Financial Outlook and Medium Term Financial Plan
Renfrewshire Council · 26 September 2024
Back to Council — 26 September 2024 and its agenda
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___________________________________________________________________ To: Council On: 26 September 2024 ___________________________________________________________________ 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 – a position that is unlikely to improve in the near future given the tone of messaging from both UK and Scottish Governments. 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 will be increasingly difficult for these savings measures 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. 1.4 The report also outlines specific challenges in the current capital programme.
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___________________________________________________________________ 2. Recommendations 2.1 Note the economic update outlined in section 3; 2.2 Note the 2024/25 financial position update in section 4, and agree the planned use of financial sustainability reserve funding as detailed in sections 4.3 and 4.4; 2.3 Note the learning estate update in section 5 and agree the revised capital funding approach and position outlined; 2.4 Note the medium term financial position, key assumptions and projected reserves balances outlined in sections 6-8; and agree the principles outlined in relation to the planned use of reserves _________________________________________________________ 3. Economic outlook, key fiscal events and prospects for the local government finance settlement 3.1 The outlook for the general economy in the UK remains subdued, and while there are encouraging signs in terms of inflation being forecast to return to target levels over the medium term, there remains the risk of volatility in response to world events. At its 1st August meeting, the Monetary Policy Committee (MPC) of the Bank of England (BoE) voted narrowly (5-4) to reduce the bank rate by a quarter of a percentage point, down to 5%. Prospects for further sustained cuts were not helped by (CPI) inflation rising from the target rate of 2% in June to 2.2% in July 2024 - although this rise was less than had been expected. The Bank expects CPI inflation to increase to around 2.75% in the second half of this year, as declines in energy prices last year fall out of the annual comparison. Thereafter, domestic inflationary persistence is expected to fade away over the next few years, with an expectation of the rate falling below the 2% target by the second quarter of 2026. Economic growth (GDP) is still expected to be relatively low, at not much more than 1% a year (in real, inflation adjusted terms). The Bank Rate is expected to continue to fall, averaging 4.1% in 2025 and 3.7% in 2026 and ending up at 3.5% by the end of the 3-year forecast period (Q3 2027). Members may also be interested in the Cost of Living update to the recent Fairer Renfrewshire Sub-committee which provides further helpful data in relation to key economic indicators.
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3.2 The UK Chancellor has confirmed the UK Budget for 2025/26 will be announced on 30 October. The UK government has been trailing the likelihood that the budget will be ‘painful’, limiting prospects for any optimism in terms of improvement in either Scottish or local government grant settlements. The Budget will outline the fiscal and spending decisions for 2025/26, with a three-year spending review for 2026/27 planned to be announced in Spring 2025. 3.3 At a Scottish Government level, financial pressures in 2024/25 have necessitated difficult decisions in terms of reallocating existing budgets to fund higher than anticipated public sector pay awards. This has required the Cabinet Secretary for Finance to issue a fiscal statement to Parliament on 3 September wherein £500 million of planned spending has been redirected in year, with a further £460 million of revenue income from Scotwind leases also planned to be utilised in year. 3.4 Confirmation of the UK Budget date on 30 October has allowed the Scottish Government to work to an indictive Scottish Budget timescale of the Draft Budget being issued on 4 December, with the detail of the local government settlement being issued potentially on 10 December. Members will be aware it is only when the detail of the settlement is issued that the Council will begin to form a firmer view as to the financial position for 2025/26; and it is again likely that the position will not be fully understood until the conclusion of the Parliamentary Budget approval process over the course of January and into February. An indicative date for Stage 3 of the budget process (ie the final sign off) has been suggested as 18 February. Given the minority administration position in the Scottish Parliament, there is an increased chance of changes to the Draft Budget position over the course of the Parliamentary approval process which may add complexity and uncertainty to the finalisation of the local government settlement. 3.5 As members will be aware, the financial position for councils in Scotland has been and continues to be very challenging. The Accounts Commission in their recent publication highlighted that real terms funding remains constrained as most of the increase is directed funding to deliver Scottish Government priorities and agreed pay deals. At the time of setting budgets, councils identified a difference of at least £585 million between their anticipated expenditure and the funding and income they expect to receive (the ‘budget gap’) for 2024/25, representing an estimated 3.5 per cent of councils’ total revenue budget. Councils agreed a range of actions to close these gaps, most commonly the use of recurring savings and reserves.
