Medium Term Financial Strategy (MTFS) 2025/26 - 2029/30
Appendix 2 - summary of MTFS
This Medium-Term Financial Strategy (MTFS) sets out the estimated financial resources that are needed and available for the Council to deliver its key priorities of the Thrive agenda and the Corporate Plan. Since the last MTFS was agreed by Council in November 2023, a number of factors continue to affect the financial outlook for the Council. Following on from a decade defined by the previous Government's austerity measures and underfunding, increasing demand, the war in Ukraine, and the global pandemic has led to higher inflation, with the cost- of-living crisis notably around food, fuel and utility prices across the country impacting on residents and Council budgets. Although the rate is now reduced in line with Bank of England targets, the cumulative impact of higher inflation over the past year remains a pressure on Council budgets. The assumptions on both cost pressures and assumed funding have been completely refreshed since the last MTFS in November 2023, taking into consideration the Local Government Finance Settlement for 2024/25 and the Council's agreed base budget.
The medium-term financial outlook remains uncertain and is subject to a high level of volatility characterised by the triple impact of historic underfunding, increasing demand and more recently high inflation. On 29 July 2024, the Chancellor of the Exchequer delivered a statement to Parliament accompanied by a policy paper on £22 billion public spending pressures. The Chancellor outlined that the overall funding totals for 2025/26 will be confirmed at the Budget on 30 October 2024, and a multi-year Spending Review will then conclude in Spring 2025.
Based on estimates outlined in this report, the Council estimates that overall, it will need to close a cumulative financial gap of £34.4m by 2029/30. The MTFS assumes positive interventions to manage demand and cost pressures in social care totalling £13.4m and proposed use of reserves of £12.5m over years 2025/26 to 2026/27 to allow smoothing of transformation work to deliver these interventions. Alongside proposed budget efficiencies totalling £6.1m, this leaves unidentified savings of £14.8m to deliver a sustainable financial position which is exemplified as follows:
| Indicative budget forecasts | 2025/26 £m | 2026/27 £m | 2027/28 £m | 2028/29 £m | 2029/30 £m |
|---|---|---|---|---|---|
| Brought forward base | 306.277 | 320.647 | 338.095 | 354.069 | 366.571 |
| Base adjustments | (3.834) | 0.000 | 0.000 | 0.000 | 0.000 |
| General inflation | 2.104 | 1.111 | 1.063 | 0.856 | 0.871 |
| Contractual inflation | 0.000 | 0.298 | 0.303 | 0.309 | 0.315 |
| Other corporate pressures - transport levy | 0.201 | 0.204 | 0.000 | 0.000 | 0.000 |
| Other corporate pressures - capacity fund/growth | 2.000 | 0.000 | 0.000 | 0.000 | 0.000 |
| Other corporate pressures - systems upgrade | 0.300 | 0.000 | 0.000 | 0.000 | 0.000 |
| Other corporate pressures - replenish reserve | 0.000 | 5.000 | 0.000 | 0.000 | 0.000 |
| Other corporate pressures - BCF & Public Health | 0.435 | 0.437 | 0.447 | 0.554 | 0.565 |
| Fees and charges | (0.150) | (0.150) | (0.150) | (0.150) | (0.150) |
| Corporate pay pressures | 3.874 | 3.935 | 6.998 | 4.062 | 4.127 |
| Adult Social Care | 4.339 | 4.406 | 4.537 | 4.618 | 4.623 |
| Children's Social Care | 0.743 | 0.645 | 0.662 | 0.739 | 0.758 |
| Capital investment | 4.358 | 1.562 | 2.114 | 1.515 | (0.339) |
| Estimated base | 320.647 | 338.095 | 354.069 | 366.571 | 377.340 |
| Estimated funding (excluding reserves) | (307.323) | (315.048) | (324.053) | (333.879) | (342.987) |
| Cumulative funding gap (before reserves) | 13.324 | 23.047 | 30.016 | 32.692 | 34.353 |
| Planned use of reserves | (8.500) | (4.000) | 0.000 | 0.000 | 0.000 |
| Estimated cumulative savings requirement | 4.824 | 19.047 | 30.016 | 32.692 | 34.353 |
| Estimated annual savings requirement | 4.824 | 14.223 | 10.969 | 2.676 | 1.662 |
| Options to close gap | |||||
| Adult Social Care interventions | (2.117) | (2.270) | (1.878) | (2.178) | (1.481) |
| Children's Social Care interventions | (0.612) | (1.744) | (0.577) | (0.560) | 0.000 |
| Budget efficiencies | (2.095) | (2.000) | (2.000) | ||
| Potential budget cuts: unidentified | (8.209) | (6.514) | 0.062 | (0.181) | |
| Provisional balanced budget | 0.000 | 0.000 | 0.000 | 0.000 | 0.000 |
The budget gap is predominantly driven by the significant ongoing demand pressure for social care and inflation on the Council's cost base. This is forecast to increase core costs by £71.1m over the period of the MTFS. Funding is forecast to increase by £36.7m over the 5-year period leaving a cumulative gap of £34.4m. After the social care demand interventions totalling
£13.4m, and the budget efficiencies totalling £6.1m, there is a requirement to identify further budget cuts of £14.9m by 2029/30 to achieve financial sustainability over the medium term. Securing budget cuts to support closure of a gap at this level remains a significant challenge but will be assisted by the emerging work on of the budget approach and through the delivery of change to align resources to priorities to enable residents of Gateshead to thrive.
In their Fixing the Foundations1public spending audit, the Government outlined a commitment to a more empowered, accountable and sustainable local government system. The Government stated intent is to use the Spending Review to improve how different tiers of local government work together which will include consolidating funding streams for local authorities into the Local Government Finance Settlement. However, until further information is received
from the new Government's Budget and Spending Review, it remains the case that there is significant uncertainty about funding beyond the current year. Many government funding sources are short term or come with additional burdens. The MTFS makes some assumptions about inflationary increases in grants and assumes that the grants continue (except for New Homes Bonus and Services Grant), but until the Local Government Finance Settlement, expected late December, these cannot be clarified with any certainty.
The cumulative funding gap represents the shortfall between the estimated increase in costs less the estimated increase in funding.
Since the start of the previous Government's austerity measures in 2010, the Council has made substantial cuts and responded to demand pressures to deliver £207.5m budget cuts. Despite ongoing financial challenges, the Council has delivered its revenue budget from 2012/13 showing strong and stable financial management.
The budget gap as estimated within this MTFS will continue to present a significant financial challenge that will be met by a Council wide approach driven by the delivery of the Corporate Plan, underpinned by transformation and prioritisation to maximise the efficient and effective use of resources.