Cabinet received and considered the report of the Chief Finance Officer (CFO) on the Council’s Medium Term Financial Plan (MTFP) 2023/24 to 2027/28.  The MTFP set the financial framework for the next five years and was subject to confirmation of Government funding and several other factors that might affect the Council’s finances.  The report had been scrutinised by the Overview and Scrutiny Committee (OSC) on 21 November 2022 and a copy of the Minutes arising from the OSC meeting had been appended to the report for Cabinet’s consideration.

The following salient points were noted:

•     Budget Process: The Council followed a three phased budget process.  The first phase was to update the MTFP, which set out budget pressures and estimated the size of the budget deficit over the next five years. The second phase was to produce a detailed draft budget in January 2023. The third phase was to finalise the budget once the Government settlement had been announced and incorporate the Capital Strategy and revised Capital Programme into the MTFP for formal approval by Cabinet and full Council in February 2023.

•     Local Government Funding: In June 2022, the Government announced the introduction of a two-year financial settlement with effect from 2023; and that the local government ‘Fair Funding Review’ in consultation with local authorities in 2022 would be completed. The 2023/24 funding settlement was expected in December 2022, but at this stage it was unclear whether it would contain further clarification about the June 2022 announcements.

•     Cost Pressures: These included inflationary increases built into certain service contracts, increasing demand in Temporary Accommodation (TA), predicted increase in external audit costs, net financing costs due to the planned increase in capital investment on major projects such as the Property Investment Strategy and TA acquisition programme, the annual pay award, non-pay inflation increases, increasing electricity costs and a budget contingency of £200,000.

•     Corporate Plan: One of its key priority objectives was to achieve financial stability by end of 2025/26.  However, the current forecast shown in Appendix A to the report identified that without further action, an underlying budget deficit would remain until at least 2027/28 and the Council would not be able to replenish revenue reserves.

•     Financial Stability Programme: To achieve financial stability within five years by delivering costs savings and income in the following areas: service devolvement, invest to save, income generation and service prioritisation.  Significant progress had been made in areas such as the devolution of services and other smaller initiatives, however further work would be required if the Council was to achieve the targets set.

•     Business Rates (Non-Domestic Rates): The East Sussex Business Rates Pool enabled the Council to retain a greater share of any business rates growth.  In September, the Government sought the Council’s preference to continue with the pooling arrangements in 2023/24; this would require approval.

•     Non-Specific Revenue Grants: The five-year forecast assumed that New Homes Bonus Grant would be significantly reduced and would cease with effect from 2026/27.  It was anticipated that this would be partially offset by other grants.

•     Council Tax: 3% (as recently announced by the Government) or £5 increase was assumed for each year of the MTFP.

•     Revenue Reserves: Predicted to fall to £2.342m by the end of the 2027/28 if further savings were not identified, which was well below the £5m level that had previously been used as the Council’s minimum level, although well above 10% of net spending.  The CFO confirmed that the minimum level of Revenue Reserves was a matter for the CFO to set, as required by the Local Government Act 2003, and was not set by the Council’s external auditors.  It was recommended that the words “or replenish” be removed from the recommendation arising from the OSC meeting. 

•     Capital Programme: The draft Capital Programme was shown at Appendix C to the report and comprised a range of strategic projects that spanned more than one year and many operated for several years or had recurrent investments. Projects that had not spent all their allocation in the year of inception could, if still required, have the remaining funding carried forward into the next financial year, which was known as ‘slippage’.  Slippage from prior year projects had been included at Appendix C, but more accurate cash flows would be developed during phase 2 of the budget process.

•     Capital financing costs estimates were extremely sensitive to changes in interest rates and along with inflation rises, this would have a significant impact on the affordability of some capital schemes. Therefore, larger and more complex schemes would be subject to a detailed affordability review before approval by Members and commencement.

•     Budget Consultation: Held between mid December 2022 and 31 January 2023.  An interim report on the consultation would be reported to the Overview and Scrutiny Committee on 23 January 2023.

Cabinet agreed to maximise the annual increase in Council Tax within the Government’s referendum limit, that the Council remained part of the East Sussex Business Rate Pool and delegated authority be granted to the CFO, in consultation with the Cabinet Portfolio Holder for Finance and Performance Management to finalise the budget consultation wording.  Officers would continue to develop proposals to enable the Council to maintain its level of Revenue Reserves at a minimum of £5m; discussions had already taken place between Cabinet and the Strategic Leadership Team and proposals would be developed over the coming months.

The MTFP highlighted the challenges the Council continued to face, and a balanced budget was achievable through a combination of sound financial management and delivery of the FSP.

RESOLVED: That:

1)   the financial forecast and proposed way forward be noted;

2)   the Council maintain its policy of maximising the annual increase         in Council Tax within the Government’s referendum limit;

3)   delegation be granted to the Chief Finance Officer to finalise the          wording of the budget consultation literature in consultation with the Cabinet Portfolio Holder for Finance and Performance Management;

4)   the Council continues to be part of the East Sussex Business Rate Pool in 2023/24 and that the Chief Finance Officer be granted delegated authority to finalise the necessary agreement with the Member authorities in consultation with the Cabinet Portfolio Holder for Finance and Performance Management; and

5)   officers develop proposals, which will enable the Council to maintain its level of Revenue Reserves to one third of net expenditure or £5m, whichever was the lesser.