Medium Term Financial Strategy (MTFS) 2020/21 - 2024/25

Future budget forecasts have been projected over the medium term. Forecasts and assumptions are outline below for information.

The indicative budget forecasts show an estimated funding gap of around £49.9m for the five-year period 2020/21 to 2024/25. 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
• 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. 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 remains under enormous pressure and a long term sustainable solution must be found.
• Revenue Costs of Capital Investment the revenue cost arising from capital investment

The funding projections in this strategy are based on local assumptions, these are set out below for information;

Revenue Support Grant (RSG) The central government core grant. The MTFS assumes RSG continues in 2020 in line with recent government announcements then removed for future years in the move towards full business rate retention.

Locally Retained Business Rates As part of the Devolution agenda, the government initially planned for councils to begin keeping 100% of local business rates to replace the Revenue Support Grant. The rollout of this new system has been delayed and scaled back to 75%. It was announced within the provisional Local Government Finance Settlement 2018/19 that the government aimed to introduce at least 75% business rates retention in 2020. This has now been delayed at least until 2021/22.

The MTFS assumes that the move to 75% business rate retention is implemented in 2021/22. This change in funding system for local government is still being consulted on. There is to be a system of redistribution through tariffs, top-ups and baseline resets, but the government are yet to announce the details. This makes modelling projected income from business rates extremely difficult adding significant uncertainty into the medium term position. At this point it is known that the intention is for Revenue Support Grant to disappear and the council will receive business rates calculated on a revised baseline. Business rate funding levels in future are highly indicative and are based on 75% of total rates plus an element of equalisation. This will need to be revisited as more information on the proposed new system comes to light.

The level of business rates, the frequency of property valuations, exemptions and reliefs, and the collection and appeals processes are all currently controlled by central government. Business rates income can be volatile and therefore not a stable and reliant source of funding, the system does not currently capture online digital business whilst high street businesses are struggling.

Council Tax Increases would need to take into consideration the Government's referendum principles which are set out every year within the settlement. A 1% increase in council tax yields approximately £0.900m. MTFS projections include 2% council uplifts over the period. This is in line with recent announcements within the spending review. An estimated amount to reflect growth in the council tax base has also been included.

Within the Spending Review the government announced an intention to consult on a further 2% Adult Social care precept for 2020. This method places the burden of funding a national funding shortage for social care onto local council tax payers. At this stage the potential funding from this has not been included in MTFS projections. Actual council tax increases will be decided on an annual basis taking into account financial circumstances of the council at the time and the level of resources available. Annual increases remain subject to the decision of both Cabinet and Council.

Other Grants include government grants that are used to finance general council budgets. These include New Homes Bonus, Improved Better Care Fund and Section 31 grant related to refunded costs by government for the business rate system. The MTFS assumes that from 2021/22 all other grants will taper off to nil to be replaced under the new funding regime under rates retention and fair funding including the current ring fenced Public Health grant. In 2020/21 in line with recent announcements it is estimated that the Public Health Grant will increase in line with inflation along with the Better Care Fund allocations via health.

Borrowing and Investments The council invests money with a number of financial institutions acting in accordance with the framework outlined in the Treasury Policy Statement and Treasury Strategy 2019/20 to 2023/24. The investment interest earned is used to support the Council's new strategic approach 'Making Gateshead a Place Where Everyone Thrives'.

Fees and Charges The council currently raises in the region of £22.7m from fees and charges, of which around £3.4m relate to statutory charges and £19.3m relate to non[1]statutory charges. For some charges like parking, councils can set the charges they like. For others, like planning, the amount councils can charge is capped. It is normal practice for the council to review fees and charges annually and propose revised and new charges from 1 April each year. This will include the development of any policies in respect of discounts and concessions. As part of the annual review, all fees and charges are considered. Where inflationary increases have been proposed, these have been uplifted using the September Consumer Price Index (CPI) rate. Any impact on income budgets arising from these areas are either adjusted at the annual budget setting stage or will be consulted on as part of the budget proposal process.