Agenda item

The Cabinet considered a report of the Corporate Director of Resources which provided an update on the development of the 2024/25 budget and the Medium Term Financial Plan (MTFP(14)) covering the period 2024/25 to 2027/28, including updated financial planning assumptions which have affected a number of the figures previously reported.

The report also provided details of further savings proposals that could be implemented to help balance the budget, which would be subject to consultation over the coming two months, building on the consultation which was currently underway on the proposals contained in the report to Cabinet in July (for copy of report see file of minutes).

Councillor R Bell, Deputy Leader of the Council and Cabinet Portfolio Holder for Finance, thanked officers for the thorough report, which updated the financial forecasts considered earlier in July.

Councillor Bell explained that the significant financial challenges faced by the Council were now forecasted to be higher than considered previously. This was around £4 million higher next year and just under £12 million higher across the four year planning period. This was largely due to revised assumptions on the National Living Wage and on pay inflation.

Every 1% on council tax generated around £2.7 million of additional council tax revenues. If the Council did not maximise its council tax raising powers as expected by the Government, the financial challenge deficit faced increased by £2.7 million for every 1% council tax increase the Council did not apply.

A 1% increase in the councils pay bill was broadly the same as a 1% increase in the council tax. Pay awards were negotiated nationally and were outside the Council’s control. An increase in the pay award assumptions added over £5 million to base budget pressures next year.

The Local Government Finance settlement last year provided some much needed additional investment and greater certainty in terms of government funding for the current and forthcoming year, however, there remained significant uncertainty beyond next year in terms of government funding.

Unavoidable cost pressures linked to adult social care contracts, driven largely by National Living Wage increases and specific Market Sustainability and Improvement Grant requirements totalled £17.8 million next year. The Council could only generate circa £5.2 million from an additional 2% adult social care precept – less than a third of the cost pressures faced.

The Council could not raise sufficient income locally to meet the unavoidable cost increases unless additional government funding met the shortfall. Difficult choices were always going to be required under the current system of funding.

Disappointingly, the draft Local Government Finance Settlement would not be published until just before Christmas. The lateness of the settlement was not conducive to effective financial planning and would once again fail to give any certainty that a multi-year settlement would deliver.

The Council had and would continue to call for the current system, including the Council tax to be reformed. Councillor Bell had written to the leaders of all the main political parties seeking a commitment to this issue in their manifestos in the run up to the next General Election.

The report identified that the Council was now facing a forecast deficit of £16.3 million next year and a funding deficit of around £67 million over the next four year MTFP period, this being the position after an assumption that Council Tax be increased by the maximum permissible and after factoring in the savings plans that were agreed as part of MTFP(13).

Those on low incomes were currently afforded significant protection through the Council Tax Reduction Scheme. The Council would be considering a report proposing that this protection continue for all claimants in 2024/25 with no cap on the level of support. This came to a cost of £60m in terms of lost council tax revenues, compared to virtually every other council, however, on balance, particularly in relation to the cost of living issues everyone faced, this was simply the right decision for the next year. No long term commitments on this matter could be made on this issue, unless finances improved. Balancing the budget next year and across the next four years would be more challenging than previously based on the current forecasts. It was vital however, that the Council planned for the medium term.

The consultation on the previously published savings proposals would was due to end on 20 October and new savings set out at Appendix 4 in the report would be consulted on from 21 October. In January 2024, Cabinet would need to reflect carefully on the consultation feedback received before making final decisions on what proposals would be put to County Council for consideration in February. Forecasts would be updated to reflect the outcome Local Government Finance Settlement and any necessary amendments to the forecasts detailed in the current report.

The Leader of the Council supported the comments made by Councillor Bell and explained that unavoidable cost pressures from higher levels of inflation, the impact of national living wage increases, demographic pressures in children and young peoples services and the employers pay offer had once again outstripped budget estimates and placed a huge strain on budgets next year. Funding levels beyond 2024/25 remained uncertain and cuts would inevitably need to be made going forward without further investment to help the sector.

It was more important than ever to have a well managed budget and medium term financial planning process to help address the challenges, both now and in the future.  There would be a continual need to review all areas, driving out efficiencies wherever possible, to limit impact on frontline services. The scale of the challenge could mean inevitable impacts on frontline services in the future unless the underlying funding position of the council changed.

The Council would continue to lobby government directly for additional financial support and continue to call on the government to undertake a fundamental review of the local government finance system, including the council tax system, which in its current guise, disadvantaged Durham and was unfair.

The Council would be recommended to retain the local council tax support scheme, without a cap on support, which was the right thing to do given the hardship faced by so many residents.

Resolved:

That the recommendations in the report be approved.