Agenda item

The Cabinet considered a report of the Corporate Director of Resources which provided an update on the development of the Council’s Medium Term Financial Plan (MTFP (15)), which covered the four-year period from 2025/26 to 2028/29, and the development of the underpinning revenue budget assumptions (for copy of report, see file on minutes).

Councillor R Bell, Deputy Leader of the Council and Cabinet Portfolio Holder for Finance summarised the high level detail in the report which superseded the report considered by Cabinet in December. It updated estimates that would need to be accommodated in the budget and these were higher than previously forecast. The updated assumptions were set out in detail in the report and the bottom line was that the Council would still have a funding gap of £21.2m.

The Leader placed of record her thanks to the Deputy Leader and Cabinet Portfolio Holder for Finance and the Corporate Director and his team for the report, particularly as much of the information required to update financial forecasts was only published on 18 December 2024.

Much had changed since the previous report to Cabinet in December and whilst the overall position had improved, this was largely down to the burden of balancing the budget being placed onto local tax payers by the Government.

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The Government had hard wired the assumption on councils maximising their council tax raising powers into the Core Spending Power calculations and there was an expectation that Councils applied these increases to help balance their budgets. Government and indeed the External Auditors would raise questions if a council was not applying an increase in council tax, when there was a clear need to do so.

The updated forecasts identified that there was a clear rationale for applying increases in order to help balance the budget and protect vital local services.

Cost pressures faced next year, particularly in Adult and Childrens Social Care were eye watering. These costs were linked to meeting statutory service provision to vulnerable people and there was nothing the Council could do other than to accommodate the increased costs in the budget. The growth required for these two areas alone totalled £34.5 million which placed a massive squeeze on the budgets available for other services.

To help meet these rising costs the Government was providing the Council with an increase in Social Care Grant of £11.98 million and had provided the ability (with the clear expectation) to apply a 2% Adult Social Care Precept next year, which would generate an additional £5.8 million of council tax revenues.

Factoring in the additional council tax from the Adult Social Care Precept and the additional Recovery Grant would improve the underlying condition, however, the Council could not balance the budget next year and would need to utilise £3.184 million of reserves. In doing so assumes that all the £18 million of savings proposals currently being consulted on were agreed and taken. The consultation would close on Friday 17 January and careful consideration on that feedback would need to be considered.

Without these savings plans the Council would be £21.2 million short of balancing the budget next year – which lays bare the challenges faced as a low tax base authority. The Council could not generate sufficient revenue from council tax and were reliant on Government providing additional funding to meet the shortfall, something which successive governments had failed to do.

The underlying position would have been better had the Government kept the promises made in the Autumn Budget Statement to fully reimburse Councils for the changes to Employers National Insurance Contributions from next year.

The updated forecasts in the report clearly demonstrated that the cost of Employers National Insurance Contributions for directly employed staff were expected to rise by £8.24 million next year with the Council only expected to receive circa £4.74 million of additional funding – leaving the local tax payer in County Durham with a £3.5 million net additional cost. If the Government had honoured the commitments made in the Autumn Statement, the Council would have effectively had a balanced budget next year – albeit with the delivery of £18 million of additional savings.

Funding levels beyond 2025/26 remained uncertain and were still to be confirmed. These would be set out in the upcoming Comprehensive Spending Review and Fair Funding Review, therefore the position beyond the coming financial would not be clear until around October / November 2025.

It was encouraging to hear that funding formula arrangements were being looked at with a view to redistributing funding to authorities like Durham who faced lower tax raising capacity and higher levels of demand because of higher levels of deprivation. Indeed, the Council had benefitted from the start of this process, with the additional Recovery Grant of £13.9 million being welcomed.

This had been dwarfed by the increased costs faced from the National Living Wage increase, pay awards, demographic and inflationary pressures in social care budgets in particular and the impact of the Employers National Insurance cost increases on both internal staffing costs but also in the supply chain, where providers would seek to pass on that burden.

The forecasts in the report showed that the Council would have a funding gap of around £3.2 million next year and around £45.8 million over the next four years assuming the Council Tax is increased in line with planning assumptions and that all the savings proposals being consulted on were taken.

All members had a legal and fiduciary duty to facilitate the setting of a balanced budget. Making difficult decisions to balance the budget could not be avoided and the Council could not succumb to the temptation of using reserves to push away the problem and avoid the difficult decisions that were needed.

The media coverage of the escalating Government Debt and the precarious state of the national finances had made for interesting viewing. Government Departments had been tasked with making cuts as part of the upcoming Comprehensive Spending Review, which provided very little optimism in terms of the prospects for significant increases in Government funding in 2026/27 and beyond, indeed it seemed to indicate a return to austerity, if anything.

The Council would continue to lobby government directly for additional financial support and hold them to their commitments to implement a fundamental review of the local government finance system – including how authorities are compensated for low council tax raising capacity – as the current system significantly disadvantaged places like Durham and was unfair and needed addressing.

The Leader of the Council invited other Cabinet colleagues for comment.

Councillor J Shuttleworth said that the decisions by the Government in relation to National Insurance Contributions would undoubtedly affect every working person in the country and the county.

Councillor M Wilkes said that the Labour Government Budget didn’t just increase costs, but also forced Councils to increase council tax.

He felt that incompetence was pushing up costs across the board. Prior to the General Election everyone was expecting to see borrowing costs coming down. As a result, all projects had become riskier or more expensive. The Council had managed to deliver the biggest capital programme ever seen, despite cuts in funding. Councillor Wilkes felt that the Government simply did not recognise the impact its policies were having and implored them to fund local authorities appropriately as a matter of urgency.

Resolved:

That the recommendations in the report be approved.