Agenda item

The purpose of this report is to provide members with a high-level update on the current financial and economic prospects arising from the main issues affecting the Council and their impact on the financial forecast for the five years from 2025/26 to 2029/30.

The report also asks members to note the financial parameters for the preparation of the 2025/26 revenue budget and gives updates on the public budget consultation, Members Budget Working Group (BWG) and future participation in the West Sussex Business Rates Pool, (WSBRP).

The Group Head of Finance and Section 151 Officer presented to Members his report providing an update on the Council’s Financial Forecast for 2025/26 to 2029/30 and economic prospects arising from the main issues affecting the Council and their impact. As identified as part of the discussion on the last item, there was much uncertainty around the budget figures at this time due to the pending Local Government Finance Settlement.

The report was also asking Members to note the financial parameters for the preparation of the 2025/26 revenue budget, and it provided updates on the public budget consultation, Members Budget Working Group and future participation in the West Sussex Business Rates Pool.

The main highlights brough to the attention of Councillors by the Group Head of Finance and Section 151 Officer were:

·       The detail surrounding the 2025/26 budget which was still work in progress

·       The Council was looking at a £2.5m deficit which was anticipated to peak to around £6.5m by 2028/29 if the Council took no further action in cutting costs. It was emphasised that this was unlikely to happen, but that it was necessary to continue to outline the dangers and that this strong warning needed to be highlighted.

·       After 2025/26 it was expected that some external funding would reduce substantially

·       The provisional Local Government Finance Settlement announcement was due on 19 December 2024. This included a range of unknowns which had been detailed in Paragraphs 4.3 to 4.10 of the report for Members to review.

·       The major items to be aware of were; Employers’ National Insurance contributions to increase by 1.2% and the threshold at which NICs would be payable would reduce from £9.1k to £5k which would add a cost of around £350k to the Council’s revenue budget.

·       Having attended the Webinar referred to earlier by the Chair, the MHCLG had confirmed that it would cover those costs, but no details had been provided whether the funding would be sufficient. Confirmation as part of the Settlement was awaited.

·       An additional £1.3 billion had been allocated to local government of which £600 million would be allocated to authorities responsible for adult and social care provision. The other £700m would be allocated to councils on a deprivation-based approach. No further information about what this meant had been provided and so the Section 151 Officer, stated that caution needed to be applied as it could be the case that Arun might not receive any of that funding

·       The Government had confirmed that it would commence the Fair Funding Review which would impact 2025/26 budgets to begin with and then implementing further resource redistribution in future years to address an imbalance in Local Government funding. It was not clear if there would be any transitional funding to soften any reduced impact for the Council. 

·       The broad principles for setting the budget for 2025/26 had been illustrated in paragraphs 4.10 to 4.28 of the report. It was confirmed that all assumptions in the report would remain under review until the budget was completed.

·       An assumption of an annual increase of 2% for staff pay awards had been forecast for future years from 2025/26, this would be kept under review

·       The table at paragraph 4.13 set out the forecast net changes in grant allocations against the 2024/25 base budget. Current modelling assumptions showed that the Council’s grant share would increase by £462k but this needed to be confirmed following the webinar referred to earlier as this had made an inference that those figures might be frozen.

·       There was a firm assumption that New Homes Bonus (NHB) would disappear after 2025/26 and there was no confirmation that there would be anything to replace it

·       The Funding Guarantee Grant also provided a degree of uncertainty as current modelling assumed that it would reduce without anything to replace it 

·       In terms of council tax, the same referendum principles as in previous years applied to Arun as a district council with a maximum increase of 3% or £5 permitted. The MHCLG had indicated that they would consider bigger increases but only by exception which was unlikely to apply to this Council as it had a good level of reserves. 

·       The Council would continue with its participation in the West Sussex Business Rates Pool for 2025/26

·       Appendix B to the report set out the impact on the Council’s Usable Revenue Reserves based on the updated forecasts. As mentioned earlier, it the Council failed to deliver the objectives of its Financial Strategy, it would exhaust these by 2028/29.

