Agenda item

The Mayor and Executive Member for Finance and Governance and the Executive Member for Finance and Governance submitted a report for Executive’s consideration. The purpose of the report was to set out the financial framework and timetable within which Officers would work with the Mayor and the Executive to develop the 2025/26 budget and MTFP to 2028/29.

In common with all local authorities, the Council continued to operate within a difficult and uncertain economic environment.  The ongoing impact of high inflation in recent years combined with increased demand and the complexity of needs of vulnerable residents in the wake of the COVID-19 pandemic together with the Cost of Living Crisis, continued to place significant pressure upon service budgets.

The sector continued to face uncertainty in relation to financial support that may be available from Central Government over the medium term. As detailed in paras 4.13 and 4.14 of the report, His Majesty the King’s Speech to Parliament on 17 July 2024 outlined a number of areas affecting local government, and the Chancellor had also announced that the Government would deliver the next Budget on 30 October 2024.

The report was the first stage of the budget development strategy for the four-year period 2025/26 to 2028/29.  It built upon the MTFP approved by Council on 8 March 2024, the 2025/26 Budget and MTFP Approach and Timetable report to Executive 22 May 2024, the 2023/24 financial outturn reported to Executive on 26 June 2024, and the 2024/25 forecast financial position at Quarter One. The report set out the financial framework and timetable within which Officers would work with the Mayor and Executive, with input from the cross-party Financial Resilience Working Group (FRWG) to develop budget proposals that will deliver the Council Plan within available resources.

In summary, the Council continued to spend in excess of its annual income streams and needed to successfully address the challenge of delivering within its financial means in order to set a legally balanced budget for 2025/26 and longer term financial sustainability.

The current financial position was summarised as follows:

·         The 2023/24 General Fund revenue outturn was an overspend of £3.594m (2.8% of Net Revenue Budget). 

·         The MTFP covering the three-year period 2024/25 to 2026/27 was approved by Council on 8 March 2024.

·         The 2024/25 General Fund revenue budget could not be balanced in the usual way. The Council relied upon £4.7m of one-off borrowing through Exceptional Financial Support (EFS) approved in principle by the Ministry of Housing Communities and Local Government (MHCLG) (formerly DLUHC) in order to set a legally balanced budget of £143.190m for 2024/25 and to avoid the s151 Officer being required to issue a s114 Notice. The EFS falls out in 2025/26 and therefore contributes to the ongoing budget gap referenced in this report.

·         A further £8.7m of one-off borrowing via EFS was approved in principle to cover potential risks in the budget and MTFP relating to the timing of savings delivery and realisation of capital receipts during 2024/25. This was required in order for the s151 Officer to assess the budget and MTFP as robust in the light of risks facing the Council and given its critically low revenue reserves which would be insufficient to cover those risks if they crystalised and this was addressed in the s151 Officer’s s25 report to Council.

·         The forecast revenue budget overspend at Quarter One of 2024/25 was £3.742m as detailed in a separate report on this Executive agenda. Within this sum, £2.498m was due to savings that may not be delivered in 2024/25 for which EFS of up to £3.5m would be used in 2024/25 to fund the overspend in order to protect the critically low revenue reserves. The £3.742m would be added to the 2025/26 budget gap and therefore it was imperative that those savings were delivered through the original plans or alternative proposals on an ongoing basis. The balance of the 2024/25 overspend of £1.244m, if not controlled, would need to be covered by revenue reserves.

·         The 2024/25 MTFP incorporated new savings projects totalling £13.910m in 2024/25, and a further £5.151m in 2025/26 and £1.967m in 2026/27 which was a significant challenge for the Council to deliver successfully. However, a budget gap of £7.474m remained in 2025/26, rising to £7.965m in 2026/27.

·         The Council’s Reserves had been significantly depleted in recent years to fund overspending. The General Fund Balance stood at £11.1m at 1 April 2024 and unrestricted earmarked reserves stood at £9.280m after realising a Collection Fund surplus of £8.3m following a review of the bad debt provision. This was very low when compared to other unitary authorities nationally.

·         There was a need to rebuild reserves to strengthen the Council’s financial resilience and sustainability in the medium to long term, enabling it to withstand unforeseen financial shocks and plan investment in services more effectively. Strengthening the Council’s financial resilience was one of the 11 statutory recommendations made by the External Auditor in August 2023 and was also a requirement of the Best Value Notice issued by MHCLG in January 2024 and was critical to stabilising the Council’s financial future.

The 2024/25 MTFP, approved by Council on 8 March 2024, was summarised in Table 1 of the report.

AGREED That Executive:

1.    Note the current projected budget gap of £7.864m in 2025/26 rising to £8.749m in 2028/29 (Table 7 and paragraphs 4.29 to 4.33).

2.    Note the revised budget preparation timetable set out in Appendix 2.

OPTIONS

The Council was required by law to set a balanced budget and this report set out the development process and timeline for achieving that objective. Therefore, no other options were put forward as part of the report.

REASONS

All Council Members had a legal obligation to agree a balanced robust budget and set the Council Tax by 11 March 2025. In addition, the Council had a Best Value duty to demonstrate financial sustainability through the delivery of a balanced Medium Term Financial Plan (MTFP) over a period of at least 3 years. The setting of the budget was part of the budget and policy framework and therefore required Full Council approval scheduled for 19 February 2025.

The Council was required to take a systematic, coherent, and controlled approach to addressing its ongoing financial challenges over the medium-term, while enabling the delivery of the Mayor’s vision and priorities for Middlesbrough through delivery of the wider Council Plan.