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3.6 The Scottish Government has also outlined that its medium term financial plan – originally planned to be published in May and then suggested it would be published alongside the 2025/25 Draft Budget – will now not be published until after the UK Spending Review in Spring 2025. The Cabinet Secretary has committed to Parliament that it will be published in good time for the 2026/27 Budget. While this proposed timeline is logical, it nevertheless continues the position where local government is again faced with a one year settlement and has no indication of future years grant levels beyond that. 3.7 Given the tone of messaging from both UK and Scottish Governments in relation to the 2024/25 in-year position and the prospects for 2025/26, the Council’s previous central assumption of a flat-cash revenue settlement may (based on developments that emerge over future months), be optimistic and will require revision; however for the purposes of this update, the flat cash assumption has continued to be used as the core planning position for 2025/26. From 2026/27 onwards an assumed 0.5% increase has been applied, in addition to projected distributional changes linked to increasing population and numbers of school children. This is of course dependent on population movement in Renfrewshire relative to the rest of the country. As a reminder of context, each 1% movement in general revenue grant amounts to approximately £4.2 million. 4 2024/25 Financial position 4.1 The most recent financial overview report to the Finance, Resources and Customer Services Policy Board outlined a projected year end overspend position for the Council (excluding the projected position within Renfrewshire HSCP) of £3.3 million, mainly related to expected pressures within Children’s Services, waste services and building repairs. The forecast overspend within Children’s Services assumes a level of teacher’s pay uplift (£4m) from August 2024 however the corresponding increase in budget was not increased as the pay settlement had not been concluded. Given the pay award now appears likely to be settled at 4.27%, corresponding budget will be allocated, at which point the service expects to manage costs within available resource. School transport costs however, remain an ongoing concern. Full details of the forecast position are contained within the Overview report.
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4.2 Members will recall that in setting the 2024/25 revenue budget, it was agreed that £4.3 million of reserves would be utilised in order to achieve a breakeven position. Of this amount, £2.0 million was agreed as non-recurring spend, with the remaining £2.3 million being the Council’s core deficit position which will carry forward in to 2025/26. The reserves position is explored in further detail below, however the use of reserves over a defined timescale while substantive measures are taken to deliver a balanced recurring budget is an appropriate tool for councils to apply in supporting their short term financial position. However, and as has been often repeated in financial reports to Council, the application of reserves can only ever be a short term solution to support financial stability and the Council must make every effort to deliver recurring savings to ensure spend remains sustainably within available resource. 4.3 Since the 2024/25 budget was approved, there are two issues in particular which will have an in-year impact on the spend and for which approval is sought to fund these costs from the Council’s Financial Sustainability fund: Members have been previously advised at the January 2024 Infrastructure, Land and Environment Policy Board of the need for additional services within waste to address new responsibilities as a result of SEPA guidance for dealing with waste furniture containing persistent organic pollutants (POPS). The Board agreed that the Council would require to change how it deals with the disposal of waste furniture, in particular at household waste recycling centres. The Council is already incurring what will be permanent costs in making these changes in the order of £0.5 million per annum. The Clyde Waterfront and Renfrew Riverside project is nearing completion, with final commissioning of the new Renfrew Bridge ongoing. With the bridge becoming operational in 2024/25, there are part year costs which will be incurred in relation to the staff team who will operate the bridge as well as associated services costs. While the full year costs will be incorporated into the 2025/26 base budget, the part year costs (£0.5m) incurred in 2024/25, will also require to be funded. 4.4 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:
