Medium-Term Financial Plan 2026-32
Perth and Kinross Council · 10 December 2025
Back to Perth and Kinross Council — 10 December 2025 and its agenda
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Our vision is a Perth and Kinross where everyone can live life well, free from poverty and inequality ___________________________________________________________________ Committee: Perth and Kinross Council Date of Meeting: 10 December 2025 Report Title: Medium Term Financial Plan 2026 – 32 Report Number: 25/356 Report Author: Scott Walker, Chief Finance Officer Organisational Lead: Scott Walker, Chief Finance Officer ___________________________________________________________________ 1. Purpose 1.1 This report updates the Medium-Term Financial Plan (MTFP) approved by Council on 4 December 2024 (Report No. 24/350 refers). 1.2 The MTFP sets out how the Council will manage its finances over the next six years, ensuring resources are used effectively to meet Council priorities. It aligns with the Corporate Delivery and Improvement Plan and other key strategies. 1.3 Its purpose is to provide a clear direction on managing financial resources over the medium term, ensuring they are deployed effectively to achieve priorities and outcomes. 1.4 In the context of ongoing financial challenges, the MTFP enables the Council to understand the wider policy and financial environment, respond flexibly to opportunities and risks and ensure that resources are delivering maximum value. 1.5 The MTFP plays a vital role in decision-making, underpinning the Council’s stewardship over public funds and forming an integral part of its financial framework. 1.6 This report summarises the latest budget projections, updates on capital, housing, and reserves, and sets out the proposed approach for future budgets. 1.7 It also recommends a Council Tax strategy through to 2031/32, aimed at protecting frontline services and strengthening financial sustainability.
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2. Recommendations It is recommended that Council: 2.1 instruct the Chief Finance Officer to maintain the Medium-Term Financial Plan and further refine the assumptions that underpin it – see paragraph 8.55. 2.2 endorse a six-year indicative Council Tax Strategy based on annual Council Tax increases of 9.5% in 2026/27 and 6% rise in the following five years, all of which will be subject to final budget setting for these years – see paragraph 11.23. 3. Structure 3.1 The report is structured as follows: Section 4 Background Section 5 Economic and Fiscal Outlook – November 2025 Section 6 Scottish Government’s Medium Term Financial Strategy Section 7 Latest Demographic Projections Section 8 Analysis of Medium Term – Perth and Kinross Council Section 9 Revenue Budget – Proposed Approach Section 10 Composite Capital Budget – Proposed Approach Section 11 Council Tax Strategy Section 12 Reserves Update Section 13 Housing Revenue Account Section 14 Workforce Planning Measures Section 15 Transformation and Change Strategy Section 16 Risk Assessment Section 17 Conclusions Section 18 Impact Value Assessment Section 19 Appendices 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. It also supports the Council’s wider strategic objectives.
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4.2 The MTFP provides an overview of the financial environment, considering national and local policies, economic conditions, and demographic trends. This understanding enables the Council to respond flexibly to opportunities and threats, manage uncertainties, and ensure resources are directed to achieving priorities. 4.3 The MTFP underpins decision-making and the Council’s stewardship of public funds. It ensures limited resources are focused on key priorities, supports sustainable revenue and capital planning and promotes transparency for both the Council and the wider community. 4.4 In light of economic uncertainty, inflationary pressures, and demographic change, the MTFP is essential for maintaining financial stability and delivering quality services. It sets out the Council’s approach to financial planning and management, ensuring alignment with strategic objectives. 4.5 The MTFP provides a broad “direction of travel” for financial management with further detail and options for managing the various challenges being developed as part of the revenue and capital budget process. 4.6 It includes a range of scenarios for key variables used in the long-term planning, drawing on sources such as the Scottish Government, the Office for Budget Responsibility (OBR) and the Bank of England. 4.7 Assumptions will evolve over time in response to external factors, including cost-of-living impacts, future spending reviews and macro-economic trends. 4.8 For this update, the medium term is defined as the six years to financial year 2031/32. 4.9 The Council’s financial and budgetary process continues to develop to support strategic objectives, building on outcome-based approaches where resource allocation is clearly linked to results. Work is ongoing to further integrate strategic planning and financial planning. 4.10 On 22 June 2022, the Council approved the Financial Strategy (Report No. 22/141 refers), including principles to guide the development of a sustainable MTFP and revenue budget. The principles are set out in Appendix A. 4.11 In recent years, the Council has also approved key elements of its Financial Strategy which are set out in Table 1 below.
