Agenda Document Pack - Moray Council - 25/02/2026
Moray Council · 25 February 2026
Back to Moray Council — 25 February 2026 and its agenda
Text extracted from the council's PDF. Layout and reading order may differ from the original.
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Moray Council Wednesday, 25 February 2026 NOTICE IS HEREBY GIVEN that a Special Meeting of the Moray Council is to be held at Council Chambers, Council Office, High Street, Elgin, IV30 1BX on Wednesday, 25 February 2026 at 09:30. BUSINESS 1. Sederunt 2. Declaration of Group Decisions and Members Interests * 3. 2026-27 Budget 2026-29 Financial Plan Report by Executive Director Finance, Strategy and Transformation 5 - 24 4. Housing Revenue Account Annual Budget 2026-27 Report by Executive Director Economy, Enterprise and Operations 25 - 38 5. Medium Long Term Financial Strategy Report by Executive Director Finance, Strategy and Transformation 39 - 72 6. Treasury Management Prudential Indicators Report by Executive Director Finance, Strategy and Transformation 73 - 104 Page 1
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Watching the Meeting You can watch the webcast live by going to: http://www.moray.gov.uk/moray_standard/page_43661.html Webcasts are available to view for 1 year following the meeting. You can also attend the meeting in person. If you wish to attend in person, please come to the High Street entrance door and a member of staff will let you into the Chamber. Page 2
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GUIDANCE NOTES * Declaration of Group Decisions and Members Interests - The Chair of the meeting shall seek declarations from any individual or political group at the beginning of a meeting whether any prior decision has been reached on how the individual or members of the group will vote on any item(s) of business on the Agenda, and if so on which item(s). A prior decision shall be one that the individual or the group deems to be mandatory on the individual or the group members such that the individual or the group members will be subject to sanctions should they not vote in accordance with the prior decision. Any such prior decisions will be recorded in the Minute of the meeting. Page 3
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MORAY COUNCIL Moray Council SEDERUNT Councillor Kathleen Robertson (Chair) Councillor Amber Dunbar (Depute Chair) Councillor James Allan (Member) Councillor Peter Bloomfield (Member) Councillor Neil Cameron (Member) Councillor Tracy Colyer (Member) Councillor Theresa Coull (Member) Councillor John Cowe (Member) Councillor John Divers (Member) Councillor Jérémie Fernandes (Member) Councillor Donald Gatt (Member) Councillor David Gordon (Member) Councillor Juli Harris (Member) Councillor Sandy Keith (Member) Councillor Elaine Kirby (Member) Councillor Scott Lawrence (Member) Councillor Marc Macrae (Member) Councillor Paul McBain (Member) Councillor Neil McLennan (Member) Councillor Shona Morrison (Member) Councillor Bridget Mustard (Member) Councillor Derek Ross (Member) Councillor John Stuart (Member) Councillor Draeyk van der Horn (Member) Councillor Sonya Warren (Member) Councillor Ben Williams (Member) Clerk Name: Tracey Sutherland Clerk Telephone: 07971 879268 Clerk Email: committee.services@moray.gov.uk Page 4
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Report to: Special Meeting of Moray Council Meeting Date: 25 February 2026 Report by: Executive Director Finance, Strategy and Transformation Author: Lorraine Paisey Jamie Fraser Contact Email: lorraine.paisey@moray.gov.uk jamie.fraser@moray.gov.uk Subject: 2026/27 Budget and 2026-29 Financial Plan 1. PURPOSE ☒ For Decision ☐ For Information 1.1 The purpose of this report is to ask Council to set the level of Council Tax for 2026/27, to agree the Council’s revenue budget for 2026/27 and to consider the Council’s Financial Plan for 2026 to 2029. 1.2 This report is submitted to Council in terms of the Council's Administrative Scheme section (II) (1) relating to setting the Council Tax and section (II) (22) and (23) relating to the approval of the annual estimates of capital and revenue expenditure for all services. 2. SUMMARY 2.1 The Council’s revenue budget for 2026/27 and Financial Plan 2026-29 are presented against a backdrop of economic uncertainty. The Local Government Settlement is for one year only, but the Council is setting its 2026/27 budget in the context of longer-term planning. In particular, the budget is set in the context of the Corporate Plan, the three- year Capital Plan for 2026-29 and in the context of the Short to Medium and Medium to Long Term Financial Strategies. Underpinning these is the Transformation Strategy, a strategy which necessarily has a focus which is longer than the short term. 2.2 The budget reflects the Council priorities set in the Corporate Plan, and includes four initiatives which will advance Council priorities, three of which are subject to approval of more detailed reports which will be considered by Council at its meeting this afternoon. 2.3 The proposed budget shows planned expenditure, before savings, of £316,123,000 which includes a starting position of the approved adjusted 2025/26 budget plus allowances for pay and price increases, estimated increase in finance costs associated with borrowing, new burdens, budget pressures and specific previously approved planned expenditure of £748,000 to be funded by earmarked reserves. Item 3. Page 5
