Agenda item

The Cabinet considered a report of the Corporate Director of Resources which provided comprehensive financial information to enable Cabinet to agree the 2024/25 balanced revenue budget, an outline Medium Term Financial Plan MTFP(14) 2024/25 to 2027/28 and a fully funded capital programme to be recommended to Council on 28 February 2024 (for copy of report see file of minutes).

 

Councillor R Bell, Deputy Leader of the Council and Cabinet Portfolio Holder for Finance highlighted that the report was the fourth and final report on the 2024/25 budget proposals and MTFP14 forecasts in advance of the budget setting process that would take place on 28 February.  It represented the culmination of months of work by officers right across the council and included:

 

·      a comprehensive overview of the budget pressures faced;

·      the announcements made in the Autumn Statement in November; and

·      the provisional Local Government Finance Settlement published in December.

 

Significantly it included details of the final Local Government finance settlement published on 5 February, which provided some much needed additional funding of £5.9m. This had made the scenario a little more comfortable next year in terms of the level of reserves needed to apply to balance the budget.

 

The 2024/25 budget required provision for significant inflationary pressures, including the impact of the National Living Wage increase from April, which had a significant bearing on Adult Social Care contracts. Enormous and unavoidable cost pressures in statutory Adult and Children’s Social Care, totalled £35.976 million next year and put a squeeze on other budgets, particularly discretionary spend areas. Additional revenue generated from an Adult Social Care precept and specific grant funding for these areas fell well short of the cost pressures faced, in part due to the low tax raising capacity of the Council. This matter had been consistently raised with Government.

 

Forecasts had been updated in relation to cost pressures in Home to School Transport. This would need a budget increase of £2.5m next year (£1.5 million more than was previously forecast) and for placements costs for Children Looked After would require a budget increase of £12 million next year (£2 million more than previously forecast).

 

Councillor Bell explained that the escalation in costs was a sector wide problem, particularly in areas with higher levels of deprivation and in larger counties such as Durham. In overall terms, the Council faced spending pressures totalling £61.8 million next year. £10 million related to the use of reserves in the current year to balance the 2023/24 budget.  The budget made provision for £1m of investment in Employability Services. This was to partially mitigate the loss of European Social Fund Grant as it is replaced with UK Shared Prosperity Grant Funding. There was also some modest growth included to make the Find and Fix Team permanent (£300k) and to strengthen Information and Data Governance arrangements, alongside funding to extend the Park and Ride provision (£240k) to better service the Aykley Heads North site (£275k).

 

The Governments Core Spending Power calculations indicated a 7.6% increase next year, slightly higher than the 7.5% national average increase, though disappointingly Durham still lagged behind the national average Core Spending power per dwelling, mainly due the inherent low tax raising capacity.

 

It was important to note that the Core Spending Power calculation assumed an increase in council tax by 4.99%. There had to be careful consideration of any new prudential borrowing commitments given the financial outlook. It would be reckless and irresponsible to do otherwise, and the Cabinet was neither.

 

Despite constraints, the budget proposals included £93 million of new capital investment, including further significant investment in schools including new builds, highways and bridges infrastructure, in furtherance of Net Zero aspirations, and £10 million of additional investment in the Leisure Transformation Programme which was being ring fenced to Chester-le-Street and Seaham Leisure Centres to improve facilities for local residents.

 

The overall capital programme totalled £513.7 million over the next four years. This significant level of capital investment did come at a cost with £12.7 million of revenue budget growth required to finance the additional prudential borrowing needed across the MTFP planning period, much of which was linked to current commitments.

 

The savings proposals were largely in line with the proposals previously considered. In line with the motion agreed by Council in January, Cabinet would undertake an evidenced based review the withdrawal of the Free after Two initiative to inform options going forward with a report scheduled to come to Cabinet in September, with an opportunity for Overview and Scrutiny to be involved in the review of the process.

 

Councillor Bell thanked everyone involved for participating in the budgetary consultation process. The updated deliberations by the Corporate Overview and Scrutiny Management Board were set out in detail in the report. This had been carefully considered in finalising the plans included at Appendix 4.

