Medium Term Financial Strategy 2025/26 to 2028/29

National and external factors

1.3 National and external factors

The MTFS is set within the context of national economic and public expenditure plans and takes into account the national legislation setting out the council’s ability to borrow and to raise income from council tax and other Sources.

Local Government Finance Settlement 2025/26

The 2025/26 Provisional Local Government Financial Settlement (PLGFS) was announced on 18 December 2024 and the implications of these announcements are detailed below and have been included within the updated MTFS and budget position. A consultation on the 2025/26 PLGFS closed on 15 January 2025 and the outcome was used to inform the Final Local Government Financial Settlement (FLGFS).

The 2025/26 local government finance settlement is for one year only and is based on the funding levels set out in the budget announced on 30 October 2024.

The Final Local Government Settlement on 3 February 2025 confirmed the proposals in the PLGFS and provided confirmation of the NI compensation grant of £0.32M.

Other – announcements with limited direct impact on BDBC:

Fair Funding Review

On 18 December 2024 the government published the consultation paper – Local Authority Funding Reform: Objectives and Principles. The consultation focusses on remedying the existing finance system, with the reforms expected to be implemented through a multi-year settlement, beginning in 2026/27.

Retained business rates

There will be a reset of accumulated business rates retention growth in 2026/27. The consultation indicates that there will be a ‘full reset’ in 2026/27 (100% reset).

MTFS funding assumptions

The MTFS assumes that any impact of government funding changes is likely to be phased in through transitional arrangements.

The MTFS assumes that core spending power will increase by 2% each year from 2026/27, including the impact of that council tax will increases of £5 each year of the MTFS to 2028/29. It is assumed that the share of government grants as a proportion of core spending power will remain at the 2025/26 level of 16% for the MTFS period to 2028/29.

Funding Floor

The financial settlement sets a core spending power total which has remained at £17.4M for 2025/26. This includes income from business rates, council tax and new homes bonus, excluding the impact of the NI compensation grant. The difference between the income from these sources and the core spending power is a funding floor grant (previous the funding guarantee grant), for 2025/26 this is £2.10M, down from £2.45M in 2024/25.

New Homes Bonus

New Homes Bonus for 2025/26 is £0.72M, this is a reduction from £0.89M in 2024/25.

Further consultation on detailed proposals for reforming the New Homes Bonus is expected in the first half of 2025. It is expected that 2025/26 will be the final year of New Homes Bonus allocations in their current form. Therefore, the MTFS assumes no New Homes Bonus grant from 2026/27 onwards.

Council tax referendum limits

The FLGFS confirmed that the council tax referendum limit would continue to be 2.99%. As in recent years the FLGFS has confirmed the flexibility for districts to increase council tax by up to £5 and this has been included in the MTFS for each year.

The council tax base was set by the S151 Officer on 3 January 2025 and is reflected in this MTFS.

Extended Producer Responsibility

In November 2024 the Department of Environmental, Food and Rural Affairs (Defra) shared provisional estimates of local authority income from the extended producer responsibility for packaging (pEPR) scheme. This income is derived from a levy charged on producers of packaging waste.

The allocation for 2025/26 is £1.21M, this is a guaranteed minimum for this year only. The calculation for 2025/26 is based on indicative data on waste collected. Future payments will be based on actual data, including performance measures. Given the uncertainty of the income in future years it is assumed that the income will be £1.00M in 2026/27 reducing to £0.75M in 2028/29. This will be kept under review as the operation of the scheme becomes established.

National Insurance Compensation

The budget in October 2024 reduced the threshold for employer NI contributions from £9,100 to £5,000 and increased the rate from 13.8% to 15% from April 2025. It was confirmed that the public sector would be compensated for the impact, this included directly employed staff of local authorities. The direct impact on the council is £0.70M per year, however the compensation grant is £0.32M, resulting in a £0.38M pressure in each year of the MTFS.