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2.4 Estimated income is £310,628,000 and compromises of General Revenue Grant, Non Domestic Rates Income, funding from UK Government for Extended Producers’ Responsibility for packaging (pERP) and Council Tax. An increase in Council Tax of 10% is recommended and this reflects the indicative increase approved by Council on 28 February 2025 (paragraph 3 of the minute refers). 2.5 A shortfall in funding of £4,446,000 has been met by £4,386,000 previously approved savings and final savings of £60,000 included in the budget report resulting in a balanced budget for 2026/27. 2.6 The report provides further detail on the funding for Moray Integration Joint Board (MIJB) as well as highlighting any associated risks to the revenue budget in 2026/27. The report emphasises the need to deliver the approved savings. 3. RECOMMENDATIONS 3.1 It is recommended that Council approves: i) A Council Tax increase of 10% for 2026/27 and an indicative increase of 6% for 2027/28. ii) Provision of £8,046,000 for budget pressures for 2026/27 and £244,000 for 2027/28 as listed in APPENDIX 2; iii) Budgeted expenditure of £311,980,000 for 2026/27; iv) Redesign of service and reallocation of budget as set out in paragraph 4.5; v) Indicative budgets for 2027/28 and 2028/29 as set out in APPENDIX 1; vi) Funding of £91,243,000 for Moray Integration Joint Board (MIJB) in 2026/27 as set out in paragraph 7.4; and vii) Use of ear-marked reserves of up to £303,000 for investment in transformation as set out in paragraphs 4.8 and 4.9. 3.2 It is recommended that the Council notes: i) The conditions placed on the Council in terms of the settlement letter from the Cabinet Secretary for Finance and Local Government, subject to any announcements by Scottish Government; and ii) Projected additional savings requirements of £1,136,000 in 2027/28 and £7,049,000 in 2028/29. Lorraine Paisey, Chief Financial Officer Jamie Fraser, Service Manager Strategic Finance Page 6
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4. BACKGROUND AND CONTEXT 4.1 The Council’s revenue budget for 2026/27 is being prepared in a period of ongoing economic uncertainty. Although inflation, as measured by the Consumer Price Index (CPI) fell significantly from its peak in 2022/23 and showed signs of stabilisation during 2024/25 and early 2025/26, recent months have seen variable movements, hitting 3.4% in December with no clear long‑term trend emerging. The Bank of England (BoE) Bank Rate has steadily declined, starting the financial year at 4.5% before dropping to its current level of 3.75% as at November 2025. Whilst this is a welcome decline since the peak of 5.25% in July 2024 the Council is no longer benefiting from the historic low borrowing rates it saw prior to 2022 and that impacts on the Council’s ability to fund capital expenditure. Recent multi-year, above-inflation pay settlements have created additional strain on public authorities. The Scottish Government’s public sector pay policy for 2025-28 placed an envelope of 9% over the period, with no single year increasing more than 3%. As both 2025/26 and 2026/27 have breached those single year limits there is uncertainly on what approach Scottish Government will take regarding pay awards and in particular funding that will be made available in 2027/28 to assist with any above inflation awards as pay awards would have to be at 1% - half the projected rate of inflation – to remain within the envelope. This is a difficult environment in which to make financial decisions, and prudence must be the watchword. 4.2 The Local Government Settlement is for one year only, but the Council is setting its 2026/27 budget in the context of longer-term planning. In particular, the budget is proposed to be set in the context of the Corporate Plan, three-year Capital Plan for 2026- 29 and in the context of the Short to Medium and Medium to Long Term Financial Strategies. Underpinning these is the Transformation Strategy, a strategy which necessarily has a focus which is longer than the short term. 4.3 To facilitate longer term planning the Council has earmarked reserves to facilitate transformation of service delivery. Corporate Plan 4.4 The Council approved the Corporate Plan for 2024 to 2029 at its meeting on 28 February 2024 (paragraph 5 of the minute refers). The Council’s agreed priorities for that period are to: Tackle Poverty and Inequality; Build a Stronger, Greener, Vibrant Economy; Build Thriving, Resilient, Empowered Communities 4.5 A key element of the Tackle Poverty and Inequality theme is to support vulnerable members of the community and to reduce child poverty and income‑related inequalities. The Money Advice Moray service is recognised as a critical front‑line provision contributing directly to these outcomes. Since 2022, the service has been partly funded through a grant received from the UK Shared Prosperity Fund (UKSPF). On 8 January 2026, the UK Government confirmed that Moray Council will not receive any further UKSPF funding beyond 31 March 2026, creating a resulting budget deficit of £259,000. The service has identified immediate mitigations through releasing vacant posts, reducing the remaining budget pressure to £136,000. It is proposed that this residual pressure is addressed through a reduction in discretionary repair grants and through the redesign of associated functions within the Benefits and Money Advice teams and broader Housing, Property and Communities service. Following a 62% reduction in funding for discretionary grants in 2025/26, this option would completely withdraw the provision of discretionary grants for Page 7