 

The total identified savings across the MTFP14 planning period were £16.360 million, with £8.083 million (49.4%) falling into next year.

 

The budget proposals included Council Tax increases in line with the expectations set by the Government and took into account the Council Tax core referendum limits of 2.99% and the Adult Social Care Precepting powers of an additional 2% next year. The forecasts for 2025/26 and beyond only factored in a 2.99% increase. It was unclear whether the Adult Social Care Precept would continue beyond 2024/25.

 

There was a clear expectation from Government that additional flexibilities are taken and the strong recommendation from the Council’s S151 officer is that they are taken.

 

Assuming that Council agrees the Council Tax increases factored into the report and the updated savings proposals delivered, then the budget shortfall next year would be £3.720 million – rising to £37.833 million over the four-year planning period.

 

Estimates beyond next year were more indicative and would undoubtedly change. The significant uncertainty over funding settlements beyond 2024/25 could materially change the medium term forecasts. However, based on these forecasts, savings of circa £16.8 million would be required to set a balanced budget in 2025/26.

 

Achieving savings of such magnitude was a significant undertaking and work on this had already commenced. The Council would continue to be flexible in its approach in terms of planning for the next four financial years to continue to be able to support residents in County Durham in the best way possible.

 

A 4.99% increase in Council Tax next year represented an increase of around £1.15 per week for the majority of households across the County who reside in a Band A property, with those on low incomes fully protected through the Local Council Tax Reduction scheme.

 

It was important to follow the advice of the S151 officer regarding sufficiency of reserves. Whilst financial resilience had reduced in recent years, the Council were still in a stronger position that many other councils.

 

It was simply not sustainable to underpin the budget indefinitely from reserves. Utilising the MTFP reserve next year would allow some time to develop savings proposals to help minimise, as far as possible, the impact on front line service delivery.

 

Councillor Bell welcomed the addition of more overt links to the corporate plan objectives within the capital programme tables and in the Capital Strategy which had been added in response to an action arising from the CIPFA Peer Review.

 

The Leader of the Council then thanked officers for the work undertaken to prepare the 2024/25 budget proposals and MTFP14 update report and Councillor Bell and others for their contributions.

 

As had been highlighted, the budget was dominated by unavoidable inflationary and demand pressures, particularly in statutory Adult and Childrens Social Care services. The Leader expressed her disappointment that the Council had to find £2.6 million next year to fund the gap between the Housing Benefit paid out in respect of temporary and supported housing linked to homelessness and the subsidy or grant claimed back on such payments. The Leader commented that it was simply not correct that council tax payers in County Durham should subsidise this.

 

The Leader of the Council welcomed the receipt of the additional funding announced on 24 January but expressed her frustration that the Government left the announcement so late and that it wasn’t conducive to good financial planning to have such late announcements and a one year settlement.

 

At each stage of the budget setting process the Cabinet had sought to involve scrutiny and the report included details of the feedback from those meetings and from wider engagement through the Area Action Partnerships, Business Rate Payers and with Trade Unions on the budget strategy and savings proposals.

 

It was frustrating to lag behind the national average core spending power per dwelling and as the report outlined, if we had the funding in line with the national average per dwelling, be it from additional government grant or from council tax revenues, then a further £42 million would have been available to Durham next year.

 

The savings proposals set out in the report had been updated and totalled £8.083m next year. With the additional funding announced on 24 January the overall position had improved since previous forecasts, however, the Council were still faced with using £3.72 million of reserves to balance the budget next year if the Council increase Council Tax by the maximum permitted without a referendum, which it was expected to do by the Government.

 

The additional funding next year had reduced the reliance on reserves to balance the budget by £5.9 million. Had the funding not been received, the use of reserves would have been £9.6 million.  Put simply, sufficient income could not be raised from council tax to fund the cost pressures faced and the Government was not meeting the gap, meaning savings had to be constantly sought, just to stand still.

 

There remained significant uncertainty over funding beyond 2025/26 and this, together with unavoidable inflationary and demographic pressures in budgets, remained a significant risk in MTFP planning and budget setting in future years.

