Agenda item

The Medium Term Financial Strategy (MTFS) sets out the strategic direction and priorities for the Council as well as outlining the financial context and challenges the Council faces over the next five years and the strategy that will be used to inform its annual budget process.

Cllr Mark Elliott introduced the report and made the following statement:

“As you will be aware I have three financial reports to present to Cabinet this evening, all of which need to be set in the wider financial context, and all of which slightly overlap, so I’m going to spend a little time on this first report setting out that wider context, and then I take that as read for the following two reports.

Cabinet will be aware that systemically Local Government Finance is a mess.  Colleagues will be aware that a number of councils have recently issued Section 114 notices – essentially declaring themselves bankrupt. Thankfully we’re not amongst them, and I am confident we won’t be, but I had a quick look at the figures, and before 2018 only three Section 114 notices had ever been issued, going back to 1988 when the Local Government Act legislation was introduced.  Since 2018, 12 have been issued, and these have been by Councils across the political spectrum.

The system is fundamentally broken.  Central government knows this but is totally devoid of any ideas about how to sort it out. Across the country, going back over the last decade, local councils are having to deal with an increasingly dire situation, with first austerity measures meaning a vast reduction in central government funding to local authorities, then Brexit meaning workforce shortages and consequent wage inflation, then Covid meaning the world shutting down for a couple of years, and now the war in Ukraine, a cost of living crisis with spiralling inflation, and the recent conflict in Israel-Palestine.

In order to understand why these pressures are so exceptionally damaging to local councils, and why it’s so difficult for us to deal with, we need to remind ourselves how councils are funded.

The council’s budget is split between “Revenue” – our operating costs, staff, materials, services, etc. – and “Capital” – land, buildings, equipment, roads, vehicles, etc.  The two are kept very separate, and we are forbidden, for very good reasons, from spending capital money on revenue.

I think there is an understandable perception amongst the public that council tax pays for council spending.  In reality council tax covers about one third of our operating costs, and virtually none of our capital costs. 

Our operating costs are roughly £300m, and our council tax income this year is set to be around £113m.  The rest of our operating income comes from grants from central government, and things we charge for separately: services, car parking, the Roman Baths, property rental, etc.

Our capital spending, which this year is budgeted to be just shy of £90m, is financed 60% by borrowing, 20% from grants, 15% from capital receipts (i.e. selling assets we don’t want in order to buy or build assets we do want) and revenue, and 5% from Community Infrastructure Levy (the charged levied on developers for developments as part of the planning process).

So, to pick out some elements from that in order to highlight the difficulties:

B&NES residents benefit from the fourth lowest council tax in the south west, but Council tax rises are capped at 4.99% (including the social care precept).  So, when inflation is running in double figures, that obviously means that the third of the budget funded by council tax isn’t keeping up with the rise in costs.

With regard to central government revenue funding, in 2013 our Revenue Support Grant – the general funds granted to councils to run their operations – was £31m.  This year, it’s £800k.  We do get grants for one-off specific purposes, but this is an inflexible and costly way of the council obtaining money. It involves working up competitive bids for pots of cash which takes a lot of officer time, and it also makes it very difficult to plan, because the money isn’t guaranteed.

The pressures on spending, particularly in social care, are enormous.  To give some examples, the budget for Children’s social care was set at roughly £50m this year, which was a significant increase on last year, but we still look like overspending that by £5m this year.  The number of looked after children has risen from 197 on 1^st April 2022 to 245 today – 25% increase in 18 months.  The number of Education and Health Care Plans have gone up from 1,185 in 2018 to 2,181 today – doubling in 5 years, and that has consequent impacts on things like home-to-school transport where the cost increases are very high indeed.

So, we are left with a position of very high rises in costs, very little room to manoeuvre with regard to income raising, and after years and years of this pressure, not much room for new efficiencies to be made.

Nevertheless, there are some little points of light in the overall picture.  For example, we are incredibly proud of our city and the residents of B&NES are really fortunate to live in a city which attracts visitors from across the world. A lot of those visitors go to the Roman Baths, and the bounce back following the closures of the Covid period has been even better than anticipated.  We are expecting to welcome over 1m visitors to the Baths this year, and that will bring over £10m in profit to the council, which all goes to help alleviate at least a small amount of the pressure we’ve been experiencing.