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i. At the time of writing this report, the SJC pay offer for 2024/25 remains to be agreed. Detail of the offer is provided in s6.3 below, however importantly for the Council, the offer will require the Council to fund an additional 0.2% over the 3% which was incorporated into the base 2024/25 budget. This is estimated at £0.7 million which will require to be baselined in the 2025/26 budget, in addition to setting aside funding for the 2025/26 pay award. ii. The teachers pay settlement for 24/25 also remains outstanding; with an offer in line with the SJC average award being made to teaching unions ie 4.27%. In setting the 2024/25 budget, the Council agreed to set aside funding based on a 3% pay uplift for teachers from August 2024. The potential additional cost of the latest offer is £1.7 million, of which the Council would anticipate the Scottish Government would fund in part. Formal distribution of funding remains to be agreed. iii. The rate of employer pension contributions for teachers has increased from 1 April 2024 from 23.6% to 28.6%. The increase has resulted from the outcome of the valuation of the teachers’ pension scheme at a UK level. HM Treasury has committed to provide additional funding to cover the increased cost for employers, and funding should flow to the Scottish Government and thereafter to local government through the normal redeterminations process. COSLA understands that the Cabinet Secretary for Finance has committed that all funding will be passed through to councils; however the final position is unlikely to be determined until the 30 October UK Budget. The additional cost to the Council in 2024/25 is £3.4 million. Based on the assurance from the Cabinet Secretary, there should be minimal financial risk to the Council, however until the final distribution of funding is confirmed, there remains potential for unfunded costs to be incurred. iv. Members will be aware that in both 2023/24 and 2024/25 the Scottish Government sectioned off a portion of general revenue grant funding and attached specific conditions in relation to the maintenance of teacher numbers. The total national funding of £145.5 million (of which Renfrewshire’s share is £4.8 million) remains held back until the Cabinet Secretary for Education agrees its release. The Council’s base budget for 2024/25 has assumed this funding will be available, therefore any move to reduce the funding available will create an immediate gap in the 2024/25 base budget.
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4.5 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 over a decade of savings delivery and within a more volatile financial environment. This increased level of financial risk further supports the requirement to hold a prudent level of unallocated reserves. 5 Learning estate considerations 5.1 As is outlined in further detail below, the Education and Children’s Service Policy Board recently agreed the Learning Estate Strategy, including the development of a long term funding model which will underpin the aims and objectives of the strategy. The strategy will be developed over the coming years and will underpin future investment decisions in the learning estate, based on an agreed needs matrix and supported by robust business cases. This approach will help secure a strategic understanding of how to progress delivering the Council’s strategic vision and provide a comprehensive and transparent process to develop prioritised investment proposals to reshape, refurbish or rebuild the learning estate over the long term. 5.2 The scale of investment need in the whole learning estate over the longer-term will be significant - likely running into billions as opposed to hundreds of millions of pounds. In this context, a commensurately long term 20 – 25 year strategic funding model will require to be developed to set out how the most significant investment programme undertaken by the Council can be financially deliverable over the very long term. The model will require to set out the proposed funding approach, to clearly set out affordability considerations and the impact on the Council’s overall financial sustainability, and to outline the scale and timing of any investment capacity the Council is prepared to commit to. 5.3 The Council already has in train a number of significant projects within the learning estate – a new Dargavel Primary School, new Thorn Primary School, new Paisley Grammar School and an extended Park Mains High School; with capital costs for these projects totalling some £175 million, to be delivered over the next 2-4 years. 5.4 The capital costs for these projects are already incorporated into existing agreed capital plans and have been for some years. In addition, the revenue implications of these projects have also been appropriately incorporated into the Council’s medium term financial plans as most recently advised in December 2023.
