Members received and considered the report of the Chief Finance Officer on the Council’s Medium Term Financial Plan (MTFP) 2022/23 to 2026/27, which would be considered by Cabinet at their meeting on 13 December 2021.  The MTFP set the financial framework for the next five years and would be modified as the financial situation of the Council changed during that period.  Appendix A to the report gave details of the MTFP, showing a £3.3m funding gap by 2022/23, but a surplus by 2025/26.  Appendix B to the report illustrated the impact on the Council’s Reserves.  Members noted that the figures quoted were as robust as possible, but the financial forecast was a work in progress.

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 for Cabinet’s consideration in January 2022. The third phase was to finalise the budget once the national funding settlement had been announced and incorporate the Capital Strategy and revised Capital Programme into the MTFP for approval by Cabinet and full Council in February 2022.

•           Government Funding: Since 2010, the Council had seen a substantial fall in income.  Its Revenue Support Grant and share of Business Rates was £6.6m in 2010, but it no longer received the former and its share of Business Rates income in 2021/22 was estimated at £3.7m. This was a fall of £2.9m in cash terms and ignored the effects of inflation on the Council’s costs. Furthermore, the average Band D council tax charge was frozen between 2010 and 2016, which had had a knock-on impact on council tax income levels.  In July 2020, the Government announced its intention to undertake a local government ‘Fair Funding Review’. This had been further delayed and it was not yet clear when it would take place.  The funding settlement for 2022/23 was expected in December 2021.

•           Cost Pressures: These included the predicted increase in the base Revenue Budget for planning appeal costs, net financing costs due to the planned increase in capital investment on major projects such as the Property Investment Strategy and Temporary Accommodation (TA) acquisition programme, the annual pay award and non-pay inflation increases.

•           Corporate Plan:  The new Corporate Plan was adopted by full Council on 5 July 2021 and included several priority objectives, some of which could require revenue and capital investment if they were to be successfully delivered.  One of the objectives of the Corporate Plan was to achieve financial stability by the end of 2025/26, therefore the Corporate Plan must be cost neutral.

•           Financial Stability Programme (FSP):  There were four main work themes designed to achieve financial stability within five years by delivering cost savings and income, namely Service Devolvement Invest to Save, Income Generation and Service Prioritization.  Cabinet approved an Invest to Save fund of £750k to meet any one-off costs required to deliver ongoing savings and income.

•           COVID-19 Impact: There was still great uncertainty over the impact that the pandemic may have had on the economy and several areas could still be at risk from increased costs or reduced income.

•           Business Rates:  The Council was part of the East Sussex 50% Business Rate Pool, which meant the Government levy on business rate growth was retained by the pool. The pooling arrangement would be reviewed, but it had previously been financially beneficial and for the purposes of the forecast it was assumed that it would continue.  There was still no indication as to when the Government would proceed with its Business Rate reset as part of the Business Rates review.  Further announcements relating to business rate charges effective from April 2022 were made as part of the Chancellor’s October budget statement and the Council would be compensated by way of a grant for any losses suffered.

•           Non-Specific Revenue Grants: No announcement had been made regarding the future or otherwise of New Homes Bonus grant; the forecast assumed no further funding as well as no further COVID-19 grant.

•           Council Tax: For 2021/22, it was anticipated that Council Tax would again only be allowed to increase by the maximum of 2% or £5 per Band D average before a referendum would be required. The Government had made no final announcement yet on the current year’s referendum limits, so the forecast had assumed an increase of £5 for each year of the MTFP.  The Council Tax Base allowed for an annual increase in new builds from housing developments based on the Council’s targets less an allowance for collection losses and Council Tax Reduction claimants. This resulted in an additional 450 to 600 properties.

•           Revenue Reserves: The latest financial monitoring for 2021/22 predicted Revenue Reserves to fall to £9.814m by the end of the current financial year, which was only £76,000 lower than the original budget estimate of £9.890m.  The MTFP forecast estimated that a further £5.263m of Reserves would be needed to support the Revenue Budget over the following three years, including £747,000 to support the Capital Programme. From 2025/26 it was predicted that the Council would be able to begin replenishing its level of Revenue Reserves over the following two years by £1.125m.  By the end of the five-year forecast, the balance of Revenue Reserves was forecast to be about £5.752m, having dipped to a minimum level of £4.627m by 2024/25.  The forecast level of Reserves was largely dependent on the successful delivery of the FSP savings targets

•           Capital Programme: Whilst there had been a major increase in the Council’s planned capital investment, COVID-19 had had a significant impact on the pace of its delivery. The Capital Programme totalled £143m and included schemes already approved by Members, e.g. £105.5m on housing development projects (of which an estimated £80m to be delivered by Alliance Homes, £14.5 on the Property Investment Strategy and £7.3m on the TA acquisition programme).

•           Treasury Management: The scale of the investment in the Capital Programme would significantly increase the Council’s borrowing requirement, and this had been reflected in the forecast.  Slippage from 2021/22 projects had been included in 2022/23, but more accurate cash flow timings would be developed during phase 2 of the budget process, as would the capital financing.

•           Budget Consultation: Would be held between 14 December 2021 and 31 January 2022.  An interim report on the consultation would be reported to the Overview and Scrutiny Committee on 24 January 2022.

The Council could deliver a balanced budget with a combination of sound financial management and the successful delivery of the FSP. The importance of this could not be overstated and failure to achieve the objectives of the FSP would result in the Council having to make difficult decisions around the provision of local services.

RESOLVED:  That the report be noted.