And on top of that we have an exceptionally capable and dedicated finance team here at B&NES, and despite the very, very gloomy situation, we aim to keep providing our front-line services, making sure the most vulnerable in society are supported, and, importantly, delivering on the manifesto promises we made in May.  I hope you can see from the picture I’ve painted that this will not be easy. As a Cabinet we will have some difficult choices to make. But I’m confident in the capability and commitment of Cabinet colleagues, and officers across the council, and that we will pull together to navigate these extremely stormy waters.

Medium Term Financial Strategy

So, having set out the general context, this specific report presents the Medium Term Financial Strategy which sets out the strategic direction and priorities for financing over the next 5 years.  It goes into a lot of detail covering the kinds of issues I’ve just set out around cost pressures and funding. It says that this year, we’re currently predicting to overspend our revenue budget by £6.5m (but the next report goes into more detail on that, so I’ll address that shortly). It also shows that our funding gap next year – the difference between the amount we’re predicting to spend, and the amount of income we expect to receive – is currently just over £17m, and in the following year is just below £5m, with a total gap of £35m over the next 5 years.

There are already some savings identified over the over the next 2 years of £1.74m, but that still leaves us £23.19m to find.

Section 10 of the report sets out the principles we will use when setting budgets in order to eliminate this gap, and Section 11 sets out our priorities when making decisions.  It also sets out the timetable for the budget setting process, with the finalised budget coming to council as usual in February.  Cabinet members will be well aware that we’re in the depths of that budget setting process at the moment, and I’m confident we will be delivering a balanced budget proposal to council on time.

I move that Cabinet approve the Medium Term Financial Strategy.”

Cllr Manda Rigby seconded the motion and made the following statement:

“Firstly, I'd like to commend Mark and the officer team for the work they have done on this paper.

It's fair to say it’s not possible to look at the newspapers any day without seeing a council going public with the financial challenges it is facing. Some are in a far more precarious position than Bath and North East Somerset, but the fact there is commonality in the pressures all are facing leads me to look for the common denominator.

And it’s clear to me, the root issue is the persistent underfunding of local government by central government.

As a unitary authority, we have responsibility for the most vulnerable in our society, and the costs of providing the best care we can is growing both as an absolute figure, and as a percentage of our available funds. There are also expectations around the other services councils have traditionally provided, whilst the statutory responsibilities are making any discretionary spend increasingly hard.

Central government would have to agree that funding to local government has been cut but would point out that there are funds for certain projects made available. That is true. However, it is opaque when this money will be made available, unclear what it will be conditioned to be spent on, usually involves officers at risk and at speed drawing up plans with no certainty of success, and pits councils against each other in a competitive process on an uneven playing field. As an example, if WECA transport money is always prioritised to a council with a greater percentage of people living in deprived areas, Bristol will always score higher than B&NES when money is being allocated.

So, what we are doing in this paper is acknowledging the flawed reality of the funding world we live in and detailing our professional and competent approach to dealing with it. With more certainty around funds, there could be more certainty around strategy and delivery. Mark and his team have done an outstanding job working within the parameters we have to operate in, so I second this paper.”

Cllr Alison Born made the following statement:

“Local authorities across the country are facing increasing financial challenges and the rising demand for and spiralling costs of adults and children’s social care services are a significant factor in this. As a society, we have a history of supporting vulnerable people, but recent Governments have cut their funding for social care and the burden has fallen increasingly on to local government.

In common with most councils, we already spend more than 80% of our budget on social care, which makes it difficult for us to provide satisfactory levels of other services such as road maintenance and street cleaning. And we still struggle to meet social care needs within our limited resources. This is a source of frustration for our residents, most of whom do not make use of the social care services that take up the majority of our funding.

We have a strong track record of delivering change and savings within adult social care and are planning to re-design our services during 2024/25 to ensure financial sustainability. But it must be recognised that local authorities will not be able to deliver high quality services to support vulnerable residents and their families without considerable additional funding and greater certainty of that funding.

The uncertain and piecemeal approach to the funding of social care services, as set out in the Medium Term Financial Strategy paper, does not make it easy for us to plan or to deliver sustainable services. Boris Johnson appeared to recognise this and promised change. However, that was two prime ministers ago and his promises appear to have been forgotten. I hope that this will be rectified in the upcoming Autumn statement as a failure to increase funding will make it increasingly difficult for us to balance the books and to deliver the services that our residents need.”

RESOLVED (unanimously) to approve the Medium Term Financial Strategy as set out in Appendix 1 of the report.