Agenda item

Councillor Perry, the Lead Member for Corporate Services, introduced the report setting out the framework for the Medium-Term Financial Strategy (MTFS) explaining that:

·  The Council had to prepare and produce a balanced budget and, at the same time, ensure that its finances were on a sound base moving forward.  Financial uncertainty was the main risk.  Council Tax was the major source of income and until now a 2% Council Tax referendum limit had been assumed, but that could change with the Chancellor’s Autumn Statement the following day.  This was a period of very high inflation and dealing with that was a top priority.

·  Given the uncertainty, as in previous years, several possible scenarios had been considered for the future.  The draft MTFS attached to the report used Scenario 4 as the base case and it also included Scenario 5 to understand what the possible situation would be if inflation continued to remain high with consequential pressures on costs.  The budget gap between Scenarios 4 and 5 was very significant.  The Council had the option to use reserves but should not do so because reserves were used for emergencies, as a one-off.  To use reserves would affect the future base level of the Council’s finances and it was important to ensure that the Council’s finances remained sound.

·  In terms of the capital budget, any investment appraisals would have to factor in a higher cost of capital.  It would be necessary to reassess the capital budget and some prioritisation of schemes would be required.  The cost of borrowing would be higher and that would affect the Revenue Budget as well.

·  New Homes Bonus (NHB) had been used to support strategic planning and policy work because of the Local Plan and this would continue.  Part of the NHB would also be used to fund the 1,000 Affordable Homes Programme.

·  The overall position would become clearer with the Chancellor’s Autumn Statement, but at present a 2% Council Tax referendum limit had been assumed.  With inflation running at 11%, a 2% increase would be a major reduction in real terms.  All budgets would be reviewed to identify opportunities for savings or increased income.  Specific provision had been built in for major known pressures such as the likely additional costs arising from the reletting of the waste collection contract.

·  He would like to thank the Director of Finance, Resources and Business Improvement and his team for their work in managing the Council’s finances.

In response to questions by Members:

The Lead Member for Corporate Services advised the Committee that:

·  As part of the process of developing the MTFS, consideration would be given to the use of reserves, but there would need to be a plan to replenish them taking into account inflation projections.

·  There was no certainty about the future of NHB.  If it was reduced or withdrawn, alternative sources of funding for strategic policy and plan making and to subsidise the Affordable Housing Programme would need to be identified.

The Director of Finance, Resources and Business Improvement advised the Committee that:

·  In terms of Council Tax increases, for the current year, there had been an increase in the Council Tax base of 1.7% (recent information).  It had been assumed that this would be 1.5%.  There was a separate issue about the level of collection of Council Tax which might deteriorate to offset that but 1.5% was in the right ballpark.  In subsequent years 1% growth was assumed.  Whilst there had been rapid growth in housing in Maidstone in recent years, if the economy slowed down, this might slow down too.  In estimating the Council Tax for next year, there were two elements: the rate of Council Tax (a Council Tax referendum limit of 2% was currently assumed) and the growth in the Tax Base which was currently assumed to be 1.5%, but this might slip or improve in future years.

·  The cost of delivering the Capital Programme was impacted by the rate of inflation and the prioritisation of capital schemes such as the Leisure Centre would be necessary.

·  In his view, the Council had to be prepared for inflation to continue at a high level for longer than implied by Bank of England projections.

·  Whilst salary increases tended to lag behind published inflation figures, market pressures were likely to mean that inflation would impact salaries in the medium term.  Other costs such as contract costs were directly linked to inflation indices.

During the discussion, it was suggested that, given the unique circumstances, consideration should be given to the use of reserves to mitigate the impact for residents of high inflation and increasing costs.  It would also be useful to have details of the Council Tax Reduction Scheme to inform discussions going forward.

RESOLVED:

1.  That the issues and risks associated with updating the Medium-Term Financial Strategy be noted.

2.  TO RECOMMEND TO THE EXECUTIVE:  That the Medium-Term Financial Strategy be approved, and the proposed approach outlined to development of an updated Medium-Term Financial Strategy for 2023/24 – 2027/28 and a budget for 2023/24 be approved.