Financial Outlook and Medium-Term Financial Plan
Renfrewshire Council · 25 September 2025
Back to Council — 25 September 2025 and its agenda
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___________________________________________________________________ To: Council On: 25 September 2025 ___________________________________________________________________ Report by: Director of Finance and Resources ___________________________________________________________________ Heading: Financial Outlook and Medium-Term Financial Plan ___________________________________________________________________ 1. Summary 1.1 This report provides the Council with an update in relation to the medium term forecast financial position and the key assumptions and risks which underpin it. This latest update continues to emphasise the ongoing challenging financial environment for local government in Scotland and the particular issues which are relevant to Renfrewshire Council. 1.2 Successive financial update reports have highlighted the need for the Council to continue to develop and implement significant savings measures in order to ensure ongoing financial sustainability. This position has not altered, but as the years of financial constraint continue, it is increasingly difficult for these savings options not to impact on service delivery and the communities the Council serves. 1.3 This report provides an update on the forecast level of spend and income over the medium term, and how these combine to provide a projected financial gap. The report also outlines how specific reserves may be applied to support the Council’s financial stability in the short term.
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1.4 The report also provides a capital update and outlines specific challenges in the current capital programme. ___________________________________________________________________ 2. Recommendations 2.1 Note the economic updates outlined in Sections 3 and 4 2.2 Note the key financial assumptions and projected medium term revenue position outlined in Section 5 2.3 Note the savings update and agree the savings targets outlined in Section 6 2.4 Note the reserves update and agree the principles outlined in Section 7 2.5 Note the financial risks to the forecast position outlined in Section 8 2.6 Note the treasury and debt update provided in Section 9 and the long term financial planning principles outlined to secure and support future strategic investment 2.7 Note the capital update and agree the revision to the 2025/26 Capital Plan as outlined in Section 10. _________________________________________________________ 3. Economic outlook, key fiscal events 3.1 As Members will be aware, there are a number of downside domestic and geopolitical risks which continue to impact the public finances, including ongoing conflicts in Ukraine and the Middle East, along with the new tariff regime imposed by the United States in mid-August. This brings volatility in relation to pricing and supply chains across the globe. 3.2 Twelve-month CPI inflation increased to 3.5% in 2025 Q2, coming from energy, food and transport. Pay inflation remains high but is expected to ease over the rest of the year. CPI inflation is forecast by the Bank of England to increase further to peak at 4.0% in September. They then expect inflation to fall back towards the 2% target by 2027. 3.3 At its August meeting, the Bank of England’s Monetary Policy Committee voted to reduce Bank Rate from 4.25 to 4%. This was done to try and address “persistent inflationary pressures, and to return inflation
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sustainably to its 2% target in the medium term”. The rate could be subject to a further small cut before the end of the financial year. 3.4 Underlying UK GDP growth has remained subdued, with UK GDP growth forecast at 1.1% in 2025 (0.8% in Scotland) and expected to rise to 1.3% in 2026. 3.5 The key fiscal events so far in 2025 that have an impact the Council’s medium-term outlook have been the UK Spending Review, and the publication of the Scottish Government’s Medium Term Financial Strategy (MTFS) and Fiscal Sustainability Delivery Plan (FSDP). UK Government Spending Review 3.6 On 11 June 2025, the UK Government published its Spending Review, a multi-year plan covering up to 2028/29 for revenue spending. The decisions taken by the UK Government will contribute to the resources available for the Scottish Budget in the coming years. The key funding announcements for Scotland were: • Increase in the Scottish revenue block grant by £1.2bn in 2026/27 • Increase in the Scottish capital block grant by £0.6bn in 2026/27 • Confirmation of the continuation of Levelling-Up funding 3.7 In real terms, this represented a 0.8% growth in the block grant for Scotland. The UK Budget is expected at a date to be confirmed in October and will confirm any changes in the Scottish Block Grant for 2026/27. Scottish Government’s MTFS/FSDP 3.8 On 25 June, the Scottish Government published a new Medium Term Financial Strategy (MTFS) that sets out the Scottish Government’s broad financial plans for the next five years. Alongside this, they also published a Fiscal Sustainability Delivery Plan (FSDP), which is intended to set out how pressures on the resource budget over the next five years will be addressed. 3.9 The MTFS notes that, compared to the position at the time of the 2025-26 Scottish Budget, the fiscal outlook is initially better, but then deteriorates and is £1.2 billion lower than previously expected by 2029-30. Over the medium term, anticipated funding declines, mainly due to a lower block grant as confirmed in the UK Spending Review (£685 million lower by 2029-
