Purpose

The medium-term financial strategy provides a forecast of the financial position for the county council for the next 3 years. This report contains an updated position compared to that presented to Cabinet and Full Council in February 2023.

The forecast contains detailed assumptions that have been discussed in depth with services and research undertaken nationally to benchmark the reasonableness of our assumptions in comparison to other local authorities.

The Council has a history of excellent financial management which has enabled the delivery of significant savings to the local taxpayer whilst still investing in priority services. It has continued to deliver significant savings year on year whilst maintaining delivery of high-quality services to its residents. However, the savings required in the previous medium term financial strategy and budget rounds are in excess of £140m over a four-year period and necessitate an ongoing heightened focus on financial sustainability and resilience.

This medium-term financial strategy sits against a backdrop of continued financial uncertainty and challenge for local authorities. There are an increasing number of councils now reporting that they are facing financial difficulties; several have issued Section 114 notices with a number of others stating that they are at risk of issuing Section 114 notices over the next 12 months because service demand is outstripping the level of funding available to them.

A recent survey of undertaken by the Society of County Treasurers found that its council members are forecasting significant cost pressures from a combination of higher than expected inflation and demand. The majority of councils are forecasting an overspend in 2023/24 with many experiencing overspends in excess of that reported for this Council both in quantum and as a proportion of their revenue budget.

In light of the increasingly challenging financial picture, some 4 in 10 of these councils are unsure or not confident that they can balance their budget in 2024/25, with this increasing to 6 in 10 by 2025/26. We are not in this position based on the position outlined in this report but the emerging national position of acute financial pressures and deteriorating financial resilience across top tier councils is the backdrop for future funding settlements to be set against.  

There have been changes to projections that have been included in this updated version, the majority of which are outside the control of the county council and have been influenced by external factors such as the updated 2023/24 pay award proposals, energy costs, interest rates and inflation levels. In addition, there have been some increases relating to demand levels particularly across Children's Social Care and home to school transport.

The previous medium term financial strategy forecast a budget surplus of £12.077m in 2024/25 with this becoming a deficit position of £19.103m by 2026/27. The updated position forecasts a gap of £14.505m in 2024/25, with this increasing to £18.294m in 2026/27.

Significant assumptions are required to underpin our forecasts. While these can be made with a level of confidence in shorter term, there is significant uncertainty over the medium and long term with regard to the scale and length of inflationary pressures and future funding levels. The forecast is therefore based on a set of reasonable assumptions applied from various sources including national and professional bodies and discussion with peers, given the forecast pressures are largely the result of factors outside the direct control of the council and are affecting local government as a whole.

A further updated medium term financial strategy will be reported to Cabinet in January 2024, as part of the budget report. This report will include the 'government settlement figures for 2024/25 and potentially some revised assumptions for future years.

In line with the Councils pro-active approach to financial management work was undertaken by Directorates to identify financial savings and efficiency during the early part of this year in recognition of the remaining budget gap. This has resulted in "management action" savings totalling c£23m being included in the updated medium term financial strategy.

In order to further reduce the financial gap that is forecast within this report there are several other areas such as commercialisation, commissioning strategy, service standards, grant reviews that are active workstreams that are being reviewed and discussed with Members. In addition, Directorates are preparing further savings proposals for consultation with Members that could be taken forward to achieve a balanced budget position.

The reserves presented within this report are subject to a detailed review, particularly relating to commitments and making the best use of funds available. This will be completed and presented as part of the budget report in January 2024.

In summary:

(i)  The medium-term financial strategy has been updated for current expectations of levels of funding, savings delivery, demand and inflation.

(ii)  At Full Council in February 2022 the medium-term financial strategy showed a surplus of £12.077m in 2024/25 with this becoming a deficit position of £19.103m by 2026/27. The updated position forecasts a gap of £14.505m in 2024/25, with this increasing to £18.294m in 2026/27.

(iii) The council is forecast to hold a General Reserve against unforeseen issues of £23.437m representing circa 2.25% of net budget, which is unchanged from the previously reported position. 

(iv) The council is forecast to hold £163.525m of uncommitted transitional reserve at the end of the financial year. This is sufficient to meet the forecast gap for the medium-term financial strategy for the next three financial years.

Decision

The Cabinet approved the recommendation(s) as set out in the report.