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essential repairs to private properties for elderly homeowners with low income, subject to consultation, however the service will continue to undertake statutory work on disabled adaptations. This proposed redistribution of budget will support a wider section of the community and is better targeted to support the Council’s objectives in this area. APPENDIX 3 provides further detail on the proposal and integrated Impact Assessment. 4.6 One of the actions under the theme of Build a Stronger, Greener, Vibrant Economy is the focus on a wellbeing economy. Since 24 September 2025, Moray Leisure Limited Board representatives have met Moray Council Senior Officers regularly to progress both the service level agreement between the Board and the Council and a new internal repair and insuring lease. Building on this partnership working, and subject to approval of another report presented to Council on the afternoon of 25 February 2026, it is proposed the Council takes on responsibility for certain maintenance and insurance costs associated with Moray Leisure Centre at a current estimate of £200,000 per annum. The transfer in responsibilities will be reflected in a revised lease agreement and annual management fee with Moray Leisure Limited. Transformation 4.7 The latest report on the Council’s Transformation Strategy was approved by Council Committee on 24 September 2025 (paragraph 13 of the refers) with the strategy moving into Stage 3. Stage 3 brings together ongoing transformation projects and adds new projects and opportunities. 4.8 Subject to approval of another report to Council on the afternoon of 25 February 2026 it is proposed to allocate £120,000 from the earmarked reserve held for Transformation to support maximisation of net socio-economic impacts from renewable energy developments, with a view to developing a Regional Socio-Economic Benefit Maximisation Plans (SEBMP). Developers will be encouraged to make direct financial contributions into a Moray Development Fund. The fund, which will be linked into the new Local Development Plan for 2027, will be set up to address the priorities set out in the Regional SEBMP, targeting elements which developers might not be able to address directly, while being administered by a stand-alone entity. This project supports the Corporate Plan priorities of Build a Stronger, Greener, Vibrant Economy; Build Thriving, Resilient, Empowered Communities 4.9 Subject to approval of another report to Council on the afternoon of 25 February 2026 it is proposed to allocate £183,000 from the earmarked reserve held for Transformation to act as seed funding towards progressing the Buckie Masterplan project to the Outline Business Case stage. A separate bid under the Just Transition Fund will be made to accompany this funding. The development of Buckie harbour has a strong strategic case dependent on infrastructure investment proposed in the Harbour Masterplan, to enable continued delivery or expansion of cargo movements, including for the distilling industry, fishing, cruise and coastal tourism. Strong opportunities pertain to offshore wind operations and maintenance activity, supported by marine engineering growth, and forecast growth in hydrogen and hydrogen derivatives. This project supports the Corporate Plan priorities of Build a Stronger, Greener, Vibrant Economy Capital Plan 4.10 The three-year Capital Plan 2026-29 and indicative 10-year Plan to 2036 was approved by Council on 28 January 2025 (paragraph 7 of the draft minute refers). Capital investment Page 8
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has a direct impact on the revenue budget by way of financing costs and operational maintenance costs. The level of investment demand currently outstrips funding capacity and a cap on capital was introduced as part of the 2025-28 Capital Plan. Addressing affordability and sustainability is still a core message within the Capital Plan. This is further emphasised by the focus from the Accounts Commission, who have set the Best Value Thematic for 2025/26 to asset management. A number of workstreams are currently in development, looking at reducing the asset base. The Learning Estate Review is underway and a progress report is due to Education, Children’s and Leisure Services Committee in June 2026. The Full Business Case associated with the Depots and Stores Review was approved by Council on 25 June 2025 (paragraph 30 of the minute refers) with a programme of works due to be completed by Q2 2028/29. The Smarter Working project is also progressing, with works Phases 1 and 2 completed bar disposal of Beechbrae, Duffus Road, Elgin. Phase 3 is underway. Further reports are due on both the Leisure Estate and Libraries Estate once updated information on the condition of both estates becomes available. Strategic Approach 4.11 Horizon planning and a long-term approach is vital to ensure the Council is prepared for challenges ahead. However, the Council operates in an ever-changing environment, and its strategic approaches must also be flexible in order to reflect this. 4.12 The Council approved its Short to Medium Term Financial (SMTF) Strategy on 25 June 2025 (paragraph 10 of the minute refers) with a further update provided to Council on 28 January 2026 (paragraph 6 of the draft minute refers). The SMTF Strategy sets out the approach towards closing this budget gap, based on the Medium to Long Term Financial (MLTF) Strategy; the risks and uncertainties which exist and which if materialised would increase the budget gap. Significant work has been done in prior years to reduce the reliance on non-earmarked reserves. The strategy now emphasises the importance of achieving savings to maintain a balanced budget. These savings can be delivered in the long term through the Transformation Strategy and Best Value, or in the short term through a budget‑led approach. The Council has an agreed savings hierarchy, with transformation of services as the preferred option, followed by income generation, thereafter services reduction or cessation. 