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5.5 The assumption in relation to funding the capital costs of the new primary school in Dargavel and the extension to Park Mains HS as previously advised to Council is that prudential borrowing would be utilised; incurring an annual revenue cost in the region of £4 million annually (which has been incorporated into the Council’s medium term financial plans). In reviewing the capital funding requirements, future loans charges requirements and how these will impact on the Council’s future revenue position, and available capital reserve balances, it is proposed that the capital costs of the new Dargavel primary school are now funded entirely from the Council’s Investment Capital Fund. This fund is held by the Council to support the Council’s capital investment programme and to support the Council manage its long term debt position. It is now viewed that, given the considerable constraints on the Council’s revenue position as outlined later in this report, and from longer term forecasts in relation to debt levels, that it would be preferable to avoid the longer term borrowing costs (estimated at £3 million annually) associated with this investment. Funding for the Park Mains HS extension will remain to be funded from prudential borrowing. The impact on the Council’s revenue position from this proposal has been incorporated into the outlook position detailed in the remainder of this report. 5.6 Work is progressing well with the planning for delivery of the new Dargavel Primary School, with the current projected capital costs remaining within that forecast and within the agreed capital budget. In relation to the Park Mains HS extension, planning and design for the work required has also now reached a stage where there is improved certainty as to the overall project costs. Members will be aware that the current £30 million budget, originally set in September 2023, was based on Scottish Futures Trust metrics for a new build secondary school. The estimate required to cover both the costs of the new build extension, and the costs of remodelling within the existing school in order to support subject adjacencies and the continued effective operation of the school. The most recent cost estimates based on the progressed design are indicating a total expected cost of £37 million. The construction costs related to the new build element of the project are broadly in line with the forecast cost expected (being a combination of the extension being slightly smaller than anticipated but construction cost rates increasing above that forecast). However, the degree of intervention and remodelling within the existing school footprint is more substantial in order to ensure the expanded school – when complete – still feels from an educational standpoint like a single school.
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Establishing a clear view of the remodelling work required has only been possible based on the now completed detailed space planning and operational design work. As has been previously advised, it is expected that BAE Systems will require to make a contribution to the capital costs of the school amounting to approximately half the cost incurred. The additional cost to the Council therefore will be £3.5 million, which will as outlined above be funded through prudential borrowing. This addition will mean the total borrowing costs will increase from the original estimate of £1 million annually to £1.2 million. Again, this additional cost has been incorporated into the medium term revenue forecast outlined in the remainder of this report. Members should be aware that there remains a risk that the revised cost estimate above may be subject to further volatility - as is the case with any large construction project – until both the procurement and construction are complete. 5.7 As has been previously advised to Council, the operational costs associated with the projects above have been incorporated into previous outlook reports as far as they were reasonably ascertainable. The cost and income projections for these all these projects continue to be refined as further information becomes available, designs are firmed up, the timing of opening becomes more certain and the anticipated changes in pupil roll manifest themselves over the coming years. Incorporated into the forecast in this report is an estimate of both the increased operating costs (teaching and non-teaching staff, facilities, utilities and transport costs) and estimated additional income (as driven by increased pupil numbers and wider population growth) which will accrue to the Council through the operation of the GAE revenue grant distribution process. 6 Medium term forecast spend 6.1 The most recent financial outlook report to Council in December 2023 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 in relation to the potential level of pay awards in each of those financial years, inflationary pressures on services and supplies costs, known service pressures or developments (including those relating to the capacity issues at Dargavel Primary and Park Mains HS), anticipated movements in borrowing/debt servicing costs and also an assumed strategy to increase the revenue budget set aside to support improved asset lifecycle maintenance and management.
