Medium Term Financial Plan 2025-31
Perth and Kinross Council · 4 December 2024
Back to Perth and Kinross Council — 4 December 2024 and its agenda
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Perth And Kinross Council 4 December 2024 MEDIUM TERM FINANCIAL PLAN 2025 – 31 Report by Strategic Lead – Finance and Business Support (Report No. 24/350) 1. PURPOSE 1.1 This report updates the Medium-Term Financial Plan (MTFP) approved by Council on 4 October 2023 (Report No. 23/267 refers). 1.2 The purpose of the MTFP is to provide a clear direction on how the Council will manage its financial resources over the medium term, to ensure they are deployed effectively to achieve Council priorities and outcomes. This plan should be seen in the context of the Corporate Delivery and Improvement Council Plan and various other strategies and plans in place across the Council. 1.3 Given the extent of the significant and continued financial challenges ahead, it is essential that the MTFP enables the Council to develop a better understanding of the wider policy and financial environment within which it operates. This understanding will ensure that the Council can identify and respond flexibly to opportunities and threats, manage and mitigate risks, and ensure that financial resources are contributing to achieving Council priorities and outcomes. 1.4 The MTFP plays a vital role in decision-making, forming the basis of the Council’s stewardship over taxpayer funds and is an integral part of the Council’s financial framework. 1.5 The report summarises the implications of the latest projections on future Council General Fund Revenue Budgets over the medium term and provides an update on the Council’s Capital Budget, Housing Revenue Account and Reserves position. 1.6 The report also sets out a proposed approach to the development of the Revenue and Capital Budgets over the short and medium term. 1.7 Finally, the report proposes the introduction of a Council Tax strategy for the next three years through to 2027/28. The purpose of this strategy is to protect front line services that are valued by communities and improve the Council’s financial sustainability given the future forecasts for public sector funding and growing need / demand.
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2. RECOMMENDATIONS 2.1 It is recommended that Council: (i) instruct the Chief Finance Officer to maintain the Medium-Term Financial Plan and further refine the assumptions that underpin it – see paragraph 7.52. (ii) endorse a three-year indicative Council Tax Strategy based on annual Council Tax increases of 10% in 2025/26, which will be built into the 2025/26 planning assumptions, and thereafter indicative increases of 10% in 2026/27 and 6% in 2027/28 – see paragraph 10.24. (iii) agrees to earmark a further 0.25% of Council Tax income each and every year to support the Capital Budget – see paragraph 10.29. 3. STRUCTURE 3.1 The report is structured as follows: Section 4 Background Section 5 Economic and Fiscal Outlook Section 6 Scottish Government’s Medium Term Financial Strategy Section 7 Analysis of Medium Term – Perth and Kinross Council Section 8 Revenue Budget – Proposed Approach Section 9 Composite Capital Budget – Proposed Approach Section 10 Council Tax Strategy Section 11 Reserves Update Section 12 Housing Revenue Account Section 13 Workforce Planning Measures Section 14 Transformation and Change Strategy Section 15 Risk Assessment Section 16 Conclusions 4. BACKGROUND 4.1 The Medium-Term Financial Plan (MTFP) is a strategic document that outlines how the Council will manage its financial resources over the medium term to ensure they are used effectively to achieve the Council’s priorities and outcomes. This plan aligns with the Council’s broader strategic objectives and is integral to the Council’s financial framework. 4.2 The MTFP provides a comprehensive overview of the financial environment in which the Council operates. It considers the wider policy and economic context, including the impact of national and local government policies, economic conditions, and demographic changes. This understanding enables the Council to identify and respond flexibly to opportunities and threats, manage and mitigate risks, and ensure that financial resources are contributing to achieving the Council’s priorities.
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4.3 The MTFP plays a crucial role in decision-making and forms the basis of the Council’s stewardship over taxpayer funds. It ensures that limited resources are focused on delivering the Council’s key priorities, supports sustainable revenue budgeting and capital investment, and increases both organisational awareness and wider community understanding of the Council’s financial position and the challenges it faces over the medium term. 4.4 Given the financial challenges ahead, including economic uncertainties, inflationary pressures, and demographic changes, the MTFP is essential for maintaining financial stability and delivering quality services to the community. It sets out the Council’s approach to financial planning and management, ensuring that effective financial planning contributes to the achievement of the Council’s strategic objectives. 4.5 The MTFP is intended to outline the broad “direction of travel” for the Council’s financial management with further detail and options for managing the various challenges being developed as part of the Revenue and Capital Budget process. 4.7 The MTFP seeks to provide a range of scenarios for key variables that are used in long-term budgeting and financial planning. There is no one definitive source for such data and the projections have been taken from a range of sources, including the Scottish Government, the Office for Budget Responsibility (OBR) and the Bank of England. 4.8 The report considers the wider economic and fiscal outlook and how this might impact on the Council over the medium term. The report also provides an update on the Council’s Revenue and Capital Budgets, Housing Revenue Account and Reserves. 4.9 Many of the assumptions set out in this report will change over time in response to external factors including the ongoing impact of the cost-of-living challenges, future spending reviews and the macro-economic outlook. 4.10 For the purposes of this update, the medium term is broadly defined as the six years to financial year 2030/31. 4.11 The Council’s financial management and budgetary process is also developing to support the delivery of the strategic objectives with budget proposals and decisions continuing to be aligned with them. This builds on the move to developing outcome-based approaches to the Council’s budget where the relationship between how the Council allocates its resources and the outcomes realised through this allocation are more evident. Work is ongoing to further integrate strategic planning and financial planning. 4.12 On 22 June 2022, the Council approved the Financial Strategy (Report No. 22/141 refers). This included a set of principles which should assist the Council in bringing forward a Medium-Term Financial Plan and Revenue Budget that is sustainable over the longer term.
