Medium Term Financial Strategy 2023-24
9. Risk and sensitivity
9. Risk and sensitivity
- 9.1. There continues to be a number of factors that impact on the financial forecast and overall financial position, and these have been highlighted in the respective sections.
- 9.2. Despite the risks, the Council must continue to respond to the challenges and take a proactive approach to setting a balanced budget annually and continuing to deliver against the medium term financial strategy. This includes the continuous review of services to ensure they are delivering value for money in the most efficient way, identifying and delivering a programme of annual savings and additional income that will mitigate future funding gaps and continuing to support and facilitate the economic growth and regeneration of the Borough to deliver growth to tax bases for domestic and business properties to deliver direct income that can be retained in the general fund. The significant investment that continues in the borough from the external funding from future high streets, towns fund and levelling up along with partner and external investment through the County Council should continue to be a medium to long term priority to support the financial position for the authority and to meets its priorities and provide the best possible services to the borough residents and businesses. However, the short-term capacity funding to support these projects as well as the core services remains a risk and this is something that needs to be taken into account when managing the project budgets.
- 9.3. There is a legal requirement to set a balanced budget annually which must be set in an informed manner and may propose changes to service levels, which may require upfront investment. Alongside approval of the budget, the level of reserves and robustness of the estimates are factors that are considered in full ahead of approving the budget and the council tax for the coming year. Whilst reserves can be used to mitigate one-off funding gaps, the use of the reserves cannot be seen as a longer-term sustainable option to delivering robust budget and financial management. The recent reliance on reserves as part of the approval of the budget is not sustainable in the long term.
- 9.4. The updated financial forecasts are dependent upon a number of key assumptions at a point in time. In addition to these there are a number of significant financial risks and uncertainties facing the council which could have an impact on the medium term financial strategy, these include the following:
- 9.5. Future funding - The timing and impact of reviews of local authority funding remains uncertain. With timing of a general election unknown, this puts timescales for future funding reforms under greater uncertainty also, as flagged earlier slipping these back. This in turn does not support longer term financial planning for local services. Continuation of grants, for example New Homes Bonus and whether this will continue is unknown. Currently the forecasts assume a rollover of the 2023/24 funding, with elements of this being subject to CPI inflation increases, this creates uncertainty in the system, as a significant receiver of RSG of £2 million per annum, until the outcome of the fair funding review is known this remains a risk for future funding.
- 9.6. Inflation - The Council has a significant investment programme to be delivered by 2026 including the projects to be funded through the Town Deal and Future High Streets funds along with the Wintergardens from Heritage Lottery Fund. Whilst all project budgets will include an element of contingency the increases to construction costs and the demand for materials provides further risks to the programme of delivery. A central capital contingency budget of £2.5m was previously approved of which £1.9m remains uncommitted which is available to mitigate this risk further. Furthermore, inflation on contracts has been allowed for within the financial plan, although these will all be subject to regular review.
- 9.7. Business rates - The current system is inherent with volatility and uncertainty for example appeals, vacant properties and non-collection. A 1% movement each year would result in approximately £50,000 additional income per annum being retained. The timescale and outcomes for the business rates reset will be linked to the wider funding reforms.
- 9.8. Council Tax - Increases in the tax base generate increases in the locally collected element of the council tax, however this is also dependent upon levels of discount and also the level of collection which with the increased cost of living pressures makes this inherently challenging. As a guide a 1% increase in council tax (band D) equates to approximately £53,000.
- 9.9. Interest rate changes - Increases in the rates can make capital projects unaffordable, requiring to scale back and reduce the call on financing by borrowing.
- 9.10. Employee costs - Pay awards being in excess of the level budgeted for, the impact being ongoing. 1% equates to approximately £180,000 annually including oncosts.
- 9.11. Ability to deliver savings and additional income - Non achievement of planned savings.
- 9.12. Service demand and income - Demand led services continue to provide significant income to the Council, eg car parking, planning and building control, crematorium. It is essential that the annual budgets are informed by current and prior year performance. These are monitored on a regular basis to ensure that where applicable pro-active actions can be taken to mitigate the impact to the budget. The importance of maintaining general and earmarked reserves remains essential to mitigate short term impacts of reduced income.
- 9.13. Interest and MRP - The revenue budget reflects the planned borrowing and financing of the current approved capital programmes. Slippage of capital schemes will impact on the level of borrowing required along with the associated financing costs. As new schemes and projects are approved the revenue implications will need to be considered as part of the options appraisal and business case. The increased borrowing rates will continue to have an impact on the delivery of the capital programme which will need to be continually reviewed in terms of affordability.
- 9.14. HRA - The impact of inflationary increases to the delivery of the HRA services for the day to day maintenance and longer term stock investment will also impact on the affordability of provision of new build programmes for replacement stock through the right to buy programme. The project for the changes to the delivery of the GYN services will be underway for the new service to be delivered from October 2024, once the service is under the full operation of the Council this will enable a thorough review of the financial cost of the delivery of the service.
- 9.15. The extent to which the above factors will have an impact on the ongoing financial projections and funding gap will vary. Some will have an ongoing impact and some may be more short term. The above risks will be considered as part of the annual budget setting process.