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Table 1 Key Elements of Financial Strategy Report Reference Date Investment Blueprint 21/180 6/10/21 Audited 2023/24 Annual Accounts 24/340 2/12/24 Medium-Term Financial Plan 2025 – 2031 24/350 4/12/24 Housing Revenue Account Strategic Financial Plan 25/9 22/1/25 Strategic Planning Update and 2025/26 to 2027/28 General Fund Revenue Budget 25/36 26/2/25 Strategic Investment and Composite Capital Budget Update 2024/25 to 2029/30 25/37 26/2/25 Treasury and Investment Strategy and Prudential Indicators 2025/26 to 2030/31 25/39 5/3/25 Unaudited 2024/25 Annual Accounts 25/163 25/6/25 Audited 2024/25 Annual Accounts 25/330 1/12/25 5. Economic and Fiscal Outlook – November 2025 5.1 To inform the MTFP and revenue and capital budgets, it is essential to consider the economic and fiscal outlook for the United Kingdom and Scotland. United Kingdom 5.2 The UK outlook is shaped by recent economic events, inflation, and policy decisions. 5.3 In terms of Economic Growth, UK Gross Domestic Product (GDP) growth has slowed, with Quarter 2, 2025 at 0.3%, down from 0.7% in Quarter 1. The Office for Budget Responsibility (OBR) is expected to downgrade productivity forecasts downward, reducing fiscal headroom (currently £9.9 billion). 5.4 Turning to Inflation & Monetary Policy, inflation remains elevated, with projections between 3.4% and 3.7%. High gilt yields and persistent services inflation are limiting the Bank of England’s ability to reduce interest rates. 5.5 The UK’s Fiscal Position indicated a £41.2 billion deficit. How this would be addressed was addressed in the UK Budget on 26 November – see below.
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Scotland 5.6 In terms of Economic Growth, GDP is forecast at 0.8% in 2025, rising to 1.0% in 2026. Forecasts have recently been downgraded due to global and domestic pressures. 5.7 Within the Scottish Labour Market, unemployment remains low (3.7%), but wage growth and employment levels are softening. Inflation is currently at 3.4%, with services inflation at 5%, contributing to a cautious outlook. 5.8 The Scottish Government faces Fiscal Challenges with a projected £2.6 billion funding gap by 2029/30, driven by demographic pressures and rising costs in devolved services. 5.9 Consumer spending is expected to grow by 1.5% in 2025, supported by easing inflation and stable housing costs. Business investment remains weak, with only 0.3% growth forecast. 5.10 Scotland’s public finances are under strain despite a short-term funding boost from the UK Government. The Scottish Budget for 2025/26 includes a £2.6 billion increase. Capital investment is front-loaded (i.e. in the earlier years), raising concerns about cost inflation and project delays. 5.11 The Scottish Government has published its first Tax Strategy, aiming for fairness and transparency, and is exploring Council Tax reform. However, medium-term challenges remain, including demographic pressures and rising service demand. 5.12 Both the UK and Scotland face a challenging economic and fiscal environment. While modest growth is expected, inflation, high debt levels, and ongoing uncertainties pose significant risks. Strategic planning and effective policy measures will be critical to maintaining stability and supporting recovery. United Kingdom Budget – 26 November 5.13 The Chancellor’s Autumn Budget set out a fiscal strategy focused on stabilising public finances while addressing cost-of-living pressures. Key measures included an extended freeze on income tax and National Insurance thresholds until April 2031, alongside increases in taxes on dividends, savings, and property income. These changes are projected to raise approximately £26 billion annually by 2030/31, pushing the overall tax burden to around 38% of GDP. The Office for Budget Responsibility forecasts modest economic growth in 2025, followed by weaker performance in subsequent years, with inflation expected to ease gradually. 5.14 On the expenditure side, the budget prioritises targeted welfare reforms and household support. The two-child benefit cap will be abolished from April 2026, a move expected to reduce child poverty significantly.
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Other measures include a £150 annual reduction in household energy bills from April 2026, funded by removing green levies, and an additional £1.5 billion investment in the Warm Homes Plan. The National Living Wage will rise by 4.1% to £12.71, and the State Pension will increase by 4.8% under the triple lock. These measures aim to balance fiscal discipline with support for vulnerable households, though the overall approach signals a sustained period of higher taxation and constrained public spending. 5.15 While the Autumn Budget does not directly set Scottish local government allocations, its overall fiscal stance will influence the Scottish Government’s block grant through the Barnett formula. The extended freeze on income tax and National Insurance thresholds, combined with higher UK-wide tax receipts, suggests limited scope for significant increases in devolved funding. 5.16 At the same time, commitments such as the abolition of the two-child benefit cap and energy bill support will have policy and administrative implications for councils, particularly in welfare delivery and anti-poverty strategies. 5.17 With the UK Government signalling a sustained period of fiscal restraint, Scottish local authorities should anticipate continued pressure on core grant funding and a need for ongoing efficiency measures, while preparing for potential demand growth in social care and housing linked to welfare reforms. 6. Scottish Government’s Medium Term Financial Strategy 6.1 The Scottish Government published its latest Medium Term Financial Strategy (MTFS) on 25 June 2025. 6.2 The MTFS set out the approach to managing public finances over the next five years, aiming to ensure fiscal sustainability while supporting key policy priorities. 6.3 The strategy is built around three pillars: • public spending – investing in health, education and social care • economic growth – promoting inclusive and sustainable growth • taxation – maintaining a progressive tax system. 6.4 It also commits to eradicating child poverty, supporting the transition to a green economy, and ensuring that spending decisions reflect equality, opportunity, and community values. 6.5 Despite an increase in total funding - estimated at £59.6 billion in total for 2025/26—significant pressures remain: • Rising public sector pay costs • Increased employer National Insurance contributions
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• Growing social security commitments. 6.6 External factors such as inflation and demographic change further widen the gap between spending needs and available resources. Impact on Local Authorities 6.7 Councils face acute financial strain, with a collective budget gap of £647 million for 2025/26. Although Scottish Government funding has increased by 6% in real terms, most of this uplift is earmarked for national commitments such as maintaining teacher numbers and health and social care. 6.8 Councils responded through: • Average Council Tax increase of 9.6% • Introducing or increasing service charges • Implementing recurring and non-recurring savings. 6.9 However, reliance on reserves and one-off measures is unsustainable. Councils are being urged to accelerate service transformation.. Pressures are particularly acute in social care and infrastructure. 7. Latest Demographic Projections 7.1 On 30 September 2025, the National Records of Scotland (NRS) published updated population projections for each Council area, broken down by single year of age and sex, covering 2022 to 2047. 7.2 These projections are based on the latest mid-year estimates and assumptions on fertility, mortality, and migration. They are designed to support strategic planning across health and social care, education, housing and other public services. 7.3 The key features from the latest publication are as follows: • Council-level detail: projections for all 32 Scottish Councils • Age-specific breakdowns: key groups include 0–15, 16–64, 65–84, and 85+. • Long-term horizon: 25-year outlook to 2047 for forward planning. • Demographic trends: significant growth in the 85+ age group, particularly in rural and semi-rural areas. 7.4 These projections are critical for financial modelling, workforce planning, and demand forecasting across local government and integration authorities. Impact on Perth and Kinross Council 7.5 The findings projections for Perth and Kinross are summarised in Table 2.