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4.13 In approving the Financial Strategy, Council approved the following thirteen principles: • direct resources to where they are most needed, • protect the most vulnerable in our community, • prioritise the delivery of services which we must provide by law, • deliver services in the most efficient, and cost-effective manner, • prioritise upfront investment in prevention and early intervention, • prioritise transformation investment on cost mitigation activities, • not fund recurring activity from General Fund Reserves, • contain spending within approved budgets, • minimise unnecessary expenditure and maximise income, • take a planned and sustainable approach to Capital investment, • reflect the full cost of Capital investment in future budgets, • over plan for the delivery of savings, • agree indicative budgets for a minimum of two further financial years when setting revenue budgets. 4.14 Over the last year, the Council has also approved the following key elements of its Financial Strategy which are set out in Table 1 below. Table 1 Key Elements of Financial Strategy Report Reference Date Investment Blueprint 21/180 6/10/21 Medium-Term Financial Plan 2023 – 2029 23/267 4/10/23 Housing Revenue Account Strategic Financial Plan 24/24 24/1/24 Strategic Planning Update and 2024/25 to 2026/27 General Fund Revenue Budget 24/63 28/2/24 Strategic Investment and Capital Budget Update 2024/25 to 2029/30 24/64 28/2/24 Treasury and Investment Strategy and Prudential Indicators 2024/25 – 2029/30 24/69 6/3/24 Unaudited 2023/24 Annual Accounts 24/194 24/6/24 Audited 2023/24 Annual Accounts 24/340 2/12/24
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5. ECONOMIC AND FISCAL OUTLOOK 5.1 In considering an appropriate approach to preparing the Council’s medium- term Revenue and Capital Budgets, it is necessary to consider the outlook for the United Kingdom and Scotland’s public finances. 5.2 The economic and fiscal outlook for the UK economy is shaped by several key factors, including recent economic shocks, inflation, and policy decisions. 5.3 The UK economy is expected to experience modest growth over the next few years. Gross Domestic Product growth is projected to average around 1.1% for 2024. This follows a period of economic stagnation and a technical recession in the latter half of 2023. 5.4 Inflation has been a significant concern, with rates peaking in 2022 and 2023. Inflation is forecasted to average 2.5% in 2024, which is a significant improvement from previous years. This decline in inflation is expected to help increase real wages and boost consumer spending. 5.5 The Bank of England has raised interest rates to combat inflation. Markets expect the Bank Rate to settle at around 4%. 5.6 In terms of public finances, the UK Government is implementing a £40 billion tax increase, primarily targeting businesses to support public spending. This includes significant investments in the NHS and education. 5.7 Public sector net borrowing is expected to remain high, but the UK Government aims to meet its fiscal targets through these new tax measures and controlled spending. 5.8 The global economic environment remains challenging, with softer growth expected worldwide, however, the UK is showing signs of recovery. 5.9 In summary, the UK faces a challenging economic and fiscal environment over the short and medium term. While modest growth is expected, inflation, elevated debt levels, and ongoing uncertainties pose significant risks. Effective policy measures and strategic planning will be crucial to navigate these challenges and support sustainable economic recovery. 6. SCOTTISH GOVERNMENT’S MEDIUM TERM FINANCIAL STRATEGY 6.1 The Scottish Government was due to publish its updated Medium-Term Financial Strategy earlier this year. The publication of the Strategy was delayed due to changes within the Scottish Government and then the calling of the UK General election. 6.2 Therefore, there has been no update of the Scottish Government’s plan on which to base the refresh of the Council’s Medium Term Financial Plan. 6.3 However, in the UK Budget that was published on 30 October 2024, it is understood that the Scottish Government will receive £47.7 billion in 2025/26,
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including a £3.4 billion increase through the Barnett formula. Of this increase £2.8 billion relates to revenue expenditure and £610 million for capital investment. 6.4 More information on the detail of the Scottish Government’s spending plans will become available when the Scottish Budget is presented to Parliament on 4 December 2024. It is understood that further detail on this will be released the following week when the Local Government Funding Circular is published. 6.5 The future funding outlook for local government remains highly uncertain. The outlook for the Scottish Government’s block grant, together with the Scottish Government’s stated spending commitments; the wider economic outlook and increasing demand pressures on public expenditure indicate that the local government settlement in 2025/26 and beyond will continue to be challenging. 7. ANALYSIS OF MEDIUM TERM – PERTH AND KINROSS COUNCIL 7.1 This section highlights the potential financial implications of changes in key areas affecting the Council’s need to spend and to compare these to the projected level of available resources. The continued development of the Medium-Term Financial Plan (MTFP) into future years will further establish the Plan as the foundation of the Council’s financial management. The Plan recognises the combined impact of increasing need/ demand for Council services, particularly because of demographic trends, inflationary pressures (including cost of living) and anticipated pressures on funding. This approach allows the consideration of options and the refinement of strategies to manage these pressures over the medium to longer term. 7.2 Expenditure pressures classified as “demographic” or “inflation” related are identified in detailed submissions considered by Council in setting Revenue Budgets each year. The MTFP, however, makes global assumptions about these variables in advance of detailed submissions to inform the Council’s financial planning process over the medium term. The Plan also assumes that any additional costs in relation to new legislation will be funded by the Scottish Government. 7.3 The MTFP is, however, an evolving model, which will require refinement and updating on a regular basis as new information becomes available. The following section of this report focusses on the key areas to be considered in developing future years’ budget strategies and sets out the assumptions made in respect of each area. The financial impact of these assumptions is summarised in Table 3 at paragraph 7.43. 7.4 For financial planning purpose this update to the Medium-Term Financial Plan includes the following three scenarios – • Optimistic – Appendix A(i) • Mid-Range – Appendix A(ii) • Pessimistic – Appendix A(iii)
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7.5 The detailed assumptions underpinning each of the scenarios are set out in Appendix B with supporting narrative provided under each category below. Employee Pay Inflation 7.6 The process for concluding the 2024/25 pay awards for non-teaching unions is currently ongoing, and at the time of writing this report have not yet concluded. The 2024/25 Final Revenue Budget includes a budgeted increase of 3%, which will be insufficient for the current offer. The Council has received a contribution to the 2024/25 pay award from the Scottish Government but this may not be sufficient resulting in increased costs from 2025/26. 7.7 Looking beyond the current year there are several scenarios which could emerge for future pay settlements. Although COSLA maintain a position of seeking parity in settlements for all local government employee groups, recent settlements have included differential pay awards for different staff groups. For the purposes of this update of the MTFP, the mid-range scenario assumes an increase of 3% in each year for all staff groups with 2% and 4% for the optimistic and pessimistic scenarios respectively. 7.8 There is a risk that the assumptions set out in this MTFP and in Appendix B underestimate future pay inflation and vice versa. A 1% movement on pay award assumptions equates to approximately £2.5 million for all staff groups. There is a further risk that differentiated pay settlements impact on the sustainability of the current pay and grading structure. Employers’ National Insurance Contributions 7.9 The UK Budget published on 30 October 2024 made two significant changes to Employers’ National Insurance Contributions. Firstly, the rate charged increased from 13.8% to 15%, and secondly, the threshold on which charges are levied reduced from £9,100 to £5,000. 7.10 The cost of these changes is currently estimated at £5.5 million per annum. Discussions are ongoing as to whether the UK Government will fund this pressure or not. The optimistic and mid-range scenarios assume that this funding is forthcoming from the UK Government via the Scottish Government. Increments 7.11 Local authority pay is negotiated nationally and applies to all employees. Most local government employees (Single Status and Teaching staff) are placed on nationally agreed grades which contain several scale points. Each year employees are incrementally moved up to the next scale point on their grade until the maximum point is reached. Increments are an annual cost that the Council is contractually required to pay. 7.12 In terms of the cost of incremental progression, for the purposes of this update, £750,000 per annum has been assumed for all financial years under all three scenarios. This figure is consistent with the cost of incremental progression in previous years.
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Employer’s Superannuation Contributions 7.13 Employees (and elected members) in Perth and Kinross Council are automatically admitted to either the Scottish Public Pensions Agency (SPPA) (teachers) or the Local Government Pension Schemes (LGPS) (non-teaching staff) upon entry to the Council. Both schemes are statutory and ensure that the Council complies with its legislative duties. Employees can opt out of either scheme; however, Perth and Kinross Council is listed in statute as an employing authority with a legislative obligation to participate in both schemes. 7.14 The most recent triennial review of Tayside Pension Fund was carried out at 31 March 2023 with the recommendations from this review determining the level of employer contributions from 1 April 2024 to 31 March 2027. The Council was formally advised that the LGPS employer’s superannuation contributions for that period would reduce to 15.7%. 7.15 This update of the MTFP covers the period of the next two triennial reviews as at 31 March 2026 and 31 March 2029 which may impact on financial years 2027/28 and 2030/31. A 1% increase represents a cost pressure of around £1.254 million per annum in respect of non-teaching employees. 7.16 The teacher’s scheme is administered separately by the Scottish Public Pensions Agency (SPPA) which is an Executive Agency of the Scottish Government. The employer’s contributions for this scheme are set by the UK Treasury. There was a significant increase in employers’ contributions (from 23% to 26%) which took effect from 1 April 2024. The next review of employer contributions for teachers is scheduled for 2028 which will be influenced by economic conditions, actuarial valuations and policy decisions. A 1% increase represents a cost pressure of around £716,000 per annum in respect of teaching employees. 7.17 For the purposes of this update, the following assumptions have been made in relation to increases in the employer’s contribution rates for both pension schemes. Table 2 Employers Superannuation Assumptions Local Government Pension Scheme Teachers’ Pension Scheme 2027/28 2030/31 2028/29 Optimistic 0% 0% 0% Mid-range 0% 0% 0% Pessimistic +1% +1% +1% Non-Pay Inflation 7.18 The most recent projections by the Bank of England for inflation through to 2029 are set out in Chart 1 below.
