Medium Term Financial Strategy (MTFS) 2025/26 - 2029/30

The MTFS has been prepared on best estimates using the current information we have amidst significant uncertainty about international issues, the national economy, cost of living crisis, and pending decisions from the Chancellor's Budget on 30 October 2024. Given the high uncertainty the impact of any changes to some of these assumptions and key risks are included in the supporting information. The table below shows the estimated financial gap over five years with the proposed use of reserves.

As part of last year's MTFS, it was agreed to extend the use of reserves for a further two years into 2025/26 and 2026/27. It is proposed use of reserves of £8.5m in 2025/26 and £4m in 2026/27 to smooth the impact of cuts over the next 2 years. Significant use of reserves can only be justified the following two fundamental criteria being met:

• Permanent savings must be delivered to close the estimated funding gap without further reliance on reserves beyond the MTFS period; and
• There must be a plan to replenish reserves to a prudent level over the MTFS period.

The planned use of reserves is predicated on the following:

• The impact that cumulative high inflation is having on the Council's budget;
• The active management of reserves that allows this flexibility;
• The current Capacity Fund and a further £2m proposed in 2025/26 to drive through to sustainability;
• A budget approach to identify and deliver a pipeline of budget mitigations, efficiencies and cuts of £34m; and
• A proposed plan to replenish reserves from 2026/27.

Rates used within the MTFS 2025/26 to 2029/30 assumptions

Capital investment must also be kept under review and clearly aligned to priorities and financial sustainability to ensure affordability and to manage risks.

Inflation

Inflationary Pressures -The inflationary pressures identified in 2024/25 will have a cumulative effect across the MTFS period. CPI assumption is based on the latest Office for Budget Responsibility (OBR) forecasts and impacts on both costs and funding.

Energy Costs -Energy costs are set within a North-East Procurement Organisation (NEPO) framework. 2022 was an unprecedented year in relation to energy costs with +100% increase in both Gas and Electricity costs. Early estimates indicate that this will reduce in 2024/25.

Fluctuations in the volatility of energy costs are managed through Contingency.

Fuel Costs -Fuel cost rose significantly in 2022, although recently costs have started to reduce. This is however still high cost compared to 2021 with uncertainty as to future years.

Pay Pressures -the current pay award offer for 2024/25 made by the National Employers is yet to be agreed. The 2024/25 base budget includes contingency for an estimated 5.41% pay award and 2% thereafter. For planning purposes provision is included for the impact of pay awards and estimated impacts of the National Living Wage which are unfunded by government.

Contractual Inflation- Rising costs to existing contracts.

Corporate Pressures

Job evaluation review has commenced in 2023/24 and it is expected to be finalised in 2027/28. It requires a fundamental review of the whole pay and grading structure to tackle recruitment and retention issues and market pressures facing the Council.

Strategic Economic Investment

The Council's capital investment plans are set out in the capital strategy and programme, with the latest approved programme covering the period between the 2024/25 to 2028/29 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.

All capital investment decisions 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. Within the MTFS, assumptions have been made around the level of external funding in the future, but detailed work programmes will not be committed to until the allocations have been confirmed. Projects and investment plans may therefore be re-prioritised depending on the availability of external funding.

The generation of capital receipts can 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. The generation of capital receipts to support the capital programme has historically been challenging, representing low land values and high remedial costs due to land contamination. It is currently assumed that £0.75m p.a. will be achieved through capital receipts and further consideration is needed into how the few potentially higher value sites can be brought forward to achieve improved capital receipts to support the delivery of capital schemes.

Significant challenges and priorities for the Council's capital investment over the medium term that are set out in the Council's key strategies include:

• Investing in assets to enable the Council to meet its key objective of Making Gateshead a Place Where Everyone Thrives.
• Investment in housing to ensure the supply of housing best meets current and future needs and aspirations to create thriving, mixed communities throughout Gateshead.
• Investment to achieve the Council's climate change aspirations.
• Continuing to regenerate the Gateshead Quays and Baltic Business Quarter area as part of the Council's Accelerated Development Zone, working with our development partner to build upon the successful delivery of iconic projects such as the Sage Gateshead and Baltic to create a significant new mixed-use development to help unlock economic growth and generate additional business rates and raise the profile of Gateshead.
• Continuing to support the regeneration of Gateshead Urban Core to deliver a centre with the stature and vibrancy of a city and continuing to invest in improvements to local centres across Gateshead.
• Improving the Council's corporate ICT infrastructure, equipment and systems to improve connectivity, security and resilience and ensure that the Council remains fit for the future and can provide services as efficiently and effectively as possible.
• Investing in strategic infrastructure to support growth within Gateshead. This includes investment in areas such as transport infrastructure to provide an integrated transport system which meets demand and improves connectivity and accessibility as well as investment in the Council's schools to help increase capacity.
• Investing in the provision of energy infrastructure to support the expansion of the District Energy network to provide lower cost, lower carbon energy to support regeneration and economic development, generate income and provide long term resilience against rising energy prices.
• Meeting essential health and safety and mandatory obligations, such as Equality Act improvements, to improve the accessibility and sustainability of Council owned assets.

The financial planning framework provided by the MTFS will provide the context for a Council Investment Plan that will inform the allocation of resources within the capital programme.

Resources - Other Grants

For the Public Health Grant, from 2025/26 inflationary increases in grant are assumed. It should be noted if any funding formula are changed this could result in significant changes. However, Government Departments may seek to mitigate the extent of any reductions to Councils that are adversely affected by formula changes by providing transitional arrangements.

For the Better Care Fund, the Council has received inflationary increases in previous years and expects this to continue.

There are well documented national pressures on Social Care and additional funding was provided in 2023/24 and 2024/25, repurposed from delays to reform, most notably the Market Sustainability and Improvement Fund, and the Discharge Fund. Although the increase in funding was significant, it is coupled with new burdens, and therefore this funding does not help to reduce the Council's funding gap. Furthermore, the duration of this funding is uncertain, with Government announcements referring to 2023/24 and 2024/25 only, making the ability to efficiently plan and implement long term strategies extremely difficult. The MTFS assumes these funding streams will continue.

The Council also received an increase for the Social Care grant in 2023/24 and 2024/25. Beyond 2024/25, this has been assumed cash flat for future years.

The New Homes Bonus scheme was a key funding source for the Council and was due to be phased out by now. The Council received a small allocation for 2024/25 but no further funding has been included in the MTFS on the assumption that this grant will cease.

In 2024/25 the Council received a Services Grant which was significantly reduced from 2023/24. This reduction reflects the Government's approach to using this as a balancing funding stream in Core Spending Power allocations. The MTFS assumes this grant will cease.

The MTFS projections assume all grants will continue beyond 2024/25, with the exception of New Homes Bonus and Services Grant.

Council Tax

The previous Government announced referendum limits for Council tax of 2.99% for core council tax, and 2% for the Adult Social Care Precept, but it's unclear how long these limits will remain in place. Each 1% increase results in approximately £1.1m of additional income. For forecast purposes, for 2025/26 the MTFS assumes the same rate as 2024/25, 2.99% maximum increase in council tax and 2% maximum increase in Adult Social care precept. For the years 2026/27 to 2029/30, the MTFS assumes the rates to be 1.99% for core council tax, and 2% for Adult Social Care precept. These assumptions are for planning purposes only and Council Tax rates will be agreed by Council each year in February. A revised Council Tax and Business Rates base will be updated and agreed by Cabinet in January 2025, in advance of setting the Council Budget in February 2025. If no assumptions of Council Tax increases were included in the projections, then the funding gap over the 5 years would increase by a further £30m.