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Table 2 Perth and Kinross Population Projections 2022 2027 2032 2042 2047 Total Population 151,130 157,834 161,688 167,685 169,904 Movement +6,704 +10,558 +16,555 +18,774 +4.4% +7.0% +11% +12.4% Children (0-15) 23,974 23,390 22,599 22,369 22,471 Movement -584 -1,375 -1,605 -1,503 -2.4% -5.7% -6.7% -6.3% Working Age (16-65) 91,837 95,269 95,127 95,767 96,954 Movement +3,432 +3,290 +3,930 +5,117 +3.7% +3.6% +4.3% +5.6% Pension Age (66+) 35,319 39,175 43,962 49,549 50,479 Movement +3,856 +8,643 +14,230 +15,160 +10.9% +24.5% +40.3% +42.9% Chart 1: Population Movements by Age Group -10.0% 0.0% 10.0% 20.0% 30.0% 40.0% 50.0% 2027 2032 2042 2047 Children Working Age Pension Age
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7.6 Within the Pension Age category, there is a particular issue that requires further commentary. The increases in the population of the 76-85 and 85+ are significant and this is set out in the Table 3. This has major implications for health and social care planning. Table 3: Movement in 66+ Projections 2022 2027 2032 2042 2047 Pension Age (66+) 35,319 39,175 43,962 49,549 50,479 Movement 3,856 8,643 14,230 15,160 +10.9% +24.5% +40.3% +42.9% 65 – 75 19,567 20,450 22,883 22,397 20,767 Movement 883 3,316 2,830 1,200 +4.5% +16.9% +14.5% +6.1% 76-85 11,512 13,873 15,235 18,466 19,546 Movement 2,361 3,723 6,954 8,034 +20.5% +32.3% +60.4% +69.8% 85+ 4,420 4,852 5,844 8,868 10,166 Movement 612 1,604 4,446 5,956 +14.4% +37.8% +104.9% +139.8% Chart 2: Population Movements 66+ 0% 20% 40% 60% 80% 100% 120% 140% 2027 2032 2042 2047 66-75 76-85 85+
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7.7 There have also been significant movements between the last two sets of NRS publications (2018 based and 2022 based). In order to illustrate this, the movement between 2022 and 2043 (first and last comparable years respectively) are set out in Table 4 below. Table 4: Movement between 2018 and 2022 Projections 2018 Based 2022 Based Movement 2022 No. % Total 152,540 151,130 -1,410 -0.9% Children 24,176 23,974 -202 -0.8% Working Age 92,808 91,837 -971 -1.0% Pension Age 35,556 35,319 -237 -0.7% 2043 Total 149,771 168,150 18,379 12.3% Children 19,892 22,399 2,417 12.1% Working Age 83,320 96,151 12,831 15.4% Pension Age 46,469 49,600 3,131 6.7% 7.8 In summary, all of the groups have moved significantly between two sets of NRS publications. This level of movement can have a significant impact on planning for future service delivery and demand for Council services. 7.9 The financial implications of the updated NRS publications are included within the demographics scenarios set out in Section 8. 7.10 Whilst the NRS publications include projections by council and by age group, they do not include any allowance for the challenges that can come from specific demographic groups. For example, the pupil census in September 2025 identified that 42% of school age children required some additional support for learning, which is an increase of 3% from the previous year. 8. Analysis of Medium Term – Perth and Kinross Council 8.1 This section outlines the potential financial implications of changes in key areas affecting the Council’s expenditure and compares these to projected resources. The MTFP provides the foundation for financial management, recognising pressures from demographic trends, inflation, cost of living, and funding constraints. It enables options to be considered and strategies refined to manage these challenges over the medium to longer term.