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6.2 Forecast spend assumptions are continually updated and the financial position outlined in this report is based on the assumptions are set out in more detail below. Pay 6.3 At the time of writing this report, the pay settlement for non-teaching (ie SJC) staff remains to be agreed for 2024/25. The offer consists of 3.6% or £0.67 per hour (whichever is worth more at each SJC Spinal Column Point), resulting in an overall average increase of 4.27% on the pay bill. In arriving at this offer, the Scottish Government has agreed to provide additional funding totalling £308 million, with the balance of funding required to be found by councils. The Council agreed to budget for pay increases in 2024/25 at 3%, however the final cost to the Council will be 3.2%, which will mean an increased draw from reserves in 2024/25; and also an element of ‘catch-up’ in the budget provision required for 25/26. The pay offer for teachers in 2024/25 is also outwith the pay provision set aside by the Council, with an offer of 4.27% being considered by trade unions currently. 6.4 The budget assumption in respect of pay awards in each financial year from 2025/26 is 3% / 2.5% / 2.5%. For context, each 1% pay award across both the teaching and non-teaching workforce will cost an estimated £3.2 million. As a reminder, pay award costs are not specifically funded by the Scottish Government and must be accommodated within the overall resources available to the Council. The estimated increases above will result in the Council requiring to generate (in the absence of any other funding being available) savings in the order of £25 million over this period; and are considered to be at the ceiling of what is affordable. Given the moderating outlook for inflation as outlined in section 3 above, the above suggested levels of pay award are viewed as reasonable, and Members should also note they are broadly in line with the increases suggested in the Scottish Government public sector pay policy for 2025/26 and 2026/27. Non-pay costs 6.5 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 the past 1-2 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.
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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. General inflation in the economy appears to be moderating so it is forecast the cost increases outlined above may moderate over the medium term. 6.6 In addition to inflationary costs, there are a number of new costs the Council can expect to incur, either as a result of new government policy or local decision making. Examples of these are new responsibilities for councils as a result of SEPA guidance for dealing with waste furniture containing persistent organic pollutants (POPS) which was outlined in a report to the Infrastructure, Land and Environment Policy Board in January 2024. There are costs being incurred in 2024/25 as outlined in section 4 above. The operating costs of the new Renfrew Bridge also require to be funded and baselined from 2025/26, with in year costs also being incurred in 2024/25 in advance of the bridge formally opening. 6.7 The Council continues to face a number of expenditure risks over the medium term, the most significant of which are briefly highlighted below: Adult social care – although these services are delegated to Renfrewshire HSCP to deliver, there is a growing risk to the Council in terms of additional financial support being required by the HSCP in the short term. In setting the 2024/25 budget, there was significant reliance on reserve balances by the IJB, with £7.2 million of reserves expected to be applied from a total reserve balance of £14.7 million. The HSCP financial outlook suggests, due to demand and cost growth, that reserves will be exhausted by the end of 2025/26, reflecting a similar picture emerging in other IJB areas across Scotland. The most recent financial information provided by the HSCP as reported to the Leadership Board forecast an overspend in 2024/25 of £6 million ie slightly below the £7.2 million planned reserves drawdown; however the £6 million forecast does not include any costs relating to the settlement of recent home care workers pay dispute which remains to be settled.
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The HSCP financial outlook is a growing and very significant risk to the Council’s financial position; and the Scottish Government funding settlement for 2025/26 (and any associated conditions) will be critical to both organisations. Early Years external provider support – as reported to the Education & Children’s Service Policy Board, there is a projected overspend in Early Years is due to the increase in the sustainable rate to childcare providers. Although the Scottish Government has provided additional funding for this cost, a net overspend of £0.4m is projected. While this overspend is manageable in year within overall early years budgets, this is an area of growing concern for future years. School transport – in setting the 2024/25 budget additional resource of £1.4 million was agreed to increase existing budgets related to both mainstream and ASN school transport. Despite this increase, transport costs are forecast to exceed available budgets by £0.6 million in 2024/25. An additional £0.5 million is included within the forecast position over the medium term, however the service will require to review current provision to avoid further unaffordable cost growth. Learning estate investment – the Education and Children’s Service Policy Board recently agreed the Learning Estate Strategy, including the development of a long term funding model which will underpin the aims and objectives of the strategy. The development of this model will be undertaken over the coming months, however it is anticipated that in order to address the issues outlined in the strategy, a very significant level of funding that would be required to be set aside by the Council each and every year over the longer term and this will require to be incorporated into the Council’s overall long term financial planning arrangements should the Council decide to progress with the strategic investment plans that emerge from this work over coming years. It is expected the funding requirements over the next 20 years will run into billions of pounds, requiring careful development of the funding model to ensure the affordability, sustainability and timing the investment is manageable within the overall resources the Council has available. No additional funding has been incorporated into the medium term forecasts outlined in this report while the model is being developed.