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30). It also notes that public sector pay, including local government, accounts for around 55% of all resource (revenue) spending. 3.10 Health spending has been a consistent priority for the Scottish Government in recent years, and because health and social care accounts for almost 40% of the Scottish budget, this leaves less resource funding available for local government. The MTFS indicates that health and social care and social security spending are expected to increase by an average of 5.3% and 6.8% per year respectively, compared to an overall average growth in revenue spend of 4.1% per year over the same period. In contrast, local government (growing by 2.7% per year on average) faces a challenging outlook. Crucially, these growth figures do not account for inflation, so there are likely to be real-terms cuts required in order to meet spending plans in the Scottish Government’s priority areas. 3.11 On capital spend, the MTFS notes that ‘budgets have been relatively strained in recent years’, and the Scottish Government notes that this has contributed to an increased backlog for asset maintenance, indicating a risk that ageing buildings and infrastructure require remediation or replacement work earlier than planned, which could further increase pressure on capital budgets. 3.12 While the MTFS sets out the Scottish Government’s forecast revenue budget gap, the Fiscal Sustainability Delivery Plan (FSDP) gives an outline of how they intend to address this gap. The plan revolves around three pillars, being: 1. controlling public spending 2. growing the economy, and 3. growing tax revenues whilst protecting competitiveness. 3.13 The FSDP indicates the high-level themes the Scottish Government intends to action to manage the revenue gap presented in the MTFS; however, much of the detail will not be resolved until future year budgets are agreed. 4 Scottish Budget 2026/27 and Local Government Finance Settlement 4.1 Following the multi-year forecasts provided within the UK Spending Review, the Scottish Government indicated in its MTFS that work is underway on developing its own multi-year spending plans, with the intention that its
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conclusions are published in a Scottish Spending Review (SSR) alongside the 2026/27 Scottish Budget. The SSR will set out the Scottish Government’s indicative revenue spending plans for 2027/28 and 2028/29, with an additional year (2029/30) for capital spend. 4.2 It is hoped that this will provide some clarity on expected levels of revenue and capital funding for the Council over the medium term, which in turn will provide improved confidence for Renfrewshire’s financial sustainability planning over this period. Whilst it is helpful to have better visibility of future year settlements, there is a risk in that some indicators which drive distribution changes may be set for the 3 year period as opposed to being updated annually – clarity on this issue will require to be provided by the Scottish Government. In this event there could potentially be a downside risk for the Council if for example increasing population was not reflected annually. 4.3 The UK Government Budget has confirmed the UK Budget will be announced on 26 November – much later than had been previously understood. This will have implications for the date for the Scottish Budget, the date of which has not yet been announced but is expected to be late December or (possibly more likely) early January. This may result in a much more condensed timescale for the Council to consider its 26/27 Budget, particularly if the detail of the local government settlement and associated Finance Circular is further delayed into January. Members will be updated as the position becomes clear, however members will also be aware that the Council must agree its budget and associated council tax decision by 11 March each year – this date being set out in statute. 4.4 Renfrewshire Council’s settlement has benefited in the past year from the area’s relative growth in population, and this is expected to continue into 2026/27. The 2024 mid-year estimate for population in Renfrewshire was published in late August and shows Renfrewshire’s population has increased again and now stands at 189,170, an increase of 2,020 (1.1%) on 2023 and above the national rate of 0.7%. Renfrewshire remains the 9th largest Council in Scotland in terms of population. This recent population increase places our estimated population at the highest level recorded in the period from 1980 and continues the sharp increases recorded from the 2022 census onwards. In terms of what this means at a strategic level – increased population is seen as a positive, people are choosing to move to Renfrewshire, supporting the local economy, using services and contributing to their communities. However, in line with the
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rest of Scotland, Renfrewshire is experiencing a significantly ageing population which is creating demand pressures on health and social care services – this trend is likely to continue and become more acute as the top end of the working age population age into the 65+ cohort. 4.5 The Scottish Government’s December 2024 public sector pay policy set out a 9% increase over 2025/26 to 2027/28, slightly above inflation expectations at the time. Most of the public sector workforce is now covered by agreed pay deals for 2025/26 that also cover 2026/27. Where agreements have been reached, they all have been at levels above the budgeted 3% in 2025/26. The most recent local government pay settlement agreed was 4% in 2025/26 and 3.5% in 2026/27. 5 Medium term forecast position and assumptions 5.1 The most recent financial outlook report to Council in December 2024 outlined gross revenue pressures from 2025/26 to 2027/28 of £77 million. This forecast was based – as always – on a number of key assumptions. Officers continually assess these in light of new information. The updated core assumptions underpinning the forecast position within this report are outlined in Table 1 below: Table 1 Pay 5.2 At the time of writing this report, the pay settlement for teaching staff remains to be agreed for 2025/26 and subject to ongoing tri-partite national negotiations between COSLA, the Teaching Unions and the Scottish Government. The Council agreed to budget for pay increases in 2025/26 at Core budget assumptions September 2025 2026/27 2027/28 2028/29 2029/30 2030/31 Pay award 3.5% 3.0% 2.5% 2.5% 2.5% Non-pay inflation 0% 0% 0% 0% 0% Contract inflation 3% 2% 2% 2% 2% Revenue Grant 1.2% 1.2% 1.0% 1.0% 0.0% Council tax (rate) 6.5% 6.5% 5.0% 5.0% 5.0% Council tax (base) 1.2% 0.9% 0.9% 0.8% 0.8%