Interest rates

It is forecast that base interest rates are likely to decrease to 4.50% in the early part of 2025, falling further to reach 3.50% in late 2026 but then remain at that level for a period of time.

Key financial assumptions and risks

1.4 Key assumptions

Local authority budgeting is by its very nature difficult to forecast with absolute certainty since there are so many variables that need to be assessed.

Table below summarises the key assumptions contained within the Medium Term Financial Strategy. These assumptions will be the standard assumptions used to drive all financial planning within the MTFS.

Table 1 – Key MTFS assumptions

Business Rate Retention Scheme

The Business Rate Retention (BRR) Scheme was introduced in April 2013 and represented a major change in the way in which local government is funded. It is seen by the government as providing a direct link between business rates growth and the amount of money local authorities have available to spend on local services.

Councils are able to retain a proportion of their growth in business rates and will also be taking the risk of reductions in business rates, although there are ‘safety net’ arrangements in place to protect against very large reductions. It is expected that there will be a reset in 2026/27, however at this stage it is not anticipated to have a significant impact on the MTFS in future years, this will be revised in future MTFS updates.

Council Tax

As set out in Table 1, the assumption is that council tax will be increased at the current referendum limit of £5 in each year of the MTFS to 2028/29.

The tax base that has been assumed for each financial year is detailed in Table 1. This reflects the required adjustments as a result of the localisation of council tax benefits and changes to associated funding which was implemented from 2013/14. It also incorporates growth in the tax base arising from new developments.

The Local Council Tax Scheme (LCTS) was introduced in 2013/14 which, as a result of the localisation of council tax benefits, allows the council to set its own criteria for offering reduced council tax for those eligible. The forecast position includes a grant for LCTS administration grant. The LCTS is reviewed on an annual basis.

Pay inflation

Assumptions have been made in the forecast about the likely level of pay inflation that will apply from April 2025. As a large proportion of the council’s expenditure is pay related, this can have a significant impact if actual rates are much higher than predicated.

The assumptions assumed in the prior year MTFS have not changed, this assumed a 3% pay award for 2025/26 and returning to assumed 2% increase from 2026/27 onwards.

General inflation

Assumptions have been made in the forecast about the likely level of general inflation that will apply from April 2025. If inflation were to increase at a higher rate than anticipated then this would have an impact on the council, not least because the council’s major contracts are uplifted by indexation linked to inflation on an annual basis.

The risk has been mitigated by the inclusion of amounts in risk reserves to cover key elements of inflation, for example in relation to fuel and energy costs, which can be volatile. Beyond this provision, it is likely that this would be managed as an ‘in year’ issue and that services would be expected to absorb the difference.

1.5 Key risks

There is a significant degree of uncertainty, arising from both internal and external factors, which could have a significant impact on the key assumptions made within the MTFS. The macro financial systems within which the council operates are complex and highly sensitive to a range of variables and it is therefore important that risks, that could have a material effect on the financial position of the council, are identified and understood in terms of the potential impact (positive or negative) and the likelihood of occurrence. This foregoing recognises the importance of having adequate mechanisms in place to identify and manage risks in order to support the achievement of financial stability.

The key financial risks to the council’s financial position over the short to medium term are reflected in the assessment of the adequacy of estimates and reserves.

Factors that can have a material effect on the financial position of the council include:

• the lack of certainty in government funding for future years including grants and the new fair funding formula
• changes in function
• changes in how services are funded
• changes in the economy
• changes in councillors’ priorities
• unmanaged service pressures and increases in demand
• council tax policy
• changes in legislation and government policy
• devolution agenda
• level of future pay awards and general inflation assumptions
• adequacy of contingencies in any one period
• business rate volatility, more frequent business rates revaluations
• and business rates retention
• treasury management and interest rate changes
• projected income levels from fees and charges
• non achievement of savings
• level of provision for insurances
• new burdens
• welfare reforms
• provider failure, and
• demographic changes

It is important to note that the revised forecast represents the most realistic forecast position moving forward. However, there are a number of risks associated with these revised forecasts, the main risks being as follows:

Chart 2 - Annual impact of 1% change in key sensitivities

The financial challenge

2.1 Forecast financial position 2025/26 to 2028/29

The council’s current forecast financial position is detailed below and includes the implications of the LGFS 2025/26, implementation of the transformation agenda and will be reviewed each year of budget setting to reflect any new pressures and any revision to the Council Plan.