 

The funding system within Local Government was broken and required urgent reform if councils like Durham were to survive and thrive going forward. No-one appeared to be committed to increasing the funding available to councils at this stage. The Government needed to change the distribution mechanism, placing greater emphasis on council tax equalisation and on deprivation. Utilising reserves to balance the budget was clearly not a sustainable position to be in and could only be accommodated on a short term basis.

 

The Leader of the Council noted with interest the criticisms the council had faced from opposition groups and some MPs over the use of reserves since 2021, however, looking back, the former administration applied reserves to balance their budget also, with £12.6 million used in 2017/18 alone.

 

As the Leader of the Council had stated many times previous, increasing the council tax was a decision that should not be taken lightly and the squeeze on the cost of living for all our residents had to be recognised. However, not increasing council tax was simply not a sustainable or prudent strategy to adopt and would not be in line with the Governments expectations or with the advice from our s151 officer.

 

It was effectively a binary choice between implementing council tax increases vs increasing the cuts to vital public services. It was important to recognise that those on low incomes in County Durham were afforded significant protection through the Council Tax Reduction Scheme, and the Leader was proud that the County Council had endorsed the continuation of the scheme into next year, which unlike virtually every other Council in the country does not seek to limit or cap the level of support working age households can receive.

 

The capital programme had to be tailored to the resources available at the time and whilst there was a desire to see further significant investment into leisure centres and other facilities, there was no way of being able to afford to commit any more funding at this time.

 

It was important to follow the advice of the Section 151 Officer in terms of the adequacy of reserves and ensure the financial resilience of the Council. It was more important than ever to have a well-managed medium term financial planning process, planning sufficiently well ahead and taking tough decisions on council tax and on savings, ensuring that reserves were not being used to unsustainable levels going forward.

 

Councillor T Henderson, Cabinet Portfolio Holder for Children and Young Peoples Services explained that the service had worked extremely hard to deliver a high quality services to children and families, including the most vulnerable. Councillor Henderson highlighted some of the positive impacts achieved including the family hubs, ‘good’ rated adult and community learning service, positive inspection of the care leavers service, and positive inspection reports for all children homes and Aycliffe Secure Unit.

 

Councillor C Hood, Cabinet Portfolio Holder for Adult and Health Services explained that for many years, adult care, as a service, had focussed on supporting people to be as independent as they could be to enable individuals to remain in their own homes and communities. This had been done by investing in key services such as reablement and intermediate care. In doing so, the Council had also worked closely with NHS colleagues to support hospital customer discharge and ensured a diverse quality care market to meet people's needs through our commissioning team. 

 

Councillor Hood was pleased that County Durham did not have waiting lists for care packages. Performance, with the support of our partners, on early discharge was amongst the very best in the country. Unlike many other areas of the country, Durham had been able to manage demand, help more people to retain their independence and reduce unnecessary admissions to residential care, thereby avoiding some of the demographic pressures that other areas faced. The complexity of people's needs had increased. This put huge pressure on staff, partners, unpaid carers and services to ensure that services flex to meet the demand and need. This brought financial pressures through increased costs of care. National Living Wage increases in recent years had driven huge cost increases into adult social care provider contracts. Budgets were well managed but were under significant pressure. Councillor Hood explained that a long term funding solution was still needed, particularly for authorities like Durham where the proportion of self-funders were much less than more affluent areas, meaning that the council had to meet the cost of the services people required and therefore had more reliance on government funding to help meet those costs given the low tax base and lower tax raising capacity.

 

Cllr J Shuttleworth, Cabinet Portfolio Holder for Rural Communities and Highways highlighted some of the progress within his portfolio. The Council, despite hyperinflation, had continued delivering improvements to the highways network for the benefit of residents and businesses. Road maintenance was to be prioritised alongside the local transport plan grant with £5m being put into the highway network, alongside the government pothole money to continue improvement of classified and unclassified roads. In addition to this, it was recognised that the County relied on hundreds of highways structures and bridges and £5m of funding had been allocated to go towards additional bridge inspections, investigations and maintenance planning. This was something that the Council had not done previously, but would pay dividends in the future.

 

Resolved:

Cabinet unanimously agreed to recommend to full Council, approval of the recommendations set out in the report.