4.13 The Council’s MLTF Strategy is a separate item to be presented at Council as part of this meeting. The Strategy sets out the financial outlook over the next ten years and highlights the scale of the challenges facing the Council beyond the period covered by the annual budget. Using prudent mid‑range assumptions, including flat cash funding from the Scottish Government over the medium to long term, the Strategy shows that ongoing budget pressures will continue to arise from pay awards, inflation, demographic change and the cost of capital investment. While Council Tax increases above inflation in the short term help mitigate some of these pressures, they do not fully offset rising costs. The MLTFS therefore indicates a continuing need to identify recurring savings over the life of the Strategy, primarily through service transformation, income generation and a reduction in the size and cost of the Council’s asset base. In the short term, more detailed assumptions are applied through the SMTF Strategy, which identifies the level of savings required to deliver a balanced budget for 2026/27. This reflects the indicative increase in Council Tax for 2026/27 of 10%. Page 9
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Income 4.14 The Council receives around 80% of its revenue funding from Scottish Government. Over the last twelve years, this grant funding has increased marginally in cash terms, and by considerably less than the cost of new duties required of local authorities. Inflation increases for pay and prices and growth in demand for services in some areas have therefore had to be balanced by efficiency savings and cuts in services. The Council has made savings totalling £72 million since 2010/11 and it is increasingly difficult to identify areas where further savings can be made whilst delivering the statutory duties of a local authority. 4.15 Income from Council Tax receipts is the other main source of income for the Council. A Council Tax increase of 10% for 2025/26 was agreed by Council on 28 February 2025 (paragraph 3 of the minute refers) with indicative increases of 10% and 6% for the following two years also approved. The SMTF and MLTF strategies identify Council Tax as one of its main financial levers. Levers represent the components of the budget that the Council can directly influence or control and Council should consider the option of further increases in Council Tax to lessen the savings required from reduced service provision. Reserves 4.16 The Council needs to retain a certain amount of free general reserves in case of unforeseen contingencies or emergencies. The Council’s updated reserves policy, which was approved by Council on 25 September 2024 (paragraph 15 of the Minute refers) is to hold £6 million as free general reserves. 4.17 The Council currently holds three earmarked reserves: for transformation, to support cash flow for Moray Growth Deal and the retrospective service concession savings reserve. The balances projected for 31 March 2026 for all earmarked reserves are set out in APPENDIX 1 to this report. Investment totalling £748,000 from the ear-marked reserve for Transformation has already been approved, with a further £303,000 recommended as noted in paragraphs 4.5-4.6. 5. REVENUE BUDGET 2026/27 5.1 The draft revenue budget for 2026/27 and indicative plan to 2029 is set out in APPENDIX 1 to this report. The budget proposed for 2026/27 is described in detail below. 5.2 The starting point for the 2026/27 budget is the budget for 2025/26. The brought forward Devolved School Management (DSM) balance and other funding from earmarked reserves is removed and budgets adjusted to reflect the reinstatement of temporary savings and the full year effects of budget adjustments made for part of 2025/26 only. A balance related to the impact of estimated overspend as at Q2 2025/26 has been brought forward, and will be identified as a budget pressure. See paragraph 5.17. The picture is complicated by commitment of earmarked reserves, by funding for schools where funding is made on a financial year basis but implemented on an academic year basis and by slippage in the implementation of some new requirements. The resultant starting point for the 2026/27 budget is expenditure of £299,084,000. A summary of the adjustments to the 2025/26 budget is set out below: Page 10