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8.2 The MTFP, however, uses global assumptions on demographic and inflationary pressures to inform medium-term financial planning with detailed submissions considered annually during revenue budget setting. Additional costs in relation to new legislation are assumed to be funded by the Scottish Government. 8.3 The MTFP is an evolving model, updated regularly as new information emerges. 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 6 at paragraph 8.51. 8.4 For financial planning purpose this update to the Medium-Term Financial Plan includes the following three scenarios – • Optimistic – Appendix B(i) • Mid-Range – Appendix B(ii) • Pessimistic – Appendix B(iii) 8.5 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 8.6 Pay awards for 2025/26 and 2026/27 have been agreed at 4% and 3.5% respectively with non-teaching unions. Pay awards with teaching unions have been agreed at 4% from 1 August 2025, a further 0.25% from 1 April 2026 and 3.25% from 1 August 2026. These figures are higher than the levels budgeted, and the Scottish Government has committed to funding the amount in excess of 3%. 8.7 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. 8.8 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 £3.0 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.
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Increments 8.9 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. 8.10 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. Employer’s Superannuation Contributions 8.11 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. 8.12 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%. 8.13 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. 8.14 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 £815,000 per annum in respect of teaching employees. 8.15 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.
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Table 5 Employers Superannuation Assumptions Local Government Pension Scheme Teachers’ Pension Scheme 2027/28 2030/31 2028/29 2031/32 Optimistic 0% 0% 0% 0% Mid-range 0% 0% 0% 0% Pessimistic +1% +1% +1% +1% Non-Pay Inflation 8.16 The most recent projections by the Bank of England for inflation through to 2029 are set out in Chart 3 below. Chart 3 Bank of England CPI Inflation Projection to 2030 8.17 In their most recent publication (November 2025), the Bank of England expect inflation to peak at 3.7% in 2025 before reducing in subsequent years to 3% in 2026 and 2% from mid-2027 onward. For 2025, the average CPI inflation rate was 3.5% which was more than the previous estimate of 2.75%. 8.18 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. 8.19 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. 8.20 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.
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8.21 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 8.22 The MTFP attempts to reflect the potential additional costs to the Council of demographic changes in the population within the area. As set out in Section 7, this update of the medium term financial plan is based on the National Records of Scotland data published on 30 September 2025 (Subnational Population Projections: 2022-based - National Records of Scotland (NRS). 8.23 There have been significant movements on the population projection for Perth and Kinross. Rather than a projected 1% reduction in the overall population over the next 25 years, there is now a projected increase of 12%. 8.24 Within this update there are significant shifts across all demographic groups which will have an impact on our communities and the services that the Council provides. 8.25 More detail on the latest NRS information in included in Section 7. 8.26 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. 8.27 Beyond this, the MTFP uses projections for different age groups to further refine the potential impact of demographics on the Council. Consistent with previous years, the most significant demographic pressure is around older people with a projected increase of almost 20% in the number of local residents aged 85+ 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. 8.28 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). 8.29 The Council continues to support the work of the Health and Social Care Partnership to implement measures to mitigate these pressures. The Council recognised this in approving the 2025/26 Revenue Budget with a £6.7 million increase in funding. On 29 October, the Council was also required to put in place further non-recurring funding of up to £4.180 million to reflect the actual increases in demand that are now in the system.
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Loan Charges 8.30 Under all three scenarios, consistent with the earlier decision of Council, funding equivalent to 1.25% of Council Tax is applied to the loan charges each and every year is included to support the Capital Budget. Legislative Requirements 8.31 There is a scenario whereby legislative changes are introduced that may have a significant impact on the Council - for example, the proposal to reduce teacher class contact time. In this update of the MTFP, the optimistic scenario assumes that the proposal is fully funded and the mid-range and pessimistic scenario include different cost pressures based on two options for implementation. Service Concession Scheme 8.32 The Council has previously approved the application of the Service Concession Scheme to support the Revenue Budget. An element of this funding (£1 million) is not available from 2028/29. This is shown as a pressure under all three scenarios. 8.33 In setting the 2025/26, 2026/27 and 2027/28 Revenue Budgets, the Council has already taken proactive measures to deal with this reduction in resources, reducing the pressure from £4million to £1million. Funding and Income 8.34 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. 8.35 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. 8.36 The Visitor Levy, if supported by Council, also has the potential to generate significant levels of additional income. The Council will be provided with an update in late Spring / early Summer 2026. For that reason, this additional income has not been factored into any scenario within the MTFP. Scottish Government Funding 8.37 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 £370 million (which is the total of GRG and NDRI in 2025/26). Chart 4 below demonstrates that over 60% of the Council’s funding is provided by the Scottish Government.
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Chart 4 Sources of Funding 8.38 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. These assumptions are for financial planning purposes only and will be updated upon confirmation of the Local Government Settlement in January 2026. 8.39 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) 8.40 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. 8.41 There is also a risk that changes to the methodology for allocating several indicators, particularly in the social care sector have a negative impact on the level of funding received by the Council.
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Council Tax Income 8.42 For Council Tax, there are potentially two sources of additional income that are factored into this update of the Medium-Term Financial Plan. 8.43 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. 8.44 Secondly is the capacity for the Council to increase the level of Council Tax charges. On 26 February 2025, the Council approved indicative Council Tax increases of 9.5% and 6% for 2026/27 and 2027/28 respectively which included 1.25% towards supporting the Capital Budget each year. 8.45 This refresh of the MTFP includes an updated Council Tax Strategy which builds on the theme of protecting 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. 8.46 Therefore, beyond 2027/28, 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 6% in each year of the Plan. 8.47 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. Fees and Charges 8.48 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 8.49 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. 8.50 All the forecasts discussed in paragraphs 8.6 to 8.48 are not certain. 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 16. Medium Term Financial Plan – Estimated Net Financial Pressures 8.51 The estimated levels of net financial pressures identified under each scenario are summarised in Table 6 below and set out in detail in Appendix B.
