide cost pressures

Such as pension costs, pay awards, costs relating to changes in policy and loss of grant in year and include financial pressures relating to the pandemic such as PPE and lost income due to the absence of any assurance from government about long term COVID-19 support.

Service demand pressures

Such as children's and adults existing and estimates of future demand cost pressures.

Like many other councils, this council comes under increasing pressure to provide or enable essential statutory services without adequate funding. Cost pressures continue in relation to home to school transport, housing and waste services. There are particular pressures within children's and adult's social care services where demand for the provision of care and support for looked after children and the elderly continues to grow. This adds significantly to the budgetary pressures faced by the Council. The Council has set aside recurrent funding within this financial plan.

Adult's social care cost pressures are continuing due to the increasing numbers of older people in Gateshead with associated problems such as frailty leading to falls and dementia or having one or more of the common long-term conditions such as diabetes, epilepsy, heart disease, chronic pain, arthritis, asthma and chronic obstructive pulmonary disease. In addition, providing care and support for people under 65 with disabilities accounts for a large portion of budget.

Children's social care face increasing cost pressures relating to looked after children, high needs supported accommodation for up to 25 years olds, special guardianship orders, children with disabilities and home to school transport.

Social care is a vital public service that promotes wellbeing and independence and helps support some of our most vulnerable people and children. Early intervention can help limit the demand pressures however councils are struggling to invest in vital early help and support, as a result of the severe funding reductions. Nationally the care and support system remain under enormous pressure and a long-term sustainable solution must be found.

Capital and prudential borrowing

The council's capital investment plans are set out in the capital programme, with the latest approved programme covering the period between the 2020/21 and 2024/25 financial years. The effective use of capital resources, including asset management, is fundamental to the Council achieving its medium- and long-term strategic objectives. Capital investment has a significant impact upon the local economy and helps to ensure that the council can continue to provide the best possible services and outcomes within Gateshead.

Any capital investment decision will have implications for the revenue budget. The revenue costs over the lifetime of each proposed capital project are considered when the project is being developed to ensure that the impact can be incorporated within the council's financial plans and to demonstrate that the capital investment is affordable. Revenue implications may include the costs associated with supporting additional borrowing as well as any changes to the running costs associated with the asset or wider benefits to the council such as the delivery of ongoing revenue budget savings or additional income through the generation of business rates, council tax or energy revenues.

The council continues to explore external funding possibilities when developing capital projects to minimise the borrowing requirement as far as possible. Generation of capital receipts can also help to provide resources to support additional capital investment or can help to reduce the borrowing requirement and therefore the cost to the revenue budget.

Considering the ongoing and uncertain economic conditions the Council will be reviewing current programme affordability and project risk to help achieve a sustainable financial position, which may require a reconsideration of project commitments.

Key assumptions regarding funding are outlined below:

  • it is assumed no continuation of COVID-19 government funding support into future financial years
  • due to the ongoing delays to reforms it is extremely difficult to forecast finances over the medium term. With that in mind the MTFS will now be prepared on the current funding model of revenue support grant (RSG) and top up grant rather than estimating a rates retention model until such time that proposed reforms are clearer. Therefore, all grant continues at 2020/21 cash levels. No uplift for inflation has been assumed
  • 1.99% increase per annum for council tax uplifts (£1.9m) has been included in projections without prejudice, along with projections relating to growth in the council tax base. Unlike the previous MTFS position anticipated reductions due to council tax deficits and impacts of increased local council tax support have been included
  • no Adult Social Care precept is assumed (previously 2%)
  • from 2024/25 increased rates from the Quays development have been included estimated at £2m per annum. Potential surplus generated by the scheme has also been included in estimates