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3%. Given the conclusion of the local government (non-teaching) pay settlement at 4% for 25/26 (and 3.5% for 26/27), there is some likelihood that the level of provision made in the Council’s budget for teachers will be insufficient (assuming no additional resources are provided by the Scottish Government as part of a finalised agreement). Any unfunded costs over and above that provided for will require to be funded from reserve balances in year, with adequate provision requiring to be made in the 26/27 budget. For context, each 1% pay award across both the teaching and non-teaching workforce will cost an estimated £3.5 million. 5.3 On top of pay inflation, the Council’s pay bill also includes employer NICs and pension contributions. The 2025/26 budget has been set based on the Council’s share of national eNIC funding provided to the Scottish Government. 5.4 At the last triennial valuation, the rate at which the Council contributes to the Strathclyde Pension Fund for its employees was reduced from 19.3% to 6.5% for two years, followed by 17.5% in 2026/27. The next triennial valuation is due in March 2026, which will confirm rates for the next three- year period. The assumption in this Financial Outlook is that the 17.5% rate will prevail over the medium term. Non-pay costs 5.5 The Council has a long standing principle of no general inflationary uplifts being funded, with an expectation that Directors and their management teams will seek ongoing efficiencies in order to meet general inflationary pressures. This position has been significantly tested in recent years as both general inflation (as indicated by CPI) and building cost inflation have both breached into double figures. Utilities in particular have seen large increases in cost; along with road fuel and costs associated with waste recycling and disposal. 5.6 The pressure on these budgets; along with other above inflation costs linked to the war in Ukraine, post-pandemic recovery and labour constraints have resulted in a position where some costs have exceeded available budgets despite the best efforts of officers. This has been particularly prevalent in services delivered by the Environment, Housing and Infrastructure service; and the resulting overspends have been robustly scrutinised by relevant Policy Boards. Lifecycle maintenance in particular has experienced severe pressures due to the backlog of maintenance work required and increased supplies and contractor labour costs.
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5.7 General inflation in the economy appeared to have been moderating but remains sensitive to political and world events, with food pricing in particular being a major driver of household costs. Nonetheless, it is forecast the cost increases outlined above may moderate over the medium term. The Council continues to face a number of expenditure risks over the medium term which are outlined in more detail in section 8 below. Income 5.8 As outlined above, the Scottish Government MTFS indicates an average 2.7% increase to the local government settlement over the period of the plan. However, the MTFS – similarly to the Council’s plans – shows a deficit position. Therefore, the Scottish Government will require to make savings or reduce planned spend over this period, potentially adjusting its expenditure plans to remain within available resource. Given this risk, while some increase in the overall level of general revenue grant may be forthcoming, it is not likely to be on the scale outlined in the MTFS. Experience would suggest there is also the potential for any increase in funding to be matched by an increase in directed spend or new burdens. The Council should however benefit in terms of distribution from an overall increase in share of the Scottish population. 5.9 With regards Council Tax, Council agreed previously a core assumption of 6.5% increases for the remainder of the current administration period – acknowledging that this decision would be for elected members to take on an annual basis when setting each budget. This assumption remains the case, reducing to 5% in the following years. Members will be aware that council tax is a key element of agreeing a balanced budget, so some variation from this core assumption is likely depending on how other areas of spend and income move. 5.10 Council officers will continue to work towards a principle of full cost recovery for services, setting fees and charges in line with this principle. An increase of 5% per annum has been in place for a number of years and this is assumed the case in future years. Officers will also explore other options for increasing income such as implementation of a visitor levy. Borrowing costs 5.11 The Council’s strategic aspirations in terms of the learning estate and existing level of investment in infrastructure where this is not grant funded will require to be appropriately resourced in revenue terms to support
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prudential borrowing and revenue contributions to capital. This issue is outlined in more detail in section 9 below, however the forecast position as outlined includes an increase in loans fund costs of £2-3 million each year for the full forecast period – potentially taking the ratio of debt to net revenue stream from 2.9% to 5.3%. This approach will provide the Council with the ability to secure and lock in provision of capital investment capacity to support long term strategic investment planning. Education costs 5.12 Members have agreed a learning estate strategy which includes a business case process in order that investment decisions with regards the schools and early learning estate are appropriately informed by all relevant information. A key element of the business case is securing a robust understanding of the costs of any investment decision, and the associated net revenue consequences. This is important for the Council to consider not just in terms of the capital affordability of any project but also the financial sustainability ongoing obligations the council would be entering into. 5.13 As reported to the Education and Children’s Services Policy Board recently, a number of business cases are in development in this first phase of the programme – Johnstone Primary School learning estate, Johnstone High School and Trinity High School. 5.14 The forecast financial issues and costs associated with previous investment decisions in Thistle Primary School and the extension to Park Mains High School were outlined in a report to Council in October 2024. These costs continue to be updated in line with current roll projections and as the design of the projects is finalised. The indicative costs outlined in October 2024 continue to broadly hold (ie net additional revenue costs of £0.6m for Thistle and £2.2m for the extended PMHS, inclusive of borrowing costs), however the phasing of how these costs will manifest continues to develop. It is currently estimated that the Council will require to budget for increased teaching staffing costs of £0.2-0.3m in 2026/27; increasing incrementally in the following years (more significantly in 2027/28 when the Thistle Primary School opens) up to the total additional net cost estimate of £2.8m over a sustained period and into the next decade. Capital costs of both projects are currently in line with agreed budgets and are forecast to remain so.