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Chart 1 Bank of England Projections 2024 - 2029 7.19 The Bank of England expect inflation to increase slightly in 2025 before reducing in subsequent years to reach the Bank of England’s 2% target by 2029. 7.20 Under the mid-range scenario, it is assumed that the average level of general inflation is consistent with the Bank of England projections. Under the optimistic and pessimistic scenarios, inflation is assumed to track at 1% less and 1% more respectively that the Bank of England’s central projections. 7.21 However, there are also several areas of Council activity where annual cost increases may be significantly more than the level of general inflation. These include energy and fuel where significantly higher increases have been assumed in earlier years. 7.22 As the Council also acts as a commissioner of services rather than direct provider, this element of the Revenue Budget may also be exposed to increases beyond that of general levels of inflation e.g. living wage commitments and changes to the levels of employer’s national insurance contributions. This will also impact on the Council’s ALEOs and Tayside Contracts. 7.23 In addition, with the scale of the Council’s Capital Budget, there may be financial challenges, both in terms of inflationary pressures involved in delivering projects and the cost of servicing the borrowing. Demographics 7.24 The MTFP attempts to reflect the potential additional costs to the Council of demographic changes in the population within the area. The population of older people is growing, while the proportion of under-15s and working age people is reducing which is illustrated in the following two graphics.
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This will likely influence the demand for healthcare, social services, and other support systems. 7.25 This update of the MTFP makes use of the most up to date projections available from the National Records of Scotland and are based on 2018 data (the 2018 data is the most up to date information available by age). Excerpt from Integration Joint Board Strategic Plan 7.26 Demographics can be extremely complex with the changing profile of the local population in terms of need and age. For the purposes of modelling the MTFP, a range of scenarios have been assumed based on information from the National Records of Scotland. This update of the MTFP assumes an increase of around 0.1% for general population growth every year of the Medium-Term Financial Plan. 7.27 Beyond this, the MTFP uses projections for different age groups to further refine the potential impact of demographics on the Council.
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Consistent with previous years, the most significant demographic pressure is around older people with a projected increase of over 25% in the number of local residents aged 80+ over the six-year period of this Plan. This is anticipated to lead to increasing need for access to care services over time from an ageing population with an increasingly higher rate of longer-term conditions, compounded by the frailty of individuals with complex care needs requiring more expensive care packages. 7.28 A further factor that needs to be considered is the increasing numbers of both young and older people with extremely complex care needs (long term condition) which is illustrated in the following graphic. Excerpt from Integration Joint Board Strategic Plan 7.29 The Council continues to support the work of the Health and Social Care Partnership to implement measures to mitigate these pressures. However, in the short-term, additional costs to reflect demand growth have been factored in to the MTFP to inform the Council’s financial planning. Loan Charges 7.30 Under all three scenarios, £1 million each and every year is included to support the Capital Budget. This is funded by earmarking 1% of Council Tax increases in perpetuity which was agreed by Council in February 2024 (Report No 24/63 refers). Service Concession Scheme 7.31 The Council has previously approved the application of the Service Concession Scheme to support the Revenue Budget. An element of this funding (£4 million) is not available from 2028/29. This is shown as a pressure under all three scenarios. 7.32 The earlier the Council takes proactive measures to deal with this reduction in resources, the more the negative impact on service delivery can be mitigated.
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Funding and Income 7.33 There are several funding / income streams that can have a significant impact on the financial position of the Council over the medium term which are discussed in further detail below. 7.34 The Council has previously taken advantage of new income streams with the increase in the Council Tax rate for second homes and changes to the reliefs available on certain non-domestic properties. 7.35 The Visitor Levy, if supported by Council, also has the potential to generate significant levels of additional income. However, the timing and phasing of the introduction is not yet clear with officers working to present a consultation proposal to Council in the new year. For that reason, this additional income has not been factored into any scenario within the MTFP. Scottish Government Funding 7.36 Previously, the MTFP has made separate assumptions in relation to General Revenue Grant (GRG) and Non-Domestic Rates Income (NDRI). Over the last few years, this income has been aggregated and any reductions have been based on a total package of funding. On that basis, these projections are based on the current total package of funding of over £353 million (which is the total of GRG and NDRI in 2024/25). Chart 2 below demonstrates that over 60% of the Council’s funding is provided by the Scottish Government. Chart 2 Sources of Funding 7.37 There is currently limited information on levels of specific funding for Scottish local authorities and the mid -range assumption is a “flat cash” scenario for the life of this Plan. This reflects both experience in recent years of relatively small movements in funding together with the likely prioritisation of public expenditure on education and health and social care in light of the Scottish Government priorities. £0 £50 £100 £150 £200 £250 £300 Revenue Support Grant (48.6%) Ring Fenced Grant (0.6%) Non Domestic Rate Income (11.0%) Council Tax Income (18.0%) Capital Grant (0.3%) Reserves (4.7%) Fees and Charges (16.7%) Million
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These assumptions are for financial planning purposes only and will be updated upon confirmation of the Local Government Settlement. 7.38 The MTFP assumes that all new legislative pressures and any requirements of the Local Government Finance Settlement such as the social care living wage commitment, Carers Act etc. will be fully funded by the Scottish Government. There is clearly an element of risk in this assumption given anticipated pressures on the Scottish Government’s budget. Demographics (Impact on Funding) 7.39 In line with the demographic pressures discussed above, an estimate of the impact of demographic changes on the General Revenue Grant has been included. This update of the MTFP assumes an increase of approximately 0.1% in funding for general population growth every year of the Medium-Term Financial Plan (under the mid-range scenario). This is highly speculative and is dependent on the funding for Councils with reducing populations transferring to Councils with growing populations. These adjustments tend to take several years to work their way through the Local Government Settlement and the impact is often dampened by the “floor mechanism” which is in place to protect Councils from large movements in funding. Council Tax Income 7.40 For Council Tax, there are potentially two sources of additional income that are factored into this update of the Medium-Term Financial Plan. 7.41 Firstly, in relation to the projected growth in the number of Band D equivalent properties. Scenarios have been modelled around the impact of population growth on the Council Tax base in line with the demographic assumptions outlined above. 7.42 Secondly is the capacity for the Council to increase the level of Council Tax charges. On 28 February 2024, the Council approved indicative Council Tax increases of 4.9% for 2025/26 and 2026/27 which included 1% towards supporting the Capital Budget each year. Beyond that, under the mid-range scenario, the working assumption for the purposes of preparing this update of the MTFP is that Council Tax will increase by 3% in each year of the Plan. 7.43 However, this update of the MTFP includes a Council Tax Strategy which is more ambitious in terms of Council Tax levels in future years that will protect front line services for those most in need and may provide elected members with additional opportunities to invest in both revenue and capital priorities – see section 10. 7.44 For the avoidance of doubt, the actual level of Council Tax each year will be determined by Council each year in approving the final Revenue Budget.
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Fees and Charges 7.45 The proposed MTFP assumes that the Council raises its charges for goods and services by between 3% and 5% per annum. Decisions on actual levels of charges will be considered by the Council in setting the final Revenue Budget. Utilisation of Reserves 7.46 The Council could consider the utilisation of Reserves on a non-recurring basis to manage budget pressures in the short term. However, Reserves are only available on a one-off, non-recurring basis. Any proposals to utilise Reserves to support recurring expenditure will require either an exit strategy or further savings to be identified. 7.47 All the forecasts discussed in paragraphs 7.3 to 7.46 are extremely uncertain. Actual income and expenditure will depend on several factors which are set out within the Risk Assessment commentary in this report which is set out in section 15. Medium Term Financial Plan – Estimated Net Financial Pressures 7.48 The estimated levels of net financial pressures identified under each scenario are summarised in Table 6 below and set out in detail in Appendix A. Table 3 Estimated Net Financial Pressures 25/26 26/27 27/28 28/29 29/30 30/31 Total £m £m £m £m £m £m £m Optimistic 5.8 (0.6) 2.5 0.4 2.7 (3.1) 7.7 Mid- Range 17.4 11.5 14.1 12.1 14.8 10.5 80.4 Pessimistic 35.9 25.4 29.9 27.3 30.2 27.6 176.3 7.49 Table 3 above sets out scenarios with cumulative net financial pressures of up to £176.3 million over the six-year period. While the level of net pressures identified will undoubtedly change as work progresses on the Revenue Budget, this provides an indication of the scale of the financial challenge potentially facing the Council over the six-year period 2025/26 to 2030/31. These scenarios include the expenditure pressures that will be brought forward as part of the detailed consideration of future years’ Revenue Budgets. 7.50 There are significant variations between the scenarios due to the sensitivities around the financial modelling. For example, over the six years there is almost £35 million of a difference between the optimistic and pessimistic scenarios on pay inflation. Non staff inflation varies by over £54 million and projected levels of Scottish Government funding by over £42 million.