Where possible factors described in the preceding sections have been built into the financial modelling to ascertain the forecast financial position.

Table below shows the summary position, with the detail being included in the following paragraphs and Annex 1. The updated MTFS shows a balanced budget in 2025/26, 2026/27 and 2027/28 and the council is required to make savings of £2.90M in 2028/29.

Table 2 – Summary of Future Savings Required (Budget Gap)

Additional cost pressures

Table below summarises the updated pressures that have been included in the medium term financial forecast. These are pressures that have been identified via the individual service areas through regular financial monitoring and budget setting.

Table 3 – Summary of pressures

Savings and additional income

Tables below summarises the updated savings identified as part of annual review of budgets.

Table 4 - Summary of savings proposals

Table 5 – Summary of additional income proposals

Overall position

Table 6 – Summary of overall pressures, savings and additional income proposals

2.2 Collection Fund

The assumptions made around council tax and NDR are reflected initially in the Collection Fund Account, which is a statutory account that records the collection and distribution of taxation.

The forecast position for the council’s share of the Collection Fund, utilising the Key Assumptions is shown in Table below.

2.3 Capital

Planned capital expenditure and the associated financing is detailed within the Capital Programme Update and Capital Programme Strategy which is to be approved by Council in February 2025. The proposed programme for 2025/26 to 2028/29 totals £131.135M and is detailed in Annex 2, which also shows how the programme is financed.

The main service based capital projects are; home improvement financial assistance (disabled facilities grants) of £8.520M; rolling IT and operational vehicle replacement programme £6.752M; Council owned asset management plan works of £11.614M; replacement waste vehicles to support the introduction of food waste collections of £6.526M; improvements to sport and recreation schemes, including redevelopment of the leisure park, of £49.066M; play area and open space enhancements of £3.674M; community facilities of £1.826M; Community Infrastructure Fund schemes of £2.151; and parking and access schemes of £2.092M.

Plans for the funding of the capital programme are also set out in the in the Capital Programme Update and Strategy. In summary the main sources of funding are capital receipts generated by the council, external capital grants and contributions direct revenue financing and internal borrowing. There is no external debt financing. All the revenue implications of the capital projects are built into the General Fund Estimates.

2.4 General fund balance

In accordance with the best practice guidance issued by CIPFA, the minimum level of general fund balances is reviewed and risk assessed on an annual basis.

The General Fund Balance is forecast to be £1.5M at the end of 2025/26.

The required level of balance is determined by assessing the level of risk the council faces taking into account consideration both risk and affordability. This is currently assessed by the Chief Finance Officer (S151 Officer) at £1.50M. This equates to 3.3% of the Net Direct Cost of Services and is broadly comparable to other borough councils.

The General Fund Balance should only be used to fund one-off revenue expenditure and is held to meet unforeseen expenditure. Use of the general fund balance should be prudent and is subject to the agreement of the S151 Officer.

2.5 Earmarked reserves

As well as maintaining a risk based General Fund balance the council can also set aside Earmarked Reserves for specific items.

Reserve balances are derived by taking a risk-based approach to assessing the council’s key financial risks including reviewing key areas and assumptions within the estimates, realism of income targets, interest rate exposure, third party provider risks, and any other potential issues which may need to be taken into consideration.

The financial risks facing the council in the medium term are assessed within the MTFS. This includes assessing the risk of continuing reductions in central government funding; budget shortfalls that the council faces and overall local and national economic factors which can affect the financial stability of the council.