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5.15 These cost estimates, and importantly the detailed phasing of how they will be incurred, will be incorporated into future financial plan updates along with the many other cost pressures the Council is facing. Given their relative scale in terms of the total financial challenge the Council is facing, it is proposed that specific detail of these costs will in future be reported on an exceptions basis moving forward. Gross revenue position 5.16 The cost assumptions above result in the projected revenue position outlined in Table 2 over the next 5 years ie before any decisions on savings, but inclusive of an assumed level of council tax increase in line with the core assumptions in Table 1 above. Table 2 5.17 The position for the current financial year is shown for information; however, it can be seen from this that the Council has agreed a budget Summary medium term forecast - September 2025 2025/26 2026/27 2027/28 2028/29 2029/30 2030/31 £m £m £m £m £m £m Opening base budget gap/(surplus) 9.3 (2.6) 7.7 16.8 26.0 34.4 New pressures: Pay 12.5 14.1 11.0 9.5 9.5 9.7 Non-pay 30.1 8.7 8.9 8.8 8.5 7.1 Borrowing 5.4 5.3 4.0 3.5 3.5 3.5 Asset maintenance 1.0 1.0 1.0 Gross pressures 58.3 26.5 32.6 38.6 47.5 54.7 Savings: Fees & Charges 5% (0.3) (0.3) (0.3) (0.4) (0.4) Council Tax base increase (1.3) (1.1) (1.1) (1.2) (1.2) (1.3) Corporate and service savings (7.0) 49.9 25.1 31.2 37.1 45.9 53.0 Increase in SG revenue grant (41.9) (9.3) (5.8) (4.0) (4.0) (4.0) Budget gap prior to CT decision 8.0 15.8 25.4 33.1 41.9 49.0 CT increase (10.6) (8.0) (8.6) (7.1) (7.5) (8.0) Recurring budget gap/(surplus) (2.6) 7.7 16.8 26.0 34.4 41.0
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which has returned to financial balance (the recurring surplus agreed has been allocated to one-off spending proposals in year). 5.18 While this is an encouraging position, it can be seen that in the absence of further substantial savings being delivered that a financial gap is projected for 2026/27 of £7.7m, increasing to £41m by 2030/31. For clarity, this gap is after the assumed council tax increases in Table 1 above. 5.19 The Council will have choices to address this, however these will essentially be restricted to three main themes: reduce planned spend (or rather, reduce that spend which is within the Council’s control); generate savings to offset the forecast increase in cost; or increase income. For context, to close the gap completely by increasing council tax would require a 13.5% increase in 26/27 (each 1% increase in council tax generates c£1.1m). The most likely solution will be a combination of each of these. 5.20 There would also be a short-term option in terms of utilising reserve balances to temporarily close the gap, however the underlying financial gap would remain to be addressed on a recurring basis. As has been discussed in many previous reports, the use of reserves to achieve financial balance can only ever be a short term option which should only be agreed in circumstances where planned and agreed recurring savings required to achieve recurring balance cannot be delivered in line with the financial gaps emerging. These issues are explored in further detail below. 6 Savings 6.1 Previous financial updates have outlined the measures the Council has taken to deliver substantial savings in recent years from transformation programmes, financial sustainability workstreams and corporate financing measures such as adjustments to the Council’s long term debt smoothing strategy. 6.2 Action taken by the Council since 2011/12 has generated substantial levels of saving totalling £189m, however as has been reported previously, in each successive year it is increasingly difficult to continue to generate savings at this scale. From an average saving of £19.5m per annum in the period from 2011/12 to 2014/15, the average saving over 2022/23 to 2025/26 is £8.5m. 6.3 As outlined above however, without continuing significant levels of saving being generated, there is a risk the Council will not remain financial sustainable.