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Lifecycle maintenance and net zero – the Council has had for several years a general practice of lifecycle maintenance funding being applied on a ‘wind and watertight’ basis only. This position is not sustainable and condition surveys for public buildings carried out recently confirm an overall deterioration in the state of key public buildings, and schools in particular. Linking to the learning estate strategy outlined above, there will need to be an increase in funding for elemental lifecycle maintenance and reducing carbon emissions (ie planned preventative maintenance and replacement of key items such as roofs, windows, heating systems etc). The revenue projection detailed in this report assumes an increase by £1m each year of funding towards lifecycle maintenance; in addition to the current practice of £3-4 million of capital grant funding also being ringfenced for this issue. 7 Income and Savings 7.1 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. Both short and longer term savings have also been possible through external opportunities such as the temporary reduction in employer superannuation rates for local government employees in 2024/25 and 2025/26. 7.2 Since 2011/12 cumulative savings of £182 million have been secured from a combination of service savings and also through corporate financing options which have been exercised as it outlined in Table 1 below.
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Table 1 – Savings Summary 7.3 The approach to the delivery of savings over this time has been to try and protect education and social care services as much as possible, with corporate and debt financing strategies being flexed as much as possible to drive out efficiencies which will not impact on front line services. Renfrewshire has one of the lowest debt financing cost to net revenue ratios in the country at 3.1% as detailed in the 2023/24 annual accounts. This ratio demonstrates that for every £1 the Council spends, just over 3p goes towards servicing outstanding debt. Benchmark information across Scotland suggests the average level is around 5.5%, with some councils approaching double figures. The ability of the Council to drive out further financing efficiencies in future is therefore likely to be limited, however the finance team will continue to explore any further options that may be possible. 7.4 As previously reported to Council, progress with the financial sustainability workstreams has highlighted the challenges involved in driving out significant savings that do not impact on service delivery. Some workstreams will also take longer to deliver savings, or in some cases, while not delivering significant savings in their own right, the work is important to undertake as it is a critical enabler in the delivery of other service changes or savings. For example, development and improvement of the Council’s web presence through the Digital Experience project (DXP), supported by the trialling of automated technology, will take some investment in the short term.
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It will however be a key enabler in increasing digital ways of working and digital customer services, which are expected to generate efficiencies in the longer term as well as improvements to service provision. Other digital workstreams such as the green print strategy will contribute to savings which can be secured in 2025/26; but will require cultural change from all staff and particularly in schools if savings are to be fully realised. 7.5 Council agreed a number of other financial sustainability workstreams which continue to be progressed, including the strategic property review, a connected communities review, updates to employee terms and conditions and strategic procurement measures. Updates with regards these reviews are regularly monitored by the corporate management team with decisions as required being considered by relevant policy boards. 7.6 The corporate management team is also progressing with a strategic review of the services commissioned from OneRen. Members will be aware that the services commissioned are the subject of a formal SLA between the Council and OneRen, which has not been strategically reviewed since cultural services were transferred to OneRen in 2015. The review will aim to reassess whether the current outcomes set out by the Council remain appropriate; and will also consider current operating issues, service demand, locality access to OneRen services, property implications (linking with the strategic property review) and future service models. The review will also need to consider the wider social and health benefits of OneRen service provision and how these can be improved, while recognising the financial constraints the Council faces. It is expected the review will take 12-18 months to complete. 7.7 Council has previously agreed an £8 million per annum departmental savings target each year for three years from 2025/26. This scale of recurring savings is both necessary and unavoidable if the Council is to return to a position of recurring financial balance. Directors and their management teams are developing options to deliver savings at this scale. This work will continue over the coming months with update reports to be provided to Council and Policy Boards as appropriate; including consideration at Council budget setting. Development of further proposals and delivery of those which have been developed must remain a key Council priority and will be one which will place increasingly significant demands on already stretched management capacity.
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7.8 As has been outlined above, the delivery of further savings over and above that which have been delivered over the past decade or more is increasingly challenging; and the Council must recognise that savings delivery to date has not been equitable. Some services have delivered more than others in order to protect priority services. It is estimated that of the total £114m service savings delivered as outlined above, approximately half of these have been delivered by Finance & Resources, and Environment, Housing & Infrastructure (or predecessor) services. These services however only make up around 20% of total council budgets. In effect, these services have delivered savings equivalent to more than 60% of their 24/25 base budget over the past decade. It is not tenable for these services to continue to deliver savings at this level without services being withdrawn or impacting on front line service delivery. 7.9 Children’s Services and adult social care combined make up two thirds of the total Council revenue budget. While these services have also delivered savings over the past decade, they have been protected from the need to deliver savings at the scale borne by other council services. Inevitably if the Council is to remain financial sustainable an increased level of savings will be required from these services. The £8 million departmental target savings has therefore been allocated based on proportionate budgets (excluding adult social care), which results in Children’s Service being inevitably allocated the greatest proportion of this £8m target. 7.10 In respect of assumptions on general revenue grant movement over the medium term, the core assumption of ‘flat cash’ remains over the short term, with a very marginal increase in quantum (0.5%) anticipated from 2026/27. In addition, the forecast also assumes a small increase in revenue grant as a result of distributional changes – directly linked to overall increasing population relative to other council areas, but also to anticipated movement in total pupil roll as has been mentioned above. Members should note the ‘flat cash’ assumption for 2025/26 is potentially optimistic given the tone of messaging from both Scottish and UK Governments. This assumption may require to be revised once the UK Budget is announced on 30 October. It is also hoped that the current difficulties in securing a timely conclusion to the Council’s grant position will be avoided, with ringfencing minimised. 7.11 With regards to self-generated income, an assumption of a sustained 5% increases in fees and charges is included within the forecast period each year.
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This core assumption will support the Council to begin to grow income sources from historically lower levels of fee income reflecting decisions taken by the Council to minimise increases over the past decade. This has however resulted in a position now where charges in many cases do not cover the cost of service delivery or where the Council continues to provide a scale of subsidy that is no longer financially sustainable. Additionally, Directors may bring forward specific proposals for Members to consider which vary from this core position as required. 7.12 On council tax, the previous financial update in December 2023 has proposed a 6% increase for 2024/25, reducing over the years to 4% in 2027/28; totalling an increase over the four year period of 19.5%. The decision of the First Minister to mandate a council tax freeze in 2024/25 obviously affected the outlook, and in 2024/25 the compensatory funding received equated to a council tax increase of 4.4%, although council tax payers were protected. The updated forecast position remains at 19.5% over the 2024/25 to 2026/27 period (ie the impact on council tax payers over this period is the same), however the phasing of this increase is now 6.5% in each year from 2025/26. For Members assurance, this is the core financial planning assumption - the final decision on the movement in council tax will remain for Council to take at future annual budget setting meetings. 8 Medium term forecast and reserves 8.1 The above sections have outlined key assumptions and expected movements in both expenditure and income. The culmination of these movements is outlined in Table 2 below:
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Table 2 – Summary medium term forecast 8.2 The above position represents the combination of the range of assumptions outlined in the sections above, however it should be noted these are based on the best information available at this point in time and undoubtedly will be subject to change. 