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7.51 It is important to note that the financial pressures identified in Table 3 are in addition to the significant reductions of over £20 million that have been delivered in the last three financial years and the further £16 million that have been approved for 2025/26 and 2026/27. 7.52 ACTION: The Council instructs the Chief Finance Officer to maintain the Medium-Term Financial Plan and further refine the assumptions that underpin it. 7.53 On 26 February 2025, the Council will be asked to approve the final 2025/26 Revenue Budget, the updated 2026/27 Provisional Revenue Budget and the 2027/28 Provisional Revenue Budget (including the Reserves Strategy) and the Capital Budget 2025/26 to 2030/31. The Housing and Social Wellbeing Committee will also Housing Revenue Account (HRA) Budget and rent levels for 2025/26 and the five-year Housing Investment Programme at its meeting 22 January 2025. 8. REVENUE BUDGET – PROPOSED APPROACH 8.1 The Medium-Term Financial Plan (MTFP) is designed to inform the direction of travel of the Council for financial planning purposes. As detailed budget proposals are developed, the broad assumptions included in the MTFP will be superseded by more detailed analysis of individual cost pressures and the identification of potential budget reductions. 8.2 As has been the case for several years, the Executive Leadership Team are preparing budget submissions in line with the approved Financial Strategy and Principles and strategic objective in the Corporate Plan as follows - • Tackling poverty • Tackling climate change and supporting sustainable places • Growing a sustainable and inclusive local economy • Enabling our children and young people to achieve their full potential • Protecting and caring for our most vulnerable people • Supporting and promoting physical and mental wellbeing • Placing communities at the heart of how we work 8.3 Given the size of the financial challenge and the level of reductions, the Council has faced in recent years, none of the corporate priorities have been unimpacted by previous budget decisions. This will continue and the level of financial challenge grows. The Council Tax Strategy proposed in Section 10 may go some way to reversing this. 8.4 The Council has previously approved the 2025/26 and 2026/27 Provisional Revenue Budgets on 1 March 2023 and 28 February 2024 respectively (Report Nos. 23/72 and 24/63 refer). In doing so, the Council approved expenditure pressures of £6.867 million and budget reductions of £16.028 million which are summarised in Table 4 below. In summary £9.161 million (net) has been removed from Council budgets.
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This is the starting point for the 2025/26, 2026/27 and 2027/28 Revenue Budgets that will be considered by Council on 26 February 2025. Table 4 2025/26 and 2026/27 Provisional Revenue Budget Decisions Expenditure Pressures Reductions Net 25/26 £’000 26/27 £’000 25/26 £’000 26/27 £’000 £’000 Tackling poverty 126 127 (95) (95) 63 Tackling climate change and supporting sustainable places 0 0 (400) (150) (550) Developing a resilient, stronger and greener local economy 15 - (350) - (335) Enabling our children and young people to achieve their full potential 2,579 1,178 (999) (5,166) (2,408) Protecting and caring for our most vulnerable people 20 - (506) (689) (1,175) Supporting and promoting physical and mental wellbeing - - (351) (331) (682) Working in partnership with communities 564 590 (765) (433) (44) Organised to Deliver / Transformation 1,264 404 (4,234) (1,464) (4,030) Total per year 4,568 2,299 (7,700) (8,328) Grand Total 6,867 (16,028) (9,161) 8.5 The Strategic Leadership Team are updating the previously approved expenditure pressures for 2025/26 and 2026/27 and preparing new pressures for 2027/28. These pressures will supersede the high-level assumptions included in section four of the Medium-Term Financial Plan. 8.6 A reminder of decisions taken on 1 March 2023 and 28 February 2024 was shared with elected members in November 2024. Revenue Budget updates will be provided to elected members from December 2024. To streamline the process for both elected members and officers, briefings will be provided when there have been significant changes or material developments impacting on the Council. These will include when budget submissions are available for elected member consideration, and the publication of the Scottish Budget / Local Government Finance Circular.
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8.7 The Scottish Budget is due to be considered on 4 December 2024 and the Local Government Finance Circular is expected to be published the following week (around 12 / 13 December). This information, along with the revised approach included within this Medium-Term Financial Plan, may facilitate a different type of engagement with elected members with a move away from the consideration of many millions of pounds of budget cuts. Perth and Kinross Integration Joint Board 8.8 Integration Joint Boards across Scotland are experiencing financial challenges in the delivery of not only the current year budget but also future years. Increasing demand as well as complexity of need have put significant pressure on the health and social care system. 8.9 It is anticipated that Perth and Kinross Integration Joint Board (IJB) will continue to progress the development of integrated budgets which will bring together funding from both the Council and NHS Tayside. Discussions remain ongoing with all three parties as to the potential implications for the Council’s Revenue Budget process. The outcome of this will be reported to future meetings of the Council. It is important to recognise the financial challenges faced by both the Council and NHS Tayside and how this may impact on the work of the IJB. 8.10 At this time, it is anticipated the IJB will notify the Council (and NHS Tayside) of the funding required for their Strategic Delivery Plan. The level of funding requested will then be assessed in the context of the overall level of resources available to the Council in arriving at a recommendation on funding for the IJB in 2025/26 and beyond. Arm’s Length External Organisations (ALEOs) 8.11 Council officers are currently supporting the Council’s three Arm’s Length External Organisations (ALEOs): Live Active Leisure; Perth Theatre and Concert Hall Ltd. and Culture Perth and Kinross as they review their business models in light of increasing financial pressures on their operation; their recovery from the impact of the Covid pandemic and the opportunities presented by the opening of new facilities. 8.12 The budgets for the Council’s ALEOs are considered and determined by their respective Boards. In the context of constrained financial resources, the approach adopted to the Council’s future funding of their operations will, however, be based on the same focus on reviewing and reducing expenditure as is being applied to Council Services. 8.13 The ALEOs are also part of the Council’s transformation review that will examine the most cost effective and efficient vehicle for the delivery of these services from both the perspective of the Council and customers. As the financial challenges increase, there will be a requirement to pick up the pace of this review.
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9. COMPOSITE CAPITAL BUDGET – PROPOSED APPROACH 9.1 On 6 October 2021 the Council approved the Investment Blueprint which supports a more transparent and flexible approach to investment decision making and support the long-term vision of the Council (Report No. 21/180 refers). 9.2 The Investment Blueprint set out five overarching principles to inform decision making and ensure that investment of public money is directed to where it is most needed. The principles are that investment decisions must: • mitigate against the impact of climate change. • promote inclusive economic growth and a vibrant economy. • promote equality and fairness. • support the delivery of sustainable public services through effective management of assets. • promote and enhance digital inclusion. 9.3 The Blueprint is intended to help shape and inform a rolling 30 Year unfunded Investment Plan together with a 6-year rolling delivery plan which will detail the delivery of costed and funded projects and programmes developed from proposals within the 30 Year Plan. 9.4 Proposals set out within the 30-year investment plan will be subject to the Council’s project governance framework, building in further opportunity to review, respond and adapt the Plan to respond to changing needs, circumstances and priorities as they emerge. The Plan will be reviewed annually by elected members to ensure that proposals continue to meet the strategic priorities of the Council. 9.5 However, it is highly likely that the Council will experience further cost pressures on the Capital Budget. Given these further pressures, Section 10 on a Council Tax Strategy, includes a proposal to ringfence a further 0.25% towards supporting the Capital Budget. 9.6 The Capital Budget will be updated on 26 February 2025. 10. COUNCIL TAX STRATEGY 10.1 As set out in the preceding sections of this report, the Council faces significant financial uncertainties over the short to medium term. As with all parts of the public sector there are increasing demands for services, a growing complexity of needs from our communities and uncertainty over future levels of funding. 10.2 The Verity House Agreement, a new partnership agreement signed in June 2023 by the Scottish Government and COSLA on behalf of Scotland’s Councils, was based on three shared priorities. Tackling poverty, a just transition to net zero and sustainable public services.
