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

The Medium-Term Financial Strategy (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. The Strategy describes the financial direction of the Council for financial planning purposes and outlines the financial pressures over a five-year period but is reviewed annually to reflect the dynamic nature of local government funding.

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 covering at least three financial years will then conclude in Spring 2025. During the debate following the statement, the Chancellor expressed an intention to introduce multi-year finance settlements for local government, but no further detail has been provided, including when this proposal might be implemented.

Government announcements regarding funding will be closely monitored during the budget process and their impacts assessed, in line with the iterative approach. As such, the assumptions in the refreshed MTFS remain subject to significant uncertainty at this stage until further information becomes available. The financial assumptions in this report will need to be reviewed following the Budget on 30 October 2024.

Funding of local authorities and demand pressures is a national issue with a growing number of local authorities reporting significant financial issues and failures, including 19 local authorities which needed exceptional financial support to set a legally balanced budget in 2024/25. While the Council is not is this position, the challenges that the Council is facing should not be underestimated. However, the starting point for the refresh of the MTFS is built on the solid foundation of:

• the Council has a strong track record of delivering the revenue outturn within budget. The 2023/24 revenue outturn was positive but there were a number of one-off issues that masked overspending in some areas. The positive outturn remains a significant achievement given the financial pressure faced by services it provides the foundation of the Council's forward plan
• the 2024/25 Finance Settlement was considered to be more positive than anticipated. However, the impact of inflation has eroded the spending power which has a cumulative impact over the MTFS
• despite the funding challenge, the Council agreed £15.9m of savings for 2024/25 to achieve a legally balanced budget, recognising active management of the funding position and that use of reserves cannot be the solution to the funding gap
• the 2024/25 settlement and active management of reserves enabled some flexibility on the use of reserves in 2024/25, requiring £5m budgeted use of Budget Sustainability rather than £11.175m estimated in the MTFS
• the 2024/25 base budget includes capacity to deliver change within the Council. This is strengthened by a proposal to add £2m capacity building funding in 2025/26 outlined later in this report

The MTFS is not the budget, rather it provides a framework and context for the budget process. There are many assumptions that will need clarification between now and February 2025, in particular:

• the implications of announcements in the Chancellor's Budget on 30 October 2024
• the Local Government Finance Settlement, assumed to continue as late December 2024
• confirmation of retained business rates and associated relief grants at the end of January 2025
• the impact of the pay award in 2024/25 and assumptions for 2025/26
• confirmation of National Living Wage rates which impact on provider fee negotiations
• confirmation of Council Tax Support Scheme
• confirmation of the Collection Fund surplus or deficit in mid-January 2025
• Council Tax base to be reported to Cabinet in January 2025
• agreed Capital Programme
• agreed increase in Council Tax in line with referendum principles
• delivery of the 2024/25 budget. Q1 reported to Cabinet on 16 July 2024 outlined a projected overspend of £3.6m

The process is iterative as these areas become known and ultimately impact on the level and timing of interventions and budget cuts required, as well as the level and profiling of reserves usage. The Council will develop an approach to the 2025/26 legally balanced budget based on the latest set of assumptions set out in the proposed MTFS.