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Table 6 Estimated Net Financial Pressures 26/27 27/28 28/29 29/30 30/31 31/32 Total £m £m £m £m £m £m £m Optimistic 3.7 (0.0) (2.1) (1.4) (2.6) (3.9) (6.3) Mid- Range 14.9 13.8 10.1 10.9 10.1 10.2 70.0 Pessimistic 26.2 29.5 24.9 24.6 25.8 25.8 156.8 8.52 Table 6 above sets out scenarios with cumulative net financial pressures of up to £156.8 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 2026/27 to 2031/32. These scenarios include the expenditure pressures that will be brought forward as part of the detailed consideration of future years’ Revenue Budgets. 8.53 There are significant variations between the scenarios due to the sensitivities around the financial modelling. For example, over the six years there is almost £32 million of a difference between the optimistic and pessimistic scenarios on pay inflation. Non staff inflation varies by over £38 million, projected levels of Scottish Government funding by almost £49 million and Council Tax income by almost £22 million. 8.54 It is important to note that the financial pressures identified in Table 6 are in addition to the significant reductions in budgets that have been delivered in the last three financial years. 8.55 ACTION: The Council instructs the Chief Finance Officer to maintain the Medium-Term Financial Plan and further refine the assumptions that underpin it. 8.56 On 4 March 2026, the Council will be asked to approve the final 2026/27 Revenue Budget, the updated 2027/28 Provisional Revenue Budget and the 2028/29 Provisional Revenue Budget (including the Reserves Strategy) and the Capital Budget 2026/27 to 2031/32. The Housing and Social Wellbeing Committee will also approve the Housing Revenue Account (HRA) Budget and rent levels for 2026/27 and the five-year Housing Investment Programme at its meeting 21 January 2026.
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9. Revenue Budget – Proposed Approach 9.1 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. 9.2 On 26 February 2025, the Council approved the 2025/26 Final Revenue Budget and 2026/27 and 2027/28 Provisional Revenue Budgets. At that point, the Council had a balanced, sustainable three year revenue budget. However, since then there have been several developments which has changed this position including health and social care, waste and inflation and this has been shared on a confidential basis with Budget Review Groups. 9.3 The Strategic 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 9.4 Given the size of the financial challenge and the level of reductions, the Council has faced in recent years, all of the corporate priorities have been impacted by previous budget decisions. This will continue as the level of financial challenge grows. The Council Tax Strategy proposed in Section 11 continues to attempt to address this. 9.5 The Council has previously approved the 2026/27 and 2027/28 Provisional Revenue Budgets on 28 February 2024 and 26 February 2025 respectively (Report Nos. 24/63 and 25/36 refer). In doing so, the Council approved expenditure pressures of £8.575 million and reductions of £6.089 million which are summarised in Table 7 below. This is the starting point for the 2026/27, 2027/28 and 2028/29 Revenue Budgets that will be considered by Council in February / March 2026. Table 7 2026/27 and 2027/28 Provisional Revenue Budget Decisions 2026/27 £m 2027/28 £m Total £m Pressures 5.7 2.9 8.6 Reductions 4.8 1.3 6.1
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9.6 The Strategic Leadership Team are updating the previously approved expenditure pressures for 2026/27 and 2027/28 and preparing new pressures for 2028/29. These pressures will supersede the high-level assumptions included in section four of the Medium-Term Financial Plan. 9.7 Revenue Budget updates will be provided to elected members from January 2026 following publication of the Scottish Government budget. 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 Local Government Finance Circular. 9.8 The Scottish Budget is due to be considered on 13 January 2026, which is considerably later than previous years, and the Local Government Finance Circular is expected to follow thereafter. The timing of the Scottish Budget will significantly impact on the finalisation of the Council’s budget. Perth and Kinross Integration Joint Board 9.9 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. 9.10 In setting the 2025/26 Revenue Budget, the Council provided additional recurring funding of £6.7 million. Furthermore, on 29 October, additional non-recurring funding of up to £4.180 million was approved. The Integration Joint Board will consider Part B of the Financial Recovery Plan on 17 December and the outcome of this will impact on the Council’s 2026/27 Revenue Budget and beyond. 9.11 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. 9.12 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 2026/27 and beyond.
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Arm’s Length External Organisations (ALEOs) 9.13 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. 9.14 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. 9.15 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. 10. Composite Capital Budget – Proposed Approach 10.1 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). 10.2 The Investment Blueprint sets 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. 10.3 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. 10.4 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.