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6.4 Council has previously agreed a number of transformation themes in addition to departmental savings targets. The most recent update to Council had proposed a £8m per annum departmental target in addition to the thematic transformation work which is in progress, and which was the subject of a report to the Leadership Board in February 2025. The £8m target was equivalent to a 2.4% level of saving across each department. The largest proportion of this saving target inevitably fell on Children’s Services – that being the department with the largest budget. However, this position was based on total budgets – including teaching staff budgets. Owing to the Scottish Government position on the maintenance of teacher numbers however, the Council’s ability to make any saving from teacher salary related budgets (a total budget of £135m and 24% of the council’s total budget) has been effectively curtailed. Consequently, this simply places heightened pressure on remaining Council services to deliver an increased level of saving; and makes the generation of £8m of departmental savings extremely challenging - putting at risk both the Council’s financial sustainability, and also its ambitions in terms of strategic capital investment. The Council therefore will need to place increased reliance on transformational and other corporate savings to try and address this pressure. 6.5 The Council’s transformation and change plans will necessarily have a focus on digital technology and the potential it offers to transform how the Council operates and delivers services in order to deliver the same outcome with less resource and where possible deliver improved outcomes with less resource. As outlined in the Reshaping Renfrewshire report, key areas of focus for the Council in terms of transformation will be: - to develop its digital and data capability, key strategic partnerships and build on the rapid development in digital opportunities such as Artificial Intelligence (AI) - to build key partnerships that will support the Council to most effectively progress and realise transformation opportunities - focus on reducing inequalities - shift the focus of service provision to support preventative activity, to intervene earlier and reduce the demand for more expensive support and services. 6.6 Transformation activity and the ongoing development of savings options will also be informed by the ongoing resident survey activity with update reporting to the Leadership Board. As advised to Members there are number
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of areas where there is officer work ongoing in relation strategic reviews of the services provided by OneRen, which is linked to both the property strategy and Connected Communities review. 6.7 It has been recognised that Digital opportunities, and in particular artificial intelligence may provide substantive potential for service change. The Council has engaged with an external provider of AI services to undertake an assessment of potential areas where AI could deliver service improvements and deliver a structured roadmap for adoption. Through a series of stakeholder engagement, workshops, data analysis, financial validation solution demonstrations and trials, this AI Transformation Assessment will provide the Council with a clearer understanding and route map of how AI solutions can enhance efficiency, reduce costs, and improve service delivery. This critical initial assessment stage will support the development of a full business case that is intended to be brought back to a future Leadership Board for detailed consideration later in the year. 6.8 The delivery of recurring savings is oftentimes predicated on a requirement for short term investment to facilitate the transformational change necessary, and members should remain alert to the possibility that some up-front investment may be required. The Council maintains a Service Modernisation Fund for this purpose. 6.9 It is proposed that the specific savings targets outlined below are agreed in order to provide members with context in relation to the programme of work required over the next 3 years (the savings and financial environment after this time period is too uncertain at this point to target particular savings from services). Members will note that the departmental savings target has been reduced from that previously agreed, reflecting the removal of teachers’ salary costs within the areas for saving. Further proposals will require to be developed for the years thereafter.
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Table 3 Assuming the above savings targets are achieved, there would still remain a recurring gap in the Council’s underlying financial position as is outlined in Table 4 below: Table 4 6.10 The fact that a recurring financial gap remains indicates that the Council still requires to do further work to ensure its ongoing financial sustainability; even in the relatively short term and therefore this should be considered an initial planned programme subject to greater certainty of the medium term financial outlook emerging over coming months. In managing this position, and while further options for closing the gap are developed, it is likely that the Council will again require to rely on reserve balances to secure a balanced budget position in the short term. 7 Reserves 7.1 The planned use of reserves as a support to the Council’s medium-term financial position has been outlined in previous reports as likely to be required; and the analysis above clearly demonstrates this requirement. The application of reserves is a legitimate tool in managing shorter term Savings Theme 26/27 27/28 28/29 £000s £000s £000s Digital workstreams including AI 200 1,500 1,000 Connected Communities 250 250 250 Review of culture and leisure services with OneRen 250 1,000 750 Early intervention and prevention 1,000 1,000 Strategic Property review 100 100 100 Procurement savings 200 200 100 Service based savings 3,000 3,000 2,000 Income growth 1,000 1,000 1,000 Corporate Financing saving 300 250 - 6,300 8,300 5,200 Target 2026/27 2027/28 2028/29 2029/30 2030/31 £m £m £m £m £m Projected Financial Gap from Table 2 7.7 16.8 26.0 34.4 41.0 Increase in Gap year on year 9.1 9.2 8.4 6.6 Savings from Table 3 6.3 8.3 5.2 - - Net remaining gap 1.4 0.8 4.0 8.4 6.6
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financial challenges and securing immediate financial stability while the design and delivery of well managed sustainable savings are generated to match financial pressures, but it cannot ever be more than a short-term measure. 7.2 In summary, the Financial Sustainability reserve will be the prime source of financial stability support to the Council’s financial position over the medium term. The balance on this reserve coming into 2025/26 was £21.2 million. Any overspend incurred in year will also require to be funded from this reserve. The latest forecast position for the Council outlined to the Finance, Resources and Customer Services Policy Board was for a £1.5m overspend. It is expected there will be a contribution to the reserve from the fortuitous (and temporary) reduction in employer superannuation contributions in 2025/26 of £12 million, resulting in a net year end forecast balance of approximately £30 million. The net draw on this fund over the forecast period as outlined in Table 4 totals £21 million – after assuming the successful delivery of £20m of recurring savings. 7.3 Members should remain very alert to the risks of the delivery of planned savings experiencing potential slippage or not being delivered in full, and should prudently plan for this eventuality. In addition, Members attention is drawn to the significant financial risks outlined in section 8 of this report – in particular that posed by the financial outlook of Renfrewshire HSCP. 7.4 While there remain uncertainties in much of the analyses above, it is helpful to reiterate previously agreed principles in terms of the planned use of specific reserves which could be deployed to support the Council’s medium- term financial position: • There should be no planned use of unallocated reserves, which are held as a risk contingency. Unallocated reserves should be maintained at a minimum of £10 million (c2.0% of net running costs) over the medium term; • The Council commits to the planned use of the Financial Sustainability reserve to support the medium-term financial position, and in the interim, develops and implements plans to address the underlying structural financial gap in a sustainable manner. 7.5 Updated revenue outlook reports will continue to be provided to future Council meetings including the annual budget setting meeting,