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£000s Budget report to Corporate Committee 17 Feb 2026 300,387 Less: Funded from DSM etc (1,212) Less: Other funded from earmarked reserves (2,634) Budget to be carried forward 296,541 Adjustments to carried forward budget Re-instate one-off savings 130 Review of savings carried forward 730 Review of pressures to be carried forward 619 Review of provisions to be carried forward 414 Increase to inflation provision for shortfall 2026/27 900 Less one-off one of reduction approved 2026/27 (250) Opening budget 299,084 Provision for pay and prices 5.3 Provision of £7,615,000 is made within the budget for pay awards and for some other inflationary increases in expenditure. Multi-year pay awards have been agreed for both teaching and non-teaching staff and that forms the majority of the provision. Other standard inflationary increases included are for PPP/PFI contracts, Early Learning and Childcare (ELC) partner providers and the cost of insurance and utilities. Finance Costs 5.4 The Council funds a significant proportion of its capital plan from prudential borrowing. No charge is made to the revenue budget for loans repayment or interest until the year after which the loan is taken out. Consequently, the budget for 2026/27 shows the estimated impact of planned capital expenditure in 2025/26. The provision has been reviewed in the light of the quarter three estimate of borrowing required in 2025/26 and current interest rates. A revised increase of £545,000 has been allowed for. The BoE Bank Rate has steadily fallen since its peak in August 2023, and this trend has carried across to short-term borrowing rates. Medium to longer-term borrowing rates, which are driven by UK gilt yields, have experienced volatility across 2024/25, influenced by political and economic risks. Treasury Management is the subject of another report at this meeting and the affordability of the Council’s capital plans measured by the Prudential Indicators are set out in that report. A key indicator regularly reported to Council is the affordability threshold of 10%, which states that financing costs should not exceed 10% of the net revenue budget in any given year. 5.5 A reserve balance is held in relation to retrospective service concession savings. The reserve was approved by Council on 1 March 2023 (paragraph 5 of the minute refers) and is to be used to bridge funding before the Learning Estate Investment Programme (LEIP) funding for Forres Academy is released once the school becomes operational. It is proposed that £301,000 is allocated to cover financing costs incurred in relation to 2025/26 spend. New burdens 5.6 New burdens are typically created for local government by legislation enacted by Scottish Government. A new burden for Discretionary Housing Payment (DHP) has been recognised. An increase in DHP funding of £85,000 has been received. Any funding not Page 11
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used for payments of DHP is clawed back therefore must be recognised as additional expenditure. Undistributed funds related to the extension of universal free school meals may result in a new burden, however, cannot be quantified at this time as the funding has not yet been distributed. Further information will be presented to Council in future budget monitoring reports as additional General Revenue Grant (GRG) funding related to specific Scottish Government initiatives is confirmed. Expenditure to be matched by use of ear marked reserves 5.7 Expenditure of £748,000 has been approved to date, all of which is to be funded from the earmarked reserve for transformation. Budget Pressures 5.8 Provision is also made within the draft budget for budget pressures which are not funded by Scottish Government or created by restrictions on use of funding by Scottish Government. Total previously approved budget pressures for 2026/27 equate to £364,000. Further budget pressures which are recommended for recognition are noted below. 5.9 Funding for the Whole Family Well Being Fund (WFWF) is recognised as a budget pressure. In April 2025 the Scottish Government confirmed that the WFWF will continue in 2025/26 and 2026/27 with Moray receiving an annual allocation of £619,000. This funding is provided through the General Revenue Grant but is not under the direct control of the Council as use of WFWF monies must be approved by Children’s Services Planning Partnerships (CSPP) and conform with criteria set by Scottish Government. 5.10 A budget pressure of £3,541,000 is to be recognised relating to MIJB. This consists of £2,927,000 additional funding to be passported across for the increase in Real Living Wage (RLW) for adult social care commissioned services, £387,000 additional funding for the increase in RLW in Children’s Services commissioned services and for development of services, with no stipulation as to how used and £227,000 as the MIJB pro rata share of the funding in GRG towards the 2026/27 pay award. 5.11 It is recommended to recognise a budget pressure of £200,000 in relation to the short fall in RLW funding for adult social care commissioned services. Scottish Government have provided funding on the basis that funding will meet the cost of the increase in RLW above the increase in the National Minimum Wage. This is a shortfall of 11p per hour and equates to a reduction of £435,000 in the funding from Scottish Government compared to funding for the full increase in RLW from 2025/26. The Council is not required to fund this shortfall but it is recommended and an addition in funding for MIJB is approved to mitigate the budget pressure which would otherwise be created for the Board. 5.12 It is recommended to recognise a budget pressure of £300,000 in relation to an increased costs of Non-Domestic Rates for council buildings following the revaluation which takes effect from 1 April 2026, mitigated by a reduction in rate poundage. 5.13 It is recommended to recognise a budget pressure of £69,000 to meet the increased cost of the anti-virus software used by the council following the end of the previous contract. The increased in cost has been reduced by entering into a multi-year contract. 5.14 It is recommended to recognise a budget pressure of £65,000 in relation to public land inquiry costs for Craigwatch Windfarm. The participation at the inquiry for Moray Council Page 12