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10.5 The Capital Budget will be updated on 4 March 2026. 11. Council Tax Strategy 11.1 The Council faces significant financial uncertainty over the short to medium term. Like other public bodies it is dealing with rising demands for services, increasingly and complex community needs and uncertainty over future levels of funding. 11.2 The Verity House Agreement, signed in June 2023 by the Scottish Government and COSLA, sets out three shared priorities: • Tackling poverty • Achieving a just transition to net zero • Delivering sustainable public service 11.3 The agreement commits partners to regular engagement and respect for each other’s democratic mandate, while allowing local flexibility to maximise impact. Local control over Council Tax remains a key tool for delivering these aims. 11.4 The Council Tax Strategy agreed in December 2024, focussed on: • protecting frontline services focused on those in greatest need, and • supporting our longer-term management of capital borrowing for future generations. 11.5 In December 2024, the Council endorsed a multi-year Council Tax Strategy to give officers a clear plan. Indicative increases of 10%, 10%, and 6% were approved for 2025/26, 2026/27, and 2027/28. 11.6 When budgets were set in February 2025, these were updated to 9.5%, 9.5%, and 6%. These figures are included in provisional budgets, so any change will affect overall resources. 11.7 Adoption of the Council Tax Strategy, and subsequent decisions at Council in February, protected key front line services and facilitated investment in transformation. Specifically, endorsement of the Council Tax Strategy facilitated: • Funding of £6.7 million (recurring) in social care services, • Maintaining almost £2.2 million of teaching capacity, • Protecting over £400,000 of services for children and families at risk, • An injection of £2 million into the anti-poverty earmarked reserve, • Investment of £750,000 in technology/ artificial intelligence to transform and redesign services • Capacity to reduce the reliance on non-recurring Reserves, and therefore improving financial sustainability • Reallocation of £4 million of Reserves to Transformation and Insurance
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11.8 This update of the Medium-Term Financial Plan seeks to go further, seeking agreement, for financial planning purposes, on all six years being considered. 11.9 he changing demographics of our communities set out in Section 7 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. 11.10 As reported earlier, and despite the increase in funding for social care approved in February 2025, the immediate pressure continues to represent a clear and present risk to the Council’s financial sustainability. In October 2025 a further £4.180 million was applied on a non-recurring basis to reflect actual levels of demand and complexity. This additional cost will impact on future financial years. Protecting vital frontline services like these and responding to the levels of local need will be increasingly difficult without a sustainable plan for funding. 11.11 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. 11.12 By updating 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. 11.13 For illustrative purposes, the impact of an 6%, 8%, 9.5%, 10% and 12% increase on the Band D figure for 2025/26 (£1,537.04) are set out in Table 8 below. Table 8 Impact on Band D Charges for 2026/27 Increase New Rate Increase Difference in Funding* Weekly Monthly Annually 6% £1,629.26 £1.77 £7.68 £92.22 Reduction of £4.1m 8% £1,660.00 £2.36 £10.25 £122.96 Reduction of £1.8m 9.5% £1,683.06 £2.81 £12.17 £146.02 - 10% £1,690.74 £2.96 £12.81 £153.70 Increase of £0.6m 12% £1,721.48 £3.55 £15.37 £184.44 Increase of £2.9m
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11.14 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 9.5%, 6%% and 6% are modelled in 2026/27, 2027/28 and 2028/29 respectively in Table 9 below. Table 9 Council Tax Modelling Year Increase New Rate Increase Additional Funding Weekly Monthly Annually 26/27 9.5% £1,683.06 £2.81 £12.17 £146.02 £12.2m 27/28 6% £1,784.04 £1.94 £8.42 £100.98 £8.9m 28/29 6% £1,891.08 £2.06 £8.92 £107.04 £9.3m 29/30 6% £2,004.55 £2.18 £9.46 £113.47 £10.0m 30/31 6% £2,124.82 £2.31 £10.02 £120.27 £10.6m 31/32 6% £2,252.31 £2.45 £10.62 £127.49 £11.3m 11.15 The additional funding identified in Table 9 (beyond 2027/28) 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. 11.16 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 10 below. Table 10 Council Tax Collection Levels 20/21 21/22 22/23 23/24 24/25 96.6% 97.7% 98.4% 97.5% 97.3% 11.17 It is essential that the financial needs of the Council are both maintained and grown to improve the sustainability of public services. 11.18 On the basis that these proposals are endorsed by Council, planning for setting the Council’s budget will be enhanced. It will create opportunities for officers to bring forward bold proposals to continue 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. 11.19 On 6 November 2025, Perth and Kinross Council had 77,387 dwellings that contributed to council tax income.
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Table 11 below demonstrates that 63.2% of dwellings were in Bands A to D and therefore, the maximum annual increase in those Bands would be £146.02 with 47.6% paying less than that amount. Table 11 Total Number of Dwellings A B C D E F G H 11.3% 19.5% 16.9% 15.6% 16.0% 10.9% 8.8% 0.9% Cumulative 11.3% 30.7% 47.6% 63.2% 79.3% 90.2% 99.1% 100.0% 11.20 Public messaging will continue to 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. 11.21 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. 11.22 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. 4 March 2026 for 2026/27, February 2027 for 2027/28 and February 2028 for 2028/29. 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. 11.23 ACTION: The Council endorses a Council Tax Strategy of increases of 9.5% in 2026/27, and indicative rises of 6% in the following five years, all of which will be subject to final budget setting for these years. Council Tax Reform 11.24 The Scottish Government are currently consulting on a range of options on how the Council Tax system could be “updated and improved”. The consultation presents a series of illustrative models and possible changes to how Council Tax is calculated. 11.25 The outcome of this review may have an impact on both where the Council receives its funding from and potentially the level of funding. 11.26 Any changes are not anticipated to be implemented before 2030.
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12. Reserves Update 12.1 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 26 February 2025 (Report No. 25/36 refers). 12.2 The 2024/25 Annual Accounts (audited) show that the Council had a General Fund Balance (excluding the Housing Revenue Account) of £68.284 million at 31 March 2025 with £49.569 million earmarked for known commitments, which are set out in detail in Appendix D. This results in uncommitted General Fund Reserves of £18.715 million at 31 March 2025 which is in line with the approved Reserves Strategy. 12.3 The Council’s Useable Reserves as at 31 March 2025 (per the 2024/25 Annual Accounts (audited)) are summarised as follows: Table 12 General Fund Reserves Total Useable Reserve as at 31 March 2025 £110.636m Less: General Fund Earmarked Reserves (see Appendix C) £49.569m Housing Revenue Account These balances are earmarked for use on Housing Revenue Account activities only. £2.258m Capital Fund The Fund can be only used to meet the principal element of loan repayments or to defray capital expenditure. £36.992m Insurance Fund The fund is used to meet the future liabilities of the Council self-insuring for certain categories of insurance. £0.623m Capital Receipts Reserve This Reserve holds proceeds from capital receipts for future investment. £1.332m 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. £1.147m General Fund Uncommitted Balance at 31 March 2025 £18.715m
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12.4 The level of uncommitted Reserves of £18.715 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. 12.5 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. The update to the Finance and Resources Committee on 29 November set out unearmarked reserves of £12.132 million or 2.4%. 12.6 The updated Reserves Strategy will be presented to Council on 4 March 2026 and will include options on how Reserves might be utilised over the medium term. 13. Housing Revenue Account 13.1 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. 13.2 It is anticipated that the Health and Social Wellbeing Committee will determine the Housing Revenue Account (HRA) Budget and rent levels for 2026/27 at its meeting on 21 January 2025. The five-year Housing Investment Programme will also be reviewed based on the Housing Delivery Plan. 14. Workforce Planning Measures 14.1 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. 14.2 Our 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.
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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. 14.3 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. 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. 14.4 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. 14.5 Audit Scotland’s Best Value Thematic Review, Workforce Innovation 2023/24 (Report No 24/269) outlined some key messages and recommendations, and an annual update was provided in the People and Culture Strategy annual update (Report No. 25/174 refers).
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14.6 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. 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. 15. Transformation and Change Strategy 15.1 The updated Transformation and Change Strategy 2025–28, alongside the Financial Strategy and Medium-Term Financial Plan, is designed to support the Council’s vision: “a Perth and Kinross where everyone can live life well, free from poverty and inequality.” This vision is underpinned by the Corporate Plan’s strategic priorities and key objectives, ensuring that all transformation activity is directly linked to delivering improved outcomes for communities, particularly those in greatest need. 15.2 As previously reported, the Transformation and Change Programme is an ambitious, multi-year initiative. Its overarching aim is to deliver sustainable, high-quality services for the people of Perth and Kinross, particularly those in greatest need. The programme is structured in phases, with Phase One (2022–2024) completed, establishing strong foundations—such as leadership review, service design principles, and improved internal structures. Phase Two (2024–2028) builds on these achievements, embedding a more consistent approach across workstreams and strengthening governance through a formal Programme Management Office (PMO). 15.3 The programme encompasses four main approaches: • Transformation: Fundamental changes to how services are delivered, including marked shifts in form, nature, and delivery models. • Service Improvements: Team-led enhancements to efficiency, productivity, and community outcomes. • Restructure and Consolidation: Reconfiguring services and teams to better align with priorities and improve outcomes. • Budget Efficiencies: Targeted reductions and reallocations to address financial constraints while protecting priority areas 15.4 These approaches are not mutually exclusive; larger projects often combine several elements to achieve their objectives.
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15.5 The Transformation and Change Programme is designed to remain flexible and responsive to changes in local and national policy, legislation, and community needs. The PMO ensures robust governance, regular monitoring, and transparent reporting to the Finance and Resources Committee and Transformation Board. The Council is committed to continuous improvement, learning from each phase, and adapting projects to maximise impact and value. 15.6 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. 16. Risk Assessment 16.1 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 16.2 It is anticipated that the Council will receive the 2026/27 financial settlement in January 2026 which is considerably later than previous years. At this time, it is not clear whether the Scottish Government will provide information on future financial years at that time and to what level. 16.3 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. 16.4 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. 16.5 The Scottish Government’s most recent Medium Term Financial Strategy, which was published in Summer 2025 identifies a projected shortfall of £2.6 billion by 2029/30. 16.6 The potential for cash and real terms reductions in funding beyond financial year 2026/27 is considered to represent a significant risk in the management of the budget over the medium term.
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16.7 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. 16.8 At this time, there is also no information on any conditions which may be attached to the local government finance settlement in 2026/27 and beyond, or indeed opportunities. 16.9 There is also a review of the distribution methodology that allocates social care funding. This may present a significant risk to the overall level of funding received by the Council. Future Pay Awards 16.10 For single status, craft and chief officer staff groups, the 2025/26 and 2026/27 pay awards have been agreed at 4% and 3.5% respectively. 16.11 Pay awards with teaching unions have been agreed at 4% from 1 August 2025, a further 0.25% from 1 April 2026 and 3.25% from 1 August 2026. 16.12 Both are in excess of the Council’s budget assumptions and the expectation is that any additional costs will be met by the Scottish Government on a recurring basis. 16.13 Beyond 2027/28, the Council has assumed 3% in both provisional revenue budgets and the MTFP through to 2031/32. 16.14 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. 16.15 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. 15.16 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. 16.17 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 16.18 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.
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There is accordingly a risk in expenditure pressures within both the Revenue and Capital Budgets which increase over the short and medium term. 16.19 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. 16.20 Levels of inflation have remained stubbornly high, and now not predicted to reduce to the Bank of England target of 2% by 2027. This puts further pressure on the Revenue Budget. Implications of the Approved Capital Budget 16.21 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. 16.22 In setting the 2025/26 Revenue Budget, the Council began to address this by agreeing to apply 1.25% of Council Tax income each year, in perpetuity, to supporting the Capital Budget. Council Tax 16.23 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. 16.24 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 16.25 Up until last financial year, the Integration Joint Board received additional Scottish Government funding, linked to national policy initiatives, either directly or channelled through the NHS. 16.26 In 2025/26 there was no new external funding to deal with the unprecedented increases in demand for social care services. However, in approving the 2025/26 Final Revenue Budget, the Council applied an additional £6.7 million of recurring funding. On 29 October 2025, the Council approved an additional £4.180 million of non-recurring funding to deal with the further increase in demand. 16.27 Should further funding from the Scottish Government not be forthcoming for health and social care to fully reflect anticipated increases in costs including demand and inflationary pressures, then this will on Council services.
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Inflation 16.28 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 16.29 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. 16.30 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. 16.31 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 16.32 The overall population of Perth and Kinross is anticipated to increase by around 12.0% over the next 25 years based upon National Registrars of Scotland forecasts. This is a significant shift from the last set of data when a reduction of 1% was projected. 16.33 If the funding to reflect this increase does not flow through the local government finance settlement, then this will undoubtedly put further pressure on Council services. 16.34 However, within these overall projections the population aged over 65 (and particularly 85+) is projected to grow significantly. This will place an additional financial pressure on both the Council and the Integration Joint Boards future years’ Revenue Budgets and financial plans. 16.35 The level and components of growth will be largely dependent on complex net migration patterns which are difficult to forecast with any certainty. 16.36 The needs of the population are also changing with more complex intervention measures required to protect young and old people alike. As set out in paragraph 7.10, there are significant increases in the number of children requiring additional support for learning.
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Climate Change 16.37 The Climate Change (Emissions Reduction Targets) (Scotland) Act 2009 has given local authorities the duty to ensure their local authority areas decarbonise in line with the Scottish Government emissions Targets, are resilient to the impacts of climate change; and promote sustainable development. The Climate Change (Emissions Reduction Targets) (Scotland) Act 2024 amended the 2009 act to replace annual targets with 5-year carbon budgets. Additional legislation that has been enacted, or is eminently expected, poses specific sectoral requirements for the Council. 16.38 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 15 December 2021, the Council approved its Climate Change Strategy and Action Plan (Report No. 21/245 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). 16.39 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. The majority of the required climate change investment is interlinked with and contributes to the delivery of other Council Corporate priorities. Arm’s Length External Organisations 16.40 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 pressures arising from wider economic situation. Severe Weather 16.41 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. Reserves 16.42 The last update to the Finance and Resources Committee indicated that the level of unearmarked Reserves may reduce to 2.4%. The main reason for the reduction is the unplanned additional non-recurring contribution to the social care pressure in 2025/26. 16.43 Further unplanned events, severe weather and the 2025/26 annual accounts, may place further pressure on the level of unearmarked reserves.
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16.44 The Council’s Reserves policy is that the level of unearmarked Reserves should be between 2% and 4% of the net Revenue Budget. 17. Conclusions 17.1 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. 17.2 Perth and Kinross Council faces significant financial pressures over the medium term, with projected cumulative net budget ranging from a surplus of £6.3 million (optimistic) to a deficit of £156.8 million (pessimistic) by 2031/32. 17.3 The mid-range scenario forecasts a total gap of £70 million over six years, driven by rising demand, inflation, and demographic change—particularly a 12% projected population increase and a sharp rise in residents aged 85+. 17.4 A central element of the Council’s response is the multi-year Council Tax strategy. The plan models annual increases of 9.5% in 2026/27 and 6% each year thereafter, aiming to generate up to £12.2 million in additional funding in 2026/27 and supporting vital services such as social care, education, and anti- poverty initiatives. 17.5 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. 17.6 This approach is designed to protect frontline services, reduce reliance on reserves, and provide greater financial stability in the face of uncertain Scottish Government funding. 17.7 The Council will continue to refine its financial assumptions, prioritise transformation and efficiency, and regularly update the MTFP to ensure resources are aligned with strategic priorities. Maintaining this disciplined approach will be essential to safeguarding services and supporting Perth and Kinross communities in the years ahead. 17.8 The continued roll out of the Transformation and Change Strategy will further support the Council’s response. 17.9 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.
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18. Impact Value Assessment 18.1 This is an operational report, and as such, an impact and value assessment is not required. 19. Appendices Appendix A - Council Approved Financial Principles Appendix B (i) - Optimistic Scenario Appendix B (ii) – Mid-Range Scenario Appendix B (iii) – Pessimistic Scenario Appendix C – Assumptions Underlying Medium-Term Financial Plan Appendix D – Summary of General Fund Earmarked Reserves as at 31 March 2025