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The agreement sets out how the partners will work together and engage on these share priorities, but also recognises that local flexibility will be required to maximise impact. 10.3 The Verity House agreement is based on a clear starting point between the signatories of the principles of regular and meaningful engagement with each other, and respect for the democratic mandate each has, in order to work together most effectively to improve the lives of the people of Scotland. The capacity to set Council Tax locally is a key tool available to the Council to deliver sustainable public services and to meet the needs of local citizens. 10.4 Section 7 of this report sets out in detail the challenges which face the Council, and the reality that even with millions of pounds of savings already identified for the next two financial years, there is still more that needs to be done. While the Council’s continued commitment to transformation and change has and will deliver changes in the shape and approach of the organisation to improve efficiency, focus on priorities, and take advantage of opportunities such as new technologies, given the scale of the financial challenges these will not be enough on their own. 10.5 The changing demographics of our communities set out in 7.24 to 7.29 are impacting on the increasing demands for Council services. There are significant pressures in relation to health and social care (adult social work and social care), the growing proportion of primary school pupils with additional support needs and tackling poverty whilst delivering on the Council’s wider priorities. 10.6 There have already been significant increases in health and social care costs in 2024/25 to levels that were not anticipated. The budget set by the Integration Joint Board allowed for increased need and complexity. However, the number of care packages and care placements together with additional costs associated with an ageing population and increased complexity and acuity has meant the budget is now considerably over committed. By way of context, over the period February to September 2024: • the number of older people accessing direct payments increased by 14% and the average cost of a package has increased by 9%. • the number of direct payments granted to support unpaid carers of older people increased by 27%. • the average cost of a package (in addition to rate uplifts) increased by 13% across Learning Disabilities, Physical Disabilities and Mental Health. • the average cost of a package (in addition to rate uplifts) granted to support unpaid carers across Learning Disability, Physical Disability and Mental Health increased by 13.4%.
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10.7 The immediate pressure in relation to health and social care has been included in updates to the Finance and Resources Committee along with information on the in-year cost pressures being experienced by other Council services. Protecting vital frontline services like these and responding to the levels of local need will be increasingly difficult without a sustainable plan for funding. 10.8 Council Tax increases are essential if we are to ensure the financial sustainability of the Council and to protect and maintain the services and infrastructure that the residents across Perth and Kinross depend on. The alternative is that Council will have to consider even more stringent cuts and reductions in service quality, which are likely to adversely affect those who most need the services the Council delivers. 10.9 Creating a Council Tax strategy for Perth and Kinross Council involves several key components to ensure it is fair, efficient, and sustainable. The use of Council Tax that is being recommended within this strategy is a way of: • protecting frontline services focused on those in greatest need, and • supporting our longer-term management of capital borrowing for future generations 10.10 To ensure fairness and equity, it is essential that there is appropriate support in place which could include the promotion of discounts and exemptions for low-income households, pensioners, and other vulnerable groups. The Council’s Local Taxes team actively promotes these and works closely with the Welfare Rights Team who focus on supporting residents to access benefits and other discounts they may be entitled to. 10.11 The Council will always promote efficient collection methods, including online payment options and direct debits and develop strategies to manage and reduce council tax arrears, including support for those struggling to pay. Collection levels over the last five years are set out in Table 5 below. Table 5 Council Tax Collection Levels 19/20 20/21 21/22 22/23 23/24 97.1% 96.6% 97.7% 98.4% 97.5% 10.12 It is essential that the financial needs of the Council are both maintained and grown to improve the sustainability of public services. 10.13 Public messaging will be undertaken to raise awareness with residents on tax levels and spending. This will include providing clear and accessible information about how Council Tax is calculated and how the revenue is spent.
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10.14 By implementing this strategy, Perth and Kinross Council can ensure a balanced approach to council tax that supports community needs and services while maintaining financial stability and investing in local infrastructure. 10.15 For illustrative purposes, the impact of an 8%, 10% and 12% increase on the Band D figure for 2024/25 (£1,403.69) are set out in Table 6 below. Table 6 Impact on Band D Charges for 2025/26 Increase New Rate Increase Additional Funding* Weekly Monthly Annually 8% £1,515.99 £2.16 £9.36 £112.30 £3.3m 10% £1,544.06 £2.70 £11.70 £140.37 £5.4m 12% £1,572.13 £3.24 £14.04 £168.44 £7.5m * in addition to approved budgets 10.16 It will ultimately be for Council to decide when setting each year’s budget which level of Council Tax increase to apply. However, for the purposes of planning a balanced budget, increases of 10%, 10% and 6% are modelled in 2025/26, 2026/27 and 2027/28 respectively in Table 7 below. 10.17 Table 7 Council Tax Modelling Year Increase New Rate Increase Additional Funding* Weekly Monthly Annually 25/26 10% £1,544.06 £2.70 £11.70 £140.37 £5.4m 26/27 10% £1,698.46 £2.97 £12.87 £154.40 £6.2m 27/28 6% £1,800.37 £1.96 £8.49 £101.91 £8.7m * in addition to approved budgets 10.18 The “additional funding” identified in Table 7 is over and above that already included in provisional revenue budgets. This additional funding will be available to contribute to the new cost pressures facing the Council and can be directed to protect health and social care, support children with additional support needs, and tackle poverty, and reduce the need for the consideration of further budget cuts in areas which support the delivery of these priorities. 10.19 On 8 November 2024, Perth and Kinross Council had 76,927 dwellings that contributed to council tax income. Table 8 below demonstrates that 63.4% of dwellings were in Bands A to D and therefore, the maximum annual increase in those Bands would be £140.37 with 47.9% paying less than that amount.
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Table 8 Total Number of Dwellings A B C D E F G H 11.4% 19.5% 17.0% 15.5% 16.0% 10.9% 8.8% 0.9% Cumulative 11.4% 30.9% 47.9% 63.4% 79.4% 90.3% 99.1% 100.0% 10.20 On the basis that these proposals are endorsed by Council, planning for setting the Council’s budget will be enhanced by the significant contribution this additional income would make to the financial sustainability of the Council over the short to medium term. It will create opportunities for officers to bring forward bold proposals to protect health and social care, support children with additional support needs, and tackle poverty, and will create capacity for investment to further the Council’s priorities. 10.21 Failure to adopt this strategy will require officers to bring forward many millions of pounds of additional cuts that will need to be in place for 1 April 2025 to ensure that the Council meets its statutory duty to produce a balanced budget. These would be in addition to the £16 million of cuts already agreed by Council for 2025/26 and 2026/27. 10.22 Endorsement of this Council Tax Strategy will also provide time to realise benefits from the transformation and change programme to improve services and outcomes for citizens. 10.23 For the avoidance of doubt, the Council Tax increases proposed within this Strategy will be confirmed by elected members at the point of setting final revenue budgets, i.e. 26 February 2025 for 2025/26, February 2026 for 2026/27 and February 2027 for 2027/28. If levels of Scottish Government funding vary materially from current assumptions, or indeed there are other material changes to planning assumptions, elected members will have the opportunity to adjust Council Tax levels prior to setting each final revenue budget. 10.24 ACTION: The Council endorses a Council Tax Strategy of increases of 10% in 2025/26, and indicative rises of 10% in 2026/27 and 6% in 2027/28, both of which will be subject to final budget setting for these years. 10.25 On the basis that this Council Tax Strategy is approved, the Council could also choose to make a further contribution to supporting the Capital Budget. Specifically, by ringfencing an additional 0.25% of Council Tax income to support borrowing this would extend the life of the Capital Fund. 10.26 The illustrations that follow are based on the Capital Budget that was most recently approved at the Finance and Resources Committee on 20 November 2024 (Report No. 24/319 refers). 10.27 Under the approved strategy of applying 1% of Council Tax income to support the Capital Budget each and every year, the Capital Fund is projected to be fully utilised by 2057/58 – i.e. 32 years.
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10.28 If this strategy is revised to apply 1.25% then the life of the Capital Fund is extended to 2071/72 – i.e. 46 years. 10.29 ACTION: The Council agrees to earmark a further 0.25% of Council Tax income each and every year to support the Capital Budget. Support for Households 10.30 Perth and Kinross Council strongly believe that public debt recovery requires to be carried out in a way that does not drive families and households further into poverty. We understand that any increase in Council Tax will have an impact on residents. However, this strategy is based on a principle that increases are crucial to ensure that we can continue to provide and improve vital services that directly benefit the community, particularly in areas such as health, social care, and support for children with additional support needs. 10.31 The Council continues to invest in our Welfare Rights Team to support residents who are in financial difficulties. As part of public messaging and support around the final Council Tax level set by Council in February 2025 and beyond, there will continue to be advice and support offered to help individual households maximise their income from benefit entitlement and ensure they are getting all discounts they are eligible for. 10.32 The same Local Taxes staff deal with all aspects of Council Tax from the initial billing through to collection. This ensures that staff dealing with calls from those in financial difficulty can advise on available reductions and support in addition to negotiating repayment arrangements etc. The Local Taxes staff will also make active referrals during incoming phone calls (with the customer’s permission) to Welfare Rights for an income maximisation check as well as initiating an application for Council Tax reduction. 10.33 This approach of placing an equal focus on supporting payment while also being proactive in offering advice for those experiencing difficulties is an important part of the culture of the Local Taxes team. Anecdotally, it is one of the reasons such a high proportion of residents pay the Council Tax they are due. Perth and Kinross Council is consistently among the top performers in Scotland, for the 2023/24 year it achieved an in-year collection figure of 97.5%, only 0.2% behind the best performing Council (Shetland Islands) and 2.0% above the Scottish average. 11. RESERVES UPDATE 11.1 The Council’s Reserves Strategy is subject to an annual review to ensure that recommendations on the use of Reserves take due cognisance of the Council’s anticipated cash flows and make reasonable provision, within available resources, for both predicted liabilities and unforeseen events. The latest update of the Reserves Strategy was approved by the Council on 28 February 2024 (Report No. 24/63 refers). 11.2 The audited 2023/24 Annual Accounts show that the Council had a General Fund Balance (excluding the Housing Revenue Account) of £83.794 million at 31 March 2024 with £65.083 million earmarked for known commitments.
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This results in uncommitted General Fund Reserves of £18.711 million at 31 March 2024 which is in line with the approved Reserves Strategy. 11.3 The Council’s Useable Reserves as at 31 March 2024 (per the audited 2023/24 Annual Accounts) are summarised as follows: Table 9 General Fund Reserves Total Useable Reserve as at 31 March 2024 £120.978m Less: General Fund Earmarked Reserves (see Appendix C) £65.083m Housing Revenue Account These balances are earmarked for use on Housing Revenue Account activities only. £2.260m Capital Fund The Fund can be only used to meet the principal element of loan repayments or to defray capital expenditure. £31.026m Insurance Fund The fund is used to meet the future liabilities of the Council self-insuring for certain categories of insurance. £1.709m Capital Receipts Reserve This Reserve holds proceeds from capital receipts for future investment. £2.102m Capital Grants Unapplied The Capital Grants Unapplied Reserve holds capital grants which have been received by the Council for which the capital works have not yet been undertaken or completed. £0.087m General Fund Uncommitted Balance at 31 March 2024 £18.711m 11.4 The level of uncommitted Reserves of £18.711 million represents 4% of the 2024/25 net Revenue Budget. This is in line with the approved Reserves Strategy of holding between 2% and 4% of the net Revenue Budget as uncommitted. 11.5 In recent years uncommitted Reserves have been required to meet significant additional expenditure responding to both severe weather events and winter maintenance. In addition, the Perth and Kinross Integration Scheme adds a further risk for the Council in terms of a potential requirement to provide additional funding to support social care over spends.
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11.6 The updated Reserves Strategy will be presented to Council on 26 February 2025 and will include options on how Reserves might be utilised over the medium term. 12. HOUSING REVENUE ACCOUNT 12.1 The Council, in agreement with tenants, will develop a medium / long term funding strategy. The strategy will link annual rent reviews to both tenant and Council priorities, consider the local economy and aim to create more efficient services. Any changes to the Council’s Housing Investment Programme, Housing Repairs, Locality Services and the rental strategy will be subject to consultation with tenants. 12.2 It is anticipated that the Health and Social Wellbeing Committee will determine the Housing Revenue Account (HRA) Budget and rent levels for 2025/26 at its meeting on 22 January 2025. The five-year Housing Investment Programme will also be reviewed based on the Housing Delivery Plan. 13. WORKFORCE PLANNING MEASURES 13.1 Our staff do great work, and we value their skills, dedication and passion and want their contribution to be recognised, ensuring that they feel valued for the work that they do and the difference that they make. Ensuring that our people have access to training and opportunities which allow them to develop and to demonstrate the skills, values and attitudes which will meet the needs of our communities, now and into the future is fundamental to achieving this goal. 13.2 A new People and Culture Strategy 2024-2028 was approved by the Finance and Resources Committee (Report No 24/180) in June 2024 and is based around the values of Ambition, Compassion and Integrity to ensure that it delivers direction not only on what we do but also why, where and how we should be delivering that action. This strategy supports us as we continue our journey of transformation and change, providing a sustainable approach to resource planning as we continue to reshape our organisation ensuring that we empower our people and teams to be the best they can possible be to deliver the best public services for the people of Perth and Kinross, focussed on need and within available resources. We have a clear vision, aims and aspiration for our workforce, and bringing our people on that journey is an essential part of that process. 13.3 The Corporate Plan 2022/23-2027/28 (Report No. 22/311) set out the key priorities and vision for the Council, including the principles of how we will approach the delivery of services. Our Transformation and Change Strategy (Report No. 22/142) recognises that to achieve the ambitions of Council we will need to transform our organisation, including its size and shape. And our Financial Strategy (Report No. 22/141) recognises the unprecedented budget challenges and need for responsible decision-making given the context in which we work.
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The People and Culture Strategy builds upon the foundation laid by these previous decisions to provide the enabler for our continued journey to reshape our organisation to ensure that we can deliver the best public services we can for the people of Perth and Kinross, focussed on need and within available resources. 13.4 Financial pressures, changing priorities and demands for Council services continue to inform the Council with a focus on multi-disciplinary teams, integrated working and more locality-based decision making. The Council in recognition of the inter-connectedness of workforce, digital and use of property are taking a proactive approach to working with communities, its partners and other stakeholders to deliver and prepare for new influences to ensure the Council continues to support the delivery of strategic objectives. Additional measures and initiatives arising from the financial context and Transformation and Change plan may necessitate other measures that enable the Council to deliver savings over the next three financial years. These may include: • Accelerating collaboration/shared services with other Councils and partners to achieve economies of scale and improve service resilience. • Building capacity for community led work and delivering more services in partnership with the third sector and community organisations. • Further reviewing our operating model in terms of organisational design toolkit i.e. numbers of direct reports to line managers and our overall management structures. • Ensuring that financial principles and the vacancy management measures are being actively applied and this may impact capacity and service provision in some areas. • Other employment considerations regarding flexible working arrangements, our use of buildings and utilising resources differently across the working week. 13.5 Audit Scotland’s Best Value Thematic Review, Workforce Innovation 2023/24 (Report No 24/269) outlined the following key messages: • The People and Culture Strategy 2024-28 sets out the Council’s approach to delivering sustainable workforce development. The Strategy is aligned with the council’s strategic plans and priorities and the Council engaged with staff across the organisation to develop the Strategy. The change to the Executive and Leadership structure and development of the People and Culture team will support delivery of the actions in the People and Culture Strategy 2024-28. Service workforce plans are being developed and the Council is developing its systems to provide access to service level workforce data.
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• The Council continues to invest in, build on and make extensive use of digital technology to deliver workforce productivity benefits, improvements in the efficiency of service delivery and better user experience. Although there is some recorded impact of the related workforce benefits and productivity gains, there is scope for these to be more formally quantified. • The Council has formalised hybrid working as part of its new flexible working framework with over a quarter of the council’s workforce being classified as hybrid workers. The Council has set out the intended benefits from flexible working in its flexible working framework but has not yet articulated how these will be measured. The Council reported an increase of over ten per cent on spend on its use of casual workers between 2022/23 and 2023/24. • Employees are generally positive about working for the Council and the relationship between the Council and Trades Unions is good. In the main, Trades Unions feel they are consulted with appropriately and their views are taken into account. • The Council is facing challenges with recruitment and retention of staff and has initiatives in place to address this. It has introduced programmes to develop staff skills and capacity. • The Council is involved in an extensive number and variety of shared services arrangements and partnerships across Tayside. The Council participates in various other partnerships outwith Tayside and shared working arrangements that provide workforce-related benefits. • The Council has agreed proposals to report to elected members annually on the delivery and impact of the People and Culture Strategy 2024-28, but arrangements for reporting on service level workforce plans are still to be finalised. The Council is developing measures and targets to monitor and report on progress against the People and Culture Strategy 2024-28. 13.6 The actions and recommendations from both the People and Culture Strategy Action Plan and the BV Audit are being progressed and monitored by a Workforce Planning Themed Board. This Board will ensure that we continue to provide versatile people solutions to support the future strategic direction of the organisation, investing in training and development opportunities for young people. A focus on health and wellbeing and resilience continues to be key to sustaining a healthy working environment and positive wellbeing culture and we continue to review and refresh the wide range of health and wellbeing initiatives and support we offer to our workforce. The Council is proud to be a Fair Work employer and continues to consult and engage with employees and their trade union representatives on improvements in our employment practices and arrangements. Equalities and fairness will continue to be core principles in its people and culture strategy.
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This will ensure we continue to have the right skills in the right place when we need them and will contribute to working together to ensure everyone can live life well. 14. TRANSFORMATION and CHANGE STRATEGY 14.1 The Transformation and Change Strategy, Financial Strategy and Medium- Term Financial Plan, all align to support the delivery of the Council’s vision of “a Perth and Kinross where everyone can live life well, free from poverty and inequality” together with the strategic priorities and key objectives outlined within the Corporate Plan. 14.2 As reported to Finance and Resources Committee on 18 September 2024, the overarching aim of the Transformation and Change programme is to support the delivery of services to the people of Perth and Kinross, particularly those in greatest need. Council agreed that the programme would be developed and phased over a five-year period with workstreams undertaken in phase one being key to setting the successful foundation for the delivery of the programme in future. 14.3 Phase 1 of the leadership review is anticipated to deliver £2.3 million by 2025/26 with a further £2 million from the consolidation of teams across the Council which was confirmed in the latest Annual Audit report. 14.4 There are currently four different approaches included under the overarching banner of transformation and change: • Transformation – changing the way that we work which will be significantly different from current ways of working e.g., a marked change in the form, nature, and appearance of the services we deliver, how and where we deliver them. • Service Improvements –improved ways of working led by teams and services to deliver better outcomes for communities, improved efficiency, and productivity. • Re-structure and consolidation – changing the way services and teams are configured to deliver better outcomes and service priorities. • Budget efficiencies - budget and service reductions to work within the financial constraints facing the Council, whilst focusing on agreed priority areas. 14.5 From July 2022, we have progressed through phase one of the programme using a combination of these approaches, allowing us to make savings, shift expenditure to cover emerging new priorities and help deliver a balanced budget. Areas of particular focus over this time have been the Senior Leadership Review and consolidation workstreams, bringing together areas of corporate and operational work where there are particular similarities, overlap or synergy.
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14.6 It is important that our transformation and change programme remains flexible with the ability to adapt to changes in the local and national policy and legislative landscape where required. We are also focussing our resources in this area to ensure we are prioritising those areas of transformation which will have the greatest reach and impact. As we move forward into phase two of the programme, we will continue to regularly report to Finance and Resources Committee on progress. 14.7 Funding allocated in March 2023 is currently being used to support the delivery of the programme including key Project Management arrangements to drive and ensure momentum of the phase two project implementation. In addition, earmarked reserves for Workforce Management and Transformation will be utilised to support the delivery of Leadership Review Phase Two over the next two years. 15. RISK ASSESSMENT 15.1 Developing the Medium-Term Financial Plan requires consideration of the strategic, operational and financial risks potentially facing the Council. Both the uncertainty of future events and resource constraints make it impractical to mitigate against all potential risks. In developing the Medium-Term Financial Plan, the Council must also be aware of the sustainability of its expenditure proposals. Significant issues, which are of relevance in determining the Revenue Budget, are outlined below. Local Government Funding 15.2 It is anticipated that the Council will receive the 2025/26 financial settlement in December 2024. It is understood that the Scottish Government will not provide information on future financial years at that time. 15.3 Future funding settlements will be influenced by many aspects of the wider economic climate and UK and Scottish Government policies. The global economic situation including the cost of living, inflation and growing demand / need for public services may result in significant additional uncertainty over future funding levels. 15.4 Following the devolvement of a number of taxes to the Scottish Government, under the terms of the Scotland Acts, the actual level of funding available to the public sector is more directly linked to the performance of the Scottish economy. Income from devolved taxation will be dependent upon the relative performance of the Scottish economy. 15.5 The Scottish Government’s most recent Medium Term Financial Strategy, which was published in Summer 2023 identified a “modelled shortfall” of £1.875 billion by 2028/29. 15.6 The potential for cash and real terms reductions in funding beyond financial year 2025/26 is considered to represent a significant risk in the management of the budget over the medium term.
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15.7 Once inflation is included, these factors may result in further significant real terms reductions in funding to the Council over the medium term at a time of rising demand for Council services. 15.8 At this time, there is also no information on any conditions which may be attached to the local government finance settlement in 2025/26 and beyond, or indeed opportunities. Future Pay Awards 15.9 The 2025/26 and 2026/27 Provisional Revenue Budgets contain an assumed uplift of 3% for all staff groups. This is also the working assumption for 2027/28. 15.10 In recent years the final pay awards have been weighted towards the lower end of pay scales with the average increase being more than the amount budgeted. In future years there is a risk that this policy is maintained putting further pressure on Council pay bills. 15.11 The Scottish Government have also provided additional funding in these recent years to meet the gap between the budgeted and actual pay awards. There is a risk that this funding is not forthcoming in future years. 15.12 There is a further risk arising from the impact of historic and future pay awards on existing pay and grading structures. Depending on the outcome of final pay negotiations, and how they affect the lower end of the pay scale, there may be a requirement to undertake a review of the pay and grading structure. 15.13 Beyond this, there is an aspiration from Trade Unions to progressively move towards £15 per hour minimum rate of pay for the Scottish Local Government workforce. Expenditure Pressures 15.14 Elected members have previously been briefed on the current challenges in the construction sector and as widely reported, supply chain pressures are emerging across all sectors of the economy. There is accordingly a risk in expenditure pressures within both the Revenue and Capital Budgets increase over the short and medium term. 15.15 Traditionally, expenditure pressures approved in provisional revenue budgets tend to be understated. There is a risk that these pressures increase in advance of setting final revenue budgets. Implications of the Approved Capital Budget 15.16 The Council has an established policy of drawing down the Capital Fund to support capital expenditure. As the Capital Fund reduces, resources will have to be redirected from the Revenue Budget to support the loan repayments over the short to medium term.
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15.17 In setting the 2025/26 Provisional Revenue Budget, the Council began to address this by agreeing to apply 1% of Council Tax income each year, in perpetuity, to supporting the Capital Budget. 15.18 Under the current approved Capital Budget, this will not be sufficient and further increases in the loan charges budget will be required. The proposal included within this report to increase the contribution to 1.25% will make a significant difference. Council Tax 15.19 The Medium-Term Financial Plan and Capital Budget funding strategy assumes levels of growth in the number of Band D equivalent properties. These assumptions are based on levels of growth currently being experienced. If these levels of growth in the number of properties do not continue there is a risk to the budgeted level of Council Tax income. 15.20 The Council Tax Strategy also relies on there being no national restrictions on the capacity for Councils to increase Council Tax levels. Perth and Kinross Integration Joint Board 15.21 The Integration Joint Board has received additional Scottish Government funding, linked to national policy initiatives, over the last three years either directly or channelled through the NHS and there is an assumption that this will both continue and increase in future years in line with Scottish Government announcements. 15.22 However, there is a significant risk that Scottish Government funding for health and social care does not fully reflect anticipated increases in costs including demand and inflationary pressures. Inflation 15.23 There is a risk that levels of Service specific inflation further exceed budgeted provisions and that levels of general inflation cannot be contained within existing resources. This may lead to further reductions in levels of service in order to contain these inflationary pressures Further increases in the National Living Wage and “Foundation Living Wage” may exacerbate this risk with pressure to compensate providers and suppliers for enhanced wage rates. Current Economic Climate 15.24 There is a risk that both the Council’s capacity to generate income, and the expenditure it incurs in meeting demand for its Services, may be less predictable in the current volatile economic climate. 15.25 In terms of income generation, there is a continued risk that Council Tax collection levels, commercial rental income and other areas of income generated by the Council may be further affected.