·       The table at Paragraph 4.25 set out the impact of recent decisions by Members in terms of foregone income opportunities. The Section 151 Officer stated that he understood the difficulty for Councillors in making some of those decisions but had to re-emphasise the point that it was very necessary to make those difficult decisions at some point in the future

·       Another headline item not featured within the report, was an announcement that had been received following agenda publication regarding extended producer payments where the Government would charge producers the costs of disposal associated with packaging. The Council would receive a guaranteed payment of £1.4m in 2025/26 which was good news albeit there were caveats attached to this receipt which would be closely monitored when confirmed.

·       In finalising his presentation, the Section 151 Officer explained again the highlighted risks being the impacts from the fair funding review remaining as the most serious concern. The view was that the council’s share of business rate income would reduce even though there was no detail to confirm that at this point. Continuing cost increases around temporary  accommodation and what, if anything, would replace NHB minimum  funding guarantee grants remained as significant concerns.

The Chair thanked the Group Head of Finance and Section 151 Officer for his detailed presentation. He stated that what was of real concern with the Fair Funding Review where funds would be allocated on a deprivation-based account.  It was the Chair’s view that the South-East was not just an area of prosperity, and he hoped that the Government would take note and listen to this as it needed to be recognised that there were pockets of severe deprivation in the Arun district. 

The Chair then invited questions and comments from the Committee. One observation expressed with the report and the Fair Funding Review was that levels of deprivation in some areas of Littlehampton and Bognor Regis were very high and compared with deprived areas in the north of England and this could be positive for the Council. There was a great deal of uncertainty attached to planning the Council’s budget for 2025/26 and so the settlement next week was eagerly awaited. Paragraph 4.24 of the report accurately summarised the Council’s position and it was acknowledged that the budget for 2025/26 would be a “standstill” budget for valid reasons and emphasised that budget decisions going forward would be unpleasant to make and would mean that unpopular cuts and savings would need to be addressed soon. 

A level of criticism was made towards this “standstill” budget. Great mention had been made of the need to think about and make difficult decisions but there were no proposals to do this within the forthcoming budget. In response, the Group Head of Finance and Section 151 Officer noted the comment made. In the report he had explained the assumptions around Council Tax and increases and that his advice as Section 151 Officer was that there was a large structural budget deficit and that he could not say with any certainty that this would reduce. Councillors could vote to include uncommitted growth into the budget; however, it was his strong advice to not do this for all the reasons already outlined.

Debate continued with queries relating to Council Tax premium and the formation of a Budget Working Group. It was also queried how this budget monitoring report might be affected by the Settlement announcement next week and as this report did draw a concerning picture for the future. The Section 151 Officer confirmed that a further Members’ Briefing would be held before the next meeting of the Committee in February 2025 to explain the key headlines confirmed by the settlement.

Further discussion took place on plans to establish a Budget Working Group and why there were no firm proposals to consider its establishment in planning ahead for the 2026/27 budget.  The Chair reminded the Committee that the Section 151 Officer had been requested to assess the feasibility of setting up such a group, he had not been instructed to establish one. In response, the Section 151 Officer provided an explanation, reminding Councillors that this Committee had requested that he examine and consider proposals to establish a Working Group. The report presented explained why this was not proposed at this time. Looking ahead the Section 151 Officer would continue to explore ways in which engagement with Members within the budget setting process could be enhanced.

Input from other Members of the Committee praised the budget process that had been put into place under the Committee system as this had resulted in Councillors receiving more information as well as being presented with more opportunity to discuss the budget than ever before. Public consultation had been introduced for the 2023/24 budget and repeated this year receiving a significant improvement in feedback and responses compared with the previous year. In preparing the budget, Members were reminded that each Service Committee received its budget in detail providing ample opportunity for Councillors to submit proposals or suggest amendments. In addition to that, Members were also invited to attend budget briefings allowing them to shape budgets. Sadly, this was often an opportunity that Councillors just did not take ahead of the budget Policy & Finance Committee in February and then ultimately Full Council. There were Councillors who thanked the Section 151 for his caution and wished to confirm that good progress had been made in terms of the financial position of the council. The Financial Strategy had been approved in January 2024 and measures from that would be implemented over the coming months. This highlighted that progress in ensuring that the council was on a financially sustainable footing had been made.

A final question was asked which was what the process would be in establishing a Working Group following this year’s budget for the 2025/26 budget. The Group Head of Finance and Section 151 Officer confirmed that he would inform the Committee of further proposals in due course.