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incorporating the confirmed level of Scottish Government revenue support in 2026/27, any revised financial assumptions and any variation in the requirement to utilise ring-fenced reserve balances from that outlined in Table 4. 8 Risk management 8.1 The most recent financial overview report to the Finance, Resources and Customer Services Policy Board outlined a projected revenue overspend in 25/26 of £7.8m. This includes a projected overspend with adult social care services managed by Renfrewshire IJB of £5.9m – remaining Council services therefore projecting an overspend of £1.9m. 8.2 There are a number of financial risks which the Council is facing in-year which have the potential to significantly affect the forecast outturn position outlined above: i. Teachers’ pay - at the time of writing this report, the teachers’ pay award for 25/26 remains to be settled. Provision has been made within the agreed 25/26 budget for an award based on 3%. Given the conclusion of the local government pay settlement at 4% for 25/26, there is some likelihood that the level of provision made in the Council’s budget for teachers will be insufficient. Any costs over and above that provided for will require to be funded from reserve balances in year, with adequate provision requiring to be made in the 26/27 budget. ii. Reduced class contact time – the Scottish Government has outlined its intention to reduce teacher class contact time from 22.5 hours to 21 hours per week. The Scottish Government have indicated their expectation that funding available for the maintenance of teacher numbers could be utilised by councils to achieve this aim, with plans expected to be developed in the near future. Within Renfrewshire, the funding for teacher numbers has been baselined within Children’s Services in order to fund existing teacher numbers; and as is the case with many other Councils, is not available to fund additional costs associated with reducing class contact time. Officers in Children’s Service are currently developing plans which would give effect to the proposal, however early indications are that the additional cost could be in the order of £3-4 million per annum. iii. Lifecycle maintenance, public building repairs and Net Zero – as reported to the Finance, Resources and Customer Services Policy Board recently, there
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is a forecast £0.5m overspend on public building repairs in 25/26, despite the best efforts of the service to manage spend within existing resource. Members will recall that in agreeing the budget for 25/26 an additional £1m was allocated to this pressure, however this is inadequate in terms of the scale of backlog and other repairs. It is recommended that Members consider further increases to this budget as finances allow in future years; else overspends are likely to remain a recurring issue. The Council’s agreed approach to delivering on its Net Zero aspirations have been reported to the Leadership Board, with an initial focus on ‘Heat and Fleet’ to transform the approach to the provision of clean energy and sustainable travel in Renfrewshire. Whilst initial investment has been agreed, progressing the Council’s aspirations further will need to be underpinned by significant capital and revenue provision. iv. School transport – members will recall that in recent years this budget has come under severe pressure as tendered costs increase from private providers. Across both ASN and mainstream transport provision, an additional £2.7m has been added to this budget in the past 2 years, bringing it to a total of £7.3m. The most recent forecast position for the current financial year outlines a further overspend of £0.8m. Assuming this forecast position bears out, spend on school transport will have practically doubled in 4 years, predominantly linked to cost increases rather than increased numbers of children travelling. This almost 100% increase represents a significant cost pressure for the Council and it will not be possible to sustainably continue to fund increases on this scale in the medium term without other Council service budgets and services being inevitably reduced as a consequence. v. Renfrewshire IJB – as has been previously reported to members, Renfrewshire IJB continues to face significant cost pressures, with the most recent report to the IJB outlining a projected year end overspend of £5.9m, broadly in line with their forecast position when the 25/26 budget was set when they anticipated a need to drawdown this amount from reserves. IJB officers continue to seek savings through the Sustainable Futures plan, with a number of service changes being required to mitigate the projected overspend. This work is ongoing, however the difficulties in securing recurring savings at the scale required is not to be underestimated. In addition, based on the report to the IJB in March 2025, it is estimated that IJB reserve balances will be fully exhausted during the 26/27 financial year – potentially requiring both the Council and NHS Greater Glasgow & Clyde to provide significant additional support. Council officers will continue to
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engage regularly with IJB officers to ensure appropriate visibility of the forecast position. Members will be aware that in terms of risk scoring, the Council, and similar to all councils across the country, now has IJB financial sustainability as its highest financial risk given the potential for this issue to impact severely and directly on the Council’s financial stability. 8.3 Directors and their management teams continue to try to manage as efficiently and effectively as possible within a highly constrained financial envelope; however this is becoming increasingly difficult following 15 years of savings delivery at scale and a continually volatile financial environment. This increased level of financial risk further supports the requirement to hold a prudent level of unallocated reserves. 9 Treasury management and debt 9.1 The medium term forecast position outlined in the sections above contain an assumed increase in the funding required to support borrowing which is a prerequisite to ensuring the Council’s ambitious capital plans remain affordable and financially sustainable. It will be critical for the Council to understand not just the capital costs concerned and the risks inherent in managing these (see section 10 below); but also in ensuring that the revenue consequences of that investment are affordable and are appropriately provided for within council revenue plans. 9.2 Prior to agreeing any capital project; and as has been explicitly approved in the context of the learning estate strategy, the Council must as part of its business case gateway process ensure that appropriate provision has been made in future revenue plans to fund both borrowing costs and any increased operational costs resulting from capital investment. 9.3 It is recognised that increased investment in the council’s asset base is both desirable and essential, however investment decisions must be taken in the context of the current constrained financial environment. Increases in revenue support for borrowing will inevitably result in choices between capital investment and dealing with ongoing service pressures and priorities. Any increase in property related costs should aim to be mitigated by an overall reduction in the size of the council’s property portfolio – in line with the principles of the property strategy. A reduced number of better condition buildings from which to deliver services should remain the aspiration.