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15.26 The economic climate and increases in the cost of living may also increase need for and expenditure on Council services – particularly around poverty. As far as possible, this risk will be managed within the Council’s available resources. Demographics 15.27 The overall population of Perth and Kinross is anticipated to reduce by around 1.0% over the next 25 years based upon National Registrars of Scotland forecasts. This may lead to reduced funding from Scottish Government. 15.28 However, within these overall projections the population aged over 65 is projected to grow significantly. This may place an additional financial pressure on both the Council and the Integration Joint Board into future years’ Revenue Budgets and financial plans. 15.29 The level and components of growth will be largely dependent on complex net migration patterns which are difficult to forecast with any certainty. 15.30 The needs of the population are also changing with more complex intervention measures required to protect young and old people alike. Climate Change 15.31 The Climate Change (Emissions Reduction Targets) (Scotland) Act 2019 has given local authorities the duty to ensure their local authority areas decarbonise in line with the Scottish Government Targets; are resilient to the impacts of climate change; and promote sustainable development. 15.32 On 19 June 2019, Council passed a Motion that committed it to leading by example in accelerating the transformational change required to address the Climate Emergency, which had been declared by both the UK and Scottish Parliaments earlier that year. On 30 August 2021, the Council agreed to the establishment of a Climate Change Commission (Report No. 21/142 refers) which will provide scrutiny and oversight to Perth and Kinross’s Climate Change Plan. On 15 December 2021 the Council approved its Climate Change Strategy and Action Plan (Report No. 21/245 refers), 15.33 In November 2022, the Council formally declared a Climate and Biodiversity Emergency (Report No. 22/272 refers). The Council furthered its commitment to tackling the Climate and Biodiversity Emergencies by naming ‘Tackling Climate Change’ as one of its seven Corporate Plan priorities in December 2022 (Report No. 22/311 refers). 15.34 Legislation has been introduced by the Scottish Government that will aim to ensure Scotland through a series of 5-yearly carbon budgets reaches net zero greenhouse gas emissions by 2045 and is resilient to the changing climate. There are also a range of challenging intermediate targets and a further possibility that these targets will be accelerated by legislation.
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15.35 As the Council strives to both decarbonise and adapt to the changing climate, this will undoubtedly mean significant additional investment will be required. However, it must also be noted that there are major, current and proposed, national funding sources available, and the Council must ensure it is in a position to fully capitalise on these. Response to Covid-19 15.36 The long-term impacts of Covid-19 on society remain unknown at this stage. In terms of expenditure, there will be a requirement for the Council to invest in economic regeneration, to further support communities and to respond to emerging developments / health and wellbeing. In addition, there may be further pressures on household incomes leading to increases in poverty that may require a Council response. Arm’s Length External Organisations 15.37 There is an ongoing risk to the financial sustainability of the Council’s three Arm’s Length External Organisations. All three ALEOs may experience reduced income and additional costs as they adjust their offer to respond to the consequences of Covid-19 and the pressures arising from wider economic pressures. Severe Weather 15.38 There is a risk that the Council incurs further significant levels of expenditure responding to severe weather as has been the case in previous years. 16. CONCLUSIONS 16.1 In common with all Scottish local authorities and the wider public sector, Perth and Kinross Council continues to anticipate a period of financial constraint and growing costs and need for services. 16.2 Responding to the cost-of-living challenges has given rise to significant financial pressure on the Council’s Revenue Budget over the short to medium term, and the longer-term impact upon service demand; service delivery and the Council’s ability to generate and collect income will take some time to establish. 16.3 The Council continues to take proactive measures to enable it to address these challenges from a robust financial position and continues to develop and strengthen its arrangements for financial and resource management. 16.4 The approval of a Council Tax Strategy will protect front line services as well as potentially provide capacity to invest in infrastructure other key areas of service delivery. Its approval is a further example of the Council taking pro- active measures to improve its financial sustainability. 16.5 The continued roll out of the Transformation and Change Strategy will further support the Council’s response.
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16.6 The Council remains committed to modernising and improving the efficiency of functions. This update of the Medium-Term Financial Plan reinforces the Council’s commitment to the delivery of excellent services in the context of meeting challenging savings targets which requires the engagement of the Council’s workforce; Elected Members; Community Planning Partners and the communities which it serves. Author Name Designation Contact Details Scott Walker Chief Finance Officer chxfinance@pkc.gov.uk
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ANNEX 1. IMPLICATIONS, ASSESSMENTS, CONSULTATION AND COMMUNICATION Strategic Implications Yes / None Community Plan / Single Outcome Agreement None Corporate Plan Yes Resource Implications Financial Yes Workforce Yes Asset Management (land, property, IST) Yes Assessments Equality Impact Assessment Yes Strategic Environmental Assessment Yes Sustainability (community, economic, environmental) Yes Legal and Governance None Risk None Consultation Internal Yes External None Communication Communications Plan None 1. Strategic Implications 1.1 The Council’s Corporate Plan 2022 – 2027 lays out seven outcome focussed strategic objectives which provide clear strategic direction, inform decisions at a corporate and service level and shape resources allocation. They are as follows: • Tackling poverty • Tackling climate change and supporting sustainable places • Growing a sustainable and inclusive local economy • Enabling our children and young people to achieve their full potential • Protecting and caring for our most vulnerable people • Supporting and promoting physical and mental wellbeing • Placing communities at the heart of how we work 1.2 This report relates to all these objectives. 2. Resource Implications 1.1. Financial 1.1.1. There are no direct financial implications arising from this report other than those reported within the body of the main report. 1.2. Workforce
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1.2.1. There are no direct workforce implications arising from this report other than those reported within the body of the main report. 1.3. Asset Management (land, property, IT) 1.3.1. There are no direct asset management implications arising from this report other than those reported within the body of the main report. 3. Assessments 1.4. Equality Impact Assessment 1.4.1. Under the Equality Act 2010, the Council is required to eliminate discrimination, advance equality of opportunity, and foster good relations between equality groups. Carrying out Equality Impact Assessments for plans and policies allows the Council to demonstrate that it is meeting these duties. 1.4.2. The information contained within this report has been considered under the Corporate Equalities Impact Assessment process (EqIA) and has been assessed as not relevant for the purposes of EqIA. 3.2 Strategic Environmental Assessment 3.2.1 The Environmental Assessment (Scotland) Act 2005 places a duty on the Council to identify and assess the environmental consequences of its proposals. 3.2.2 The information contained within this report has been considered under the Act. However, no action is required as the Act does not apply to the matters presented in this report. 3.3 Sustainability 3.3.1 Under the provisions of the Local Government in Scotland Act 2003 the Council has to discharge its duties in a way which contributes to the achievement of sustainable development. In terms of the Climate Change Act, the Council has a general duty to demonstrate its commitment to sustainability and the community, environmental and economic impacts of its actions. 3.3.2 The information contained within this report has been considered under the Act. However, no action is required as the Act does not apply to the matters presented in this report. 4. Consultation 4.1 Internal 4.1.1 The Executive Leadership Team have been consulted in the preparation of this report.
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2. BACKGROUND PAPERS 2.1 No background papers, as defined by Section 50D of the Local Government (Scotland) Act 1973 (other than any containing confidential or exempt information) were relied on to any material extent in preparing the above report. 3. APPENDICES Appendix A (i) – Optimistic Scenario Appendix A (ii) – Mid-Range Scenario Appendix A (iii) – Pessimistic Scenario Appendix B – Assumptions Underlying Medium-Term Financial Plan Appendix C – Summary of General Fund Balances as at 31 March 2024