In light of the level of risk and uncertainty identified within the MTFS, a full review of useable reserves and provisions has been undertaken. Each year as part of closing the accounts a view is taken on maintaining and strengthening, where necessary, those reserves specifically earmarked to support the highest areas of risk resulting in the rationalisation of reserves and provisions where possible and in some cases additional funding being set aside.

The overall level of earmarked revenue reserves that will be held at the end of the MTFS period is forecast to be £20.3M, along with a £1.5M General Fund Balance.

2.6 CIPFA Resilience Index

In light of local authorities facing increasing financial pressures as demand for services increase alongside increased cost for services and cuts in funding the Chartered Institute of Public Finance and Accountancy (CIPFA) has introduced an authoritative measure of local authority financial resilience through the creation of a new index to aid a clearer understanding of areas of financial risk.

The index uses a range of indicators to associated with financial risk including the rate of depletion of resources, level of resources generally, demographic and social services pressures and level of borrowing.

The index is used as an indicator for whether an appropriate and robust independent challenge and support could be given to some councils on financial strategy and trajectories which is intended to provide challenge where needed so that appropriate action can be taken at a local level.

The index forms part of a broader strategy that CIPFA has for ensuring that S151 Officers have the support needed to achieve a balanced budget linked a concern that financial management capabilities and sharing good practice have at times been hollowed out by the repeated need to cut budgets.

The index was first published in December 2019, with the latest update provided in December 2024 with no material changes for the council.

2.7 Addressing the budget gap

The council has a forecast budget gap of £2.90M in the final year of the MTFS in 2028/29. The approach to addressing this gap can be seen within a number of work programmes:

• growth and development opportunities within the borough
• commercialisation – understanding what this means for the council and what opportunities are there for income generation
• review of all services – are there efficiencies that can be achieved – with possible links major transformation projects such as Digital
• improved asset management
• review of central activities such as treasury management
• reviewing our policies around things such as council tax and
• use of reserves, and
• understanding our capital spend needs and how best to meet the cost of these.

2.8 Managing budgets and forecasts

In setting the annual budget and the MTFS the council will ensure potential risks are assessed and managed so that their impact is minimised or accounted for either via contingencies, balances or earmarked reserves as is necessary.

In year, the council will monitor its revenue and capital budgets on a monthly basis and report to Cabinet on a quarterly basis.

Accountability and responsibility

Whilst the responsibility lies with the Chief Finance Officer for reporting to Cabinet the financial position, the responsibility and accountability for the financial position of each service lies with the budget holder.

All budget holders are responsible for ensuring external income is maximised for their service and for seeking out new opportunities to generate income. If the budget holder cannot resolve issues within their own service area budgets these should be dealt with by Directors.

Where pressures are identified action plans are required to be agreed and implemented in year which look to address in year pressures and identify ongoing pressures that may need to be addressed as part of setting the budgets over the medium term.

2.9 Governance framework for updating and monitoring the medium term financial forecast model

The Medium Term Financial model is a dynamic model and as such will be changing constantly. It is anticipated that this model will be updated on a quarterly basis via the quarterly financial monitoring reports. A major review will be undertaken each year following the announcement of the council’s settlement funding, when a review of the financial model and assumptions will need to be undertaken.

Conclusion

This MTFS provides a robust framework for setting the budget for 2025/26 and ensuring the council remains in a sustainable financial position over the medium term. The current forecast position is still very challenging. The council has seen a significant reduction in its grant funding alongside increasing demand for services and funding reducing at an unprecedented rate. This has, however, given the opportunity for the council to reshape how it currently operates and interact with its customers and to develop its Council Plan priorities in the provision of services to the borough.

The likely changes to local government funding from a spending review in 2025 and changes to the Business Rate Retention Scheme are likely to present further challenges.

Capital Programme by Council Plan Priority 2024/25 to 2028/29

Capital Programme Financing 2024/25 to 2028/29