8.3 What can be concluded however, is the similarity to the previous forecast from December 2023, where there is a timing disconnect between the Council’s ability to develop and deliver recurring savings to match the spend pressures which are emerging, resulting in a growing recurring financial gap and a requirement to utilise reserves in the short term to achieve financial balance. Despite the fact that in setting the 2024/25 budget the Council was able to reduce the recurring budget gap to £2.3 million, the use of reserves was still required, and as can be seen from the table above, the recurring gap simply grows larger in each year to come. Summary medium term forecast 24/25 25/26 26/27 27/28 £m £m £m £m Opening base budget gap A 0.6 2.3 8.3 14.5 New pressures: Pay (3%*/3%/2.5%/2.5%) 29.1 9.8 8.0 8.1 Non‐pay 12.3 11.6 5.0 6.7 Settlement Adjustments 14.1 2.7 2.0 2.0 Borrowing costs 1.2 1.4 3.3 2.0 B 56.7 25.5 18.3 18.8 Savings: Right for Renfrewshire ‐1.6 Property ‐0.5 Fees & Charges (5%) ‐0.6 ‐0.3 ‐0.3 ‐0.3 Council Tax base increase ‐2.4 ‐1.9 ‐1.5 ‐0.5 Corporate and service savings ‐3.8 ‐4.0 Savings Target £8m annually tbc tbc tbc C ‐8.9 ‐6.2 ‐1.8 ‐0.8 Movement in SG revenue grant D ‐41.2 ‐6.1 ‐3.0 ‐3.0 Budget gap prior to CT decision A+B+C+D 7.2 15.5 21.8 29.5 CT increase (0%~/6.5%/6.5%/6.5%) ‐4.9 ‐7.2 ‐7.3 ‐7.5 Recurring budget gap 2.3 8.3 14.5 22.0 One‐off spend commitments 2.0 Use of reserves ‐5.3 ‐8.3 ‐14.5 ‐22.0
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The need for the Council to make spending and service prioritisation decisions at a greater scale and pace than over recent years in order to fully commit to the delivery of sustainable savings over the medium term has been consistently highlighted in each recently published financial outlook report. This will require the current lower level of real terms resources and spending capacity at the Council’s disposal to be focused on those areas of greatest need and priority. 8.4 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 financial challenges and securing immediate financial stability while sustainable savings are generated to match financial pressures, but it cannot ever be more than a short-term measure. 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 in to 2024/25 was £13.2 million, of which £4.3 million has been committed in setting the 2024/25 budget. A further £1 million is proposed to be funded as outlined in section 4.3 above, with a further draw anticipated to fund the 0.2% gap in the pay provision as outlined in section 4.4. It is expected there will be a contribution to the reserve from the fortuitous (and temporary) reduction in employer superannuation contributions in 2024/25 of £12 million, resulting in a net year end forecast balance of approximately £19 million. A further £12 million will be added in 2025/26, this being the final year of the temporary reduction in employer superannuation contributions, giving a total available balance of approximately £31 million. The net draw on this fund over the forecast period as outlined in Table 2 totals £45 million. It is clear therefore that the delivery of savings at scale and at pace is critical to the ongoing financial sustainability of the Council. 8.5 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 (2.3% of net running costs) over the medium term;
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The Council commits to the planned use of the Financial Sustainability reserve (including the non-recurring benefit anticipated in 2024/25 and 2025/26 from the reduced level of employer pension contributions) 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. 8.6 An updated revenue outlook will be provided to future Council meetings including the annual budget setting meeting, incorporating the confirmed level of Scottish Government revenue support in 2025/26, any revised financial assumptions and any variation in the requirement to utilise ring-fenced reserve balances from that outlined in Table 2. 9 General Fund Capital Programme 9.1 The Council has an 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. 9.2 Over the period of the pandemic and in the period of very high inflation since, Council has required to increase capital projects budgets on a number of occasions, and indeed this is again the case with the Park Mains HS extension project as outlined in section 5 of this report. 9.3 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. 9.4 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 likely 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 growing financial pressures and volatility being experienced.
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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. 9.5 Should the Council subsequently approve a new strategic learning estate strategy, this will initiate a further complex programme of long term capital investment which will be underpinned by a very long term funding model that will be very significant in scale 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 such a 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. ___________________________________________________________________ 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 proposals 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.
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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 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 will support the delivery of financial sustainability. 10. Risk – as outlined in the report the Council’s financial sustainability risk remains high, however the Council immediate financial stability is secure. 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