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will be obligatory. Such attendance beyond officer time would necessitate the Council employing legal Counsel to prepare for and attend the inquiry to represent the Council at the quasi-judicial Inquiry. Estimated cost for legal Counsel is £60,000 with a further £5,000 required for specialist landscape architect advice. 5.15 It is recommended to recognise a budget pressure of £40,000 in relation to valuation fees for council dwellings. The Council operates a 5-year rolling programme of revaluations of land and property assets when preparing its annual accounts. For the annual accounts ended 31 March 2026 the housing stock is due for revaluation. Revaluations have historically been carried out internally by the Estates team, however capacity within the team, due to staff vacancies and recruitment challenges, mean this work cannot be carried out in time for the statutory deadline. 5.16 It is recommended to recognise a budget pressure of £274,000 in relation to peat spoil heap removal at Bilbohall, Elgin. As part of the new Elgin High School build in 2016 the peat was removed from the development site and deposited on the adjacent land as a temporary measure, on the understanding that it would be removed as part of the planned housing development delivered under the Housing Revenue Account (HRA), and the cost of removal would be recharged to the Education Department. It will be necessary to remove this spoil heap as part of Phase 1 development at Bilbohall. This is a provisional sum based on estimated volume of material, which will be refined when works begin on site. 5.17 As reported to Council on 3 December 2025 (paragraph 12 of the Minute refers) it is considered prudent to include in the expenditure budget for 2026/27 a sum equivalent to the estimated overspend for 2025/26, as the Council no longer has working reserves to cover off such overspend if it continues. An overspend of £900,000 was estimated as arising from the Council’s share of the forecast overspend for MIJB being £900,000 over the provision of £3,400,000 held centrally to cover any MIJB overspend. It is recommended that this provision, held and monitored as part of budget pressures, is increased to £4,300,000. A further £1,572,000 has been added to the opening budget in respect of projected overspends known to the Council at this time. It would not be good practice to reward overspends by an automatic increase in service budgets and it is proposed that that amount is also held as a central contingency. 5.18 In addition to areas where there has been known pressure in 2025/26 there are areas of emerging budget pressure which cannot be currently quantified with any degree of accuracy, but where clear trends of increased expenditure are emerging. Areas of concern reflected in overspend in 2025/26 include supply teacher costs, out of area placements for children requiring specialist support and reduced ability to recharge officers time to capital due to the cap on capital expenditure. Emerging areas include procurement challenges across a range of issues including legacy IT system replacements and waste disposal. The local government settlement 2026/27 makes reference to Breakfast Club provision, enhanced wrap-around childcare and sporting opportunities for young people with no associated funding including in the settlement. It is unclear what detailed proposals or financial impact of these will be but Scottish Government have indicated there is no additional funding for sporting opportunities and further budget pressures may arise from these new government initiatives. In addition to this pressure may arise from the continued requirement to maintain teacher numbers despite falling school rolls, which are resulting in reduced DSM budgets. To cover this pressure it is recommended that a Page 13
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portion of the savings recognised from DSM budgets in paragraph 6.2 is set aside as part of the central contingency for emerging budget pressures to ensure the Council can meet its teacher number target and therefore not incur loss of GRG, increasing the recommended provision for emerging budget pressures to £1,674,000. 5.19 With these additions the total budget revenue expenditure for 2026/27 before savings is £316,123,000. Funding Government Grant 5.20 The bulk of the Council’s funding is from government grant, given as a combination of General Revenue Grant (GRG) and Non Domestic Rates (NDR) distribution. The finance circular 1/2026 includes funding of £243,679,000 from General Revenue Grant and Non Domestic Rate Income. This is higher than the figure reported to Council on 28 January 2026 as the latest grant notifications include the first tranche of funding for Discretionary Housing Payments (DHP) (£955,000). The first tranche funding for DHP is £85,000 higher than in 2025/26 and so £85,000 has been included in new burdens (see paragraph 5.6). Funding towards the teachers’ pay award in 2026/27 has also been distributed. Funding towards Scottish Disability Allowance remains undistributed and an estimate of£42,000 is included as expenditure is included in MIJB funding. 