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9.4 Members have been advised previously that the Council enjoys one of the lowest debt to revenue spend ratios in Scotland. The ratio at the end of 2023/24 was 3.1%, falling to 2.9% at the end of 24/25. The most recent national benchmark data available confirms the average in Scotland at the end of 23/24 was 5.8%. To be clear, there is no “right” ratio for a council to work towards – this will be determined by a range of factors around historic levels of investment, historic borrowing rates, timing of investment decisions and other non-financial factors such as overall estate condition and local priorities. Although in Renfrewshire the levels of debt are low compared to other councils, this does not mean that as a council we have excess funds available – what the Council is not spending on serving debt, it is spending on delivering services. This will be very important to understand moving forward. Given there is a clear aspiration to improve the estate, this will likely mean less funding being available to prioritise for investment in service delivery. 9.5 Creating the capacity to underpin substantial future borrowing will require a commitment from the Council over a long time to prioritise revenue capacity as a core principle of its budget strategy. Steadily increasing loans fund budgets in this way locks-in revenue resources as part of financial planning to provide certainty of future investment capacity and also generates short term investment from CFCR contributions in advance of borrowing need to supplement future borrowing – thereby increasing the overall capital funding available. 9.6 The Council’s 25/26 budget was agreed incorporating an increase in provision for borrowing costs of £2.5m; with a further commitment of similar increases in future years. Setting aside funding at least on this scale will be a precursor for any decisions for further at scale investment in the property estate. This is both required over the remainder of the current Council administration term in order to underpin the proposed £170m investment predominantly in the learning estate but will also require to become a fixed feature of the Council’s very long term financial planning arrangements to secure ongoing investment capacity over the next 20 years. 9.7 As well as making adequate provision in the revenue budget, the Council will need to plan for borrowing decisions that ensure ongoing liquidity for service delivery purposes; but also recognising that we are currently in a relatively high interest rate environment so the timing of borrowing decisions becomes important in the context of overall affordability. It is
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likely given the Council’s current rate of spend on capital projects that external borrowing will require to be undertaken before the end of 2025. This will be reported to members through the normal treasury management strategy update reports to Council and the Finance, Resources and Customer Services Policy Board. 10 General Fund Capital Programme 10.1 The Council continues to deliver its ambitious capital programme, incorporating the delivery of significant investment in cultural venues and wider infrastructure linked to City Deal projects and Levelling Up Funding; as well as major improvement and expansion projects in the school estate. 10.2 Council has agreed its learning estate strategy which continues this level of ambition over the medium to longer term; with an initial planned spend in the order of £170m over the initial phase of the strategy. In addition to this, members will also be aware that owing to revenue spending pressures that the Council has had a long period of only basic buildings maintenance being in place. This has resulted in a position where the overall condition of the estate is deteriorating – most pressingly in the schools estate but also across other areas of public buildings including the leisure estate. As outlined above, the significant investment required to address the backlog will require choices to be made in terms of directing revenue spending capacity to underpin the borrowing required. 10.3 The scale of investment planned will require the Council to continue to understand and develop a long term funding model, based on the principles outlined in section 9.6 above, that will be very significant over a sustained period. The impact on the Council’s capital programme, levels of capital reserves, borrowing requirements and debt levels will require to be robustly understood to ensure strategic investment proceeds at a pace which is sustainable and which includes financial decision making which locks in long term financial sustainability, affordability and value for money. Central to this will be the developing Council view of its appetite to increase debt levels as a percentage of revenue spend, and treasury management risks linked to cashflowing such large investments. 10.4 In order to ensure delivery of the capital programme covering both ongoing lifecycle maintenance and replacement of all councils assets – buildings, roads, infrastructure, fleet, ICT – requires the Council to ensure adequate
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management capacity as was the case for the delivery of City Deal projects. Delivery of schools projects under the learning estate and other major projects such as AMIDS South will require the Council to continue to ensure adequate revenue provision to manage the significant delivery and associated risks of these major programmes. Members will recall that a £2.5m provision was agreed in closing the 24/25 financial year to fund the delivery team for Phase 1 of the learning estate programme and a further £2.5m to underpin the borrowing support required for a major investment in roads and infrastructure – it is anticipated similar provision will be required in future years. 10.5 Members will also recall that in recent years and related to both the period of the pandemic and following very high inflation; and in some cases owing to the complexity of the works themselves, Council has required to increase capital projects budgets on a number of occasions. 10.6 As has been reported to Council previously, as projects proceed and conclude, contractual claims continue to emerge, while additional costs have also emerged in relation to unanticipated works required. There are risks inherent in the refurbishment and redevelopment of historic buildings such as Paisley Town Hall, Arts Centre, and the Museum. Some of these were anticipated and financially planned for as part of contingency budgets to an extent, however in many instances the scale of such risks have been greater than anticipated and indeed some have only emerged as intrusive works were undertaken. 10.7 Paisley Museum Reimagined will be a world-class destination telling the inspirational stories of Paisley’s people and pattern and showcasing its internationally significant collections. This project includes repairing and renovating all buildings on the museum campus delivering a 20% increase in the overall usable area. The construction also includes a new extension housing a visitor reception and café, the installation of new mechanical, electrical and plant systems, as well as the introduction of a public courtyard. 10.8 An update report to the recent Economy and Regeneration Policy Board outlined progress with deliver of the project, and also highlighted the complexity of the build and associated risks. A report to Council in December 2024 outlined these in detail, however more recent delays have been due to a combination of factors, for example; unforeseen structural and conservation issues uncovered during renovation of the historic buildings (many areas were inaccessible and could not be fully identified
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until later in the construction programme); complex utility infrastructure problems, where services were installed incorrectly and unrecorded by utility companies and required significant rectification and latent defects which were worse than anticipated from pre-construction surveys. There have also been significant works required to previously inaccessible areas that could not have been identified earlier in the programme. 10.9 These substantial delays and additional unanticipated works experienced in the project have led to significant claims for additional costs from the main contractor. These claims continue to be worked through with support from the Council’s technical advisers, and while the Council views elements of the overall claims to be a contractor risk, there remains a possibility that should the claims be adjudicated, that the Council could be found liable in part which would result in additional cost. Council officers continue to seek to minimise this risk through constant engagement with the main contractor. 10.10 Council has previously agreed to increase the budget for the project, sensibly recognising that provision for the above risks requires to be made. As we approach the end of the main construction works and move to the fit- out element of the project, further certainty with regards the potential final costs of the project can be ascertained. In order to address those risks remaining inherent in the project, it is the officer view that an additional £4.5m will be required. Members will recall that previous increases to the budget for this project have been possible due the delays experienced, meaning that revenue resource set aside in previous years to underpin borrowing has not been required; and it was therefore agreed to allocate this funding via additional CFCR contributions to the project. It is expected that this will continue to be the case for the remainder of 25/26 and a proportion of 26/27. It is therefore recommended that a further CFCR contribution of £3.5m from existing resources be allocated to the capital budget. It is further recommended that £1m of existing unallocated capital receipts also be ringfenced to support the completion of the project and allow for a risk contingency allowance. Should this funding not be required then it would be returned to the capital receipts reserve for reallocation to other Council investment priorities. This proposed approach to funding adjustment mitigates any impact on any other aspects of the Council’s overall capital programme and does not increase the overall borrowing associated with the project, ensuring the long term revenue impact of completing the project remains contained within planned revenue allowances.
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10.11 Members should remain alert to the fact that major capital investment projects bring an inherent level of financial risk and further costs may emerge as they are delivered and contractually concluded. It remains possible that costs may be incurred in excess of agreed budgets within the existing capital plan given the scale and nature of the Council capital programme and growing incidence within the construction industry of contractors pursuing contractual claims, reflecting the ongoing financial pressures and volatility being experienced. Where budgets are expected to be exceeded, appropriate approval will be sought to adjust the capital plan to reflect these costs with any consequential impact on the overall capital plan or revenue consequences being clearly articulated. ___________________________________________________________________ Implications of the Report 1. Financial – the report highlights the scale of the short and medium term financial challenge the Council faces. The development and implementation of savings options at pace and scale will be critical to the ongoing financial sustainability of the Council. 2. HR & Organisational Development – the medium term financial position and associated savings plans require to align with workforce plans to ensure the size and composition of the workforce remains appropriate and affordable. 3. Community/Council Planning – the Council requires to remain financially sustainable in order to deliver on its priorities as outlined in the Community and Council plans; and these plans in turn require to inform the financial strategy. 4. Legal – the Council is legally required to set a balanced budget. 5. Property/Assets – the report outlines the ongoing strategic property review which aims to ensure the Council’s property asset base is efficient and properly maintained. 6. Information Technology – the report outlines the need to ensure the Council’s Digital Strategy supports ongoing financial sustainability; with
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digital developments being key to the delivery of future savings, efficiencies and improved customer service. 7. Equality & Human Rights - The recommendations contained within this report have been assessed in relation to their impact on equalities and human rights. No negative impacts on equality groups or potential for infringement of individuals’ human rights have been identified arising from the recommendations contained in the report, however the report highlights the need for the Council to continue to make substantial savings which may impact on service delivery. Each savings proposal will be individually assessed for any impact on equalities and human rights. 8. Health & Safety – not applicable 9. Procurement – through the digital workstream improved procurement processes including the introduction of purchase to pay (P2P) within Business World, improved purchasing and procurement will support the delivery of financial savings. 10. Risk – as outlined in the report the Council’s financial sustainability risk remains relatively high, with an increased risk in the short term due to the potential financial implications as a consequence of the Renfrewshire IJB financial outlook. 11. Privacy Impact – not applicable 12. Climate Risk – not applicable 13. Children’s Rights – not applicable 14. Cosla Policy Position – not applicable ___________________________________________________________________ Author: Alastair MacArthur, Director