5.21 The UK government has announced draft allocations of funding for Extended Producers’ Responsibility for packaging (pERP) and the provisionally announced funding of £3,359,000 is included. 5.22 With these amendments budgeted funding from Scottish Government and UK Government in 2026/27 totals £247,038,000. Council Tax 5.23 The budget set out in APPENDIX 1 includes an increase of 10% in Council Tax for 2026/27. The estimated income to be generated by that increase, based on current collection rates and anticipated growth in the Council Tax base, is £63,590,000. Council Tax is a key financial lever that can be utilised to achieve a balanced budget. As a point of reference, for the 2026/27 budget, a 1% reduction in Council Tax would equate to approximately an additional £575,000 of savings required to balance the budget. 5.24 To assist in forward planning the indicative budget for 2027/28 includes Council Tax increases of 6% as set out in para 4.14. The indicative budget for 2028/29 has not had an inflationary council tax uplift applied at this stage so that the full extent of the expected budget gap can be identified. Some of this budget gap will require to be addressed though an increase in Council Tax. 5.25 The proposed Council Tax by banding is listed in the table below. These figures do not include charges for water and wastewater which are collected alongside Council Tax on behalf of Scottish Water, nor do they consider any Council Tax Reduction, discount or exemption which may be due in individual cases. Page 14
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Council Tax 2024/25 Council Tax 2025/26 PROPOSED Band A £1,049.17 £1,154.09 Band B £1,224.04 £1,346.44 Band C £1,398.90 £1,538.79 Band D £1,573.76 £1,731.14 Band E £2,067.75 £2,274.52 Band F £2,557.36 £2,813.10 Band G £3,081.95 £3,390.14 Band H £3,885.71 £4,274.28 5.26 The proposed Council Tax is an annual increase of £157.38 on Band D or £3.03 per week. 5.27 The resultant budgeted income to the Council for 2026/27, alongside planned use of ear- marked reserves, leaves a shortfall of income compared to expenditure of £4,446,000 which required to be found from savings, with savings totalling £4,386,000 already identified, a shortfall of £60,000. Further savings are proposed in Section 6 of this report. 5.28 The movement from the position reported to Council on 28 January 2026 (paragraph 6 of the draft minute refers) is set out below: £000 Residual budget gap reported 25 January 2026 60 Adjustment for new burdens 85 Adjustment for emerging pressures 3,185 Adjustment for approved use of earmarked reserves 450 Less: Adjustment for opening balance (3,303) Adjustment for approved pressures (417) Revised residual budget gap 60 6. SAVINGS 6.1 Savings totalling £4,386,000 have been approved to date, with the latest round of savings approved by Council on 28 January 2026 (paragraph 6 of the draft minute refers). Included in the approved figure are indicative savings of £447,000 from the Improvement and Modernisation Programme and £117,000 of temporary savings. 6.2 Funding for schools under the DSM scheme is formula-driven, with the majority of funding distributed on the basis of school roll numbers. A high-level estimate of the impact of projected school rolls based on the latest school census was previously identified as a budget pressure. The latest census showed school rolls falling from those provisionally reported when the budget for 2025/26 was set. Adjusting for this fall in school roll has resulted in elimination of the budget pressure and subsequently created a saving of £448,000 in 2026/27. A reduction in DSM funding could result in a reduction of the capacity to employ teachers and so this saving – which results for a very recent revision in the DSM budget - must be considered in tandem with the Scottish Government Page 15
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requirement to maintain teacher numbers, with an element of GRG conditional on meeting target teacher numbers, and this is reflected in the proposal in paragraph 5.18. 6.3 A further saving of £120,000 has been estimated in relation to network upgrades due for completion in 2026/27 which will result in lower annual maintenance costs. Savings are estimated to accrue across 2026/27, with savings of £60,000 estimated for 2026/27 This saving allows for a balanced budget in 2026/27 with no further savings requiring to be found in the year. However, recognition should be given to future saving requirements as noted in APPENDIX 1. 7. Moray Integration Joint Board (MIJB) 7.1 As well as the adult social care services which the Council by statute must delegate to MIJB, the Council has delegated children’s social care and justice services. Consideration of funding for MIJB by the Council when its budget is set therefore falls to be made under two separate heading. MIJB will pool the funding along with funding from NHS Grampian when setting and monitoring its budget. Adult Social Care 7.2 In common with recent years there are restrictions on what the Council can do when setting the budget for adult social care to be delegated to MIJB. The letter from the Cabinet Secretary for Finance and Local Government to Council Leaders and Chief Executives which accompanies the local government settlements states that funding in the settlement for Free Personal and Nursing Care (FPNC) uplifts and for payment of RLW in commissioned services for adult social care should be additional and not substitutional to each Council’s recurring budgets for delegated adult social care. The table at paragraph 7.4 shows these amounts as pass through funding. In addition to this it is recommended that the Council pass on the pro rata share of the funding for 2026/27 pay award for SJC (see paragraph 5.10) and part-funding for the budget pressure created by the shortfall in funding for RLW (see paragraph 5.11). The Council cannot apply savings to the adult social care budget and no additional allowance above that funded by Scottish Government has been allowed for wage or contract inflation. Children’s Services 7.3 The settlement includes an increase of funding in respect of children’s social care services. This consists in part of funding for RLW for commissioned services for children’s social care and in part of funding from developing children’s services, with no restriction as to its use. It is in the Council’s discretion as to whether this funding is passed to MIJB and it is recommended that it is passed on in full. No savings are recommended to be applied to the budget for children’s services, and no inflationary uplift has been allowed for wage or contract inflation. 7.4 On that basis Council funding for MIJB on 2026/27 would therefore be: £000 Moray Council core funding 2025/26 Health and Social Care 68,124 Children’s Services 17,854 Home Improvement grants 951 Page 16
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Base core funding: 86,929 Add: Health and Social Care pass through funding: RLW uplift Free Personal Nursing Care (estimate until distributed agreed) 2,927 128 Other Social Care funding: RLW shortfall (para 5.11) Pay award 25/26 Pay award 26/27 200 445 227 Children’s Services: Additional funding for RLW uplift and service development 387 TOTAL BASE FUNDING MIJB 2026/27 91,243 8. Risks 8.1 The SMTF Strategy identifies risk as an important component of short to medium term financial planning. The importance of considering risk is heightened as the Council’s no longer holds non-ear marked reserves (outside its £6 million free general reserve) reducing the capacity the Council has to absorb unexpected or unplanned costs. 8.2 The proposed budget for 2026/27 is subject to the following specific risks: 8.3 Over-reliance of savings to balance budget. In the absence of reserves, savings have become the de-facto balancing tool. There may be slippage in achieving savings; savings may not be achieved in full, or the impact of spend-to-save measures may be less than anticipated. The delivery of savings is regularly reported as part of the quarterly revenue budget reporting cycle as well as through updates to individual service committees. 8.4 MIJB operating deficit. The Council is obligated to meet its share of any overspend, despite having no influence on the operation of the Board. The MIJB still has a significant operating deficit in 2025/26, despite the introduction of ‘grip and control’ measures and further budget pressures are anticipated to manifest in 2026/27. 8.5 Price inflation. Provision has been made for known inflationary increases, primarily relating to pay awards and key service contracts. Where no provision has been allowed, any resulting overspend will create a budget pressure. Budget Managers will need to control their expenditure to absorb such pressures where possible and may need to curtail spending or identify further savings. Similarly, provisional figures may not have been set at appropriate levels and increases may not be fully covered. As pay awards have been agreed for 2026/27 there is greater certainty on the impact of these increases. 8.6 Budget pressures. A budget pressure is one which is outside the control of a service. This may be as a result of new regulations or other external sources such as change in demographics. 8.7 Council Tax income. Depending on the collection rate, rate of growth of Council Tax base, income from the levy and loss of income under the Council Tax Reduction Scheme and other reliefs, the amounts raised by Council Tax may be lower than forecast. Page 17
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8.8 Impact of extreme weather event. Extreme weather events are unpredictable and can be costly. There is no contingency within the revenue budget, or capital plan, to absorb costs associated with extreme weather events. The winter maintenance budget is set for a mild winter. 8.9 Interest rates / cost of borrowing. Post-Covid 19, interest rates have increased 5-fold since their historic lows following the 2008 financial crisis. There has been some recovery in 2025/26, however political and economic factors can create instability, having an impact on both short and long-term borrowing rates. 8.10 In addition to cumulative risks around workforce, equalities, socio-economic and rights impacts set out in the summary of implications below, more general risks to the Council may also arise from the cumulative impact of savings on the Council and these will increase as the scale of savings increases. Generally, a reduction in staff without a reduction in the Council’s activities and duties leads to a less resilient organisation. This can be manifested in a number of different ways: reduction in capacity for partnership and cross service working; reduction in capacity to respond to emergencies; reduction in capacity to support and develop Council staff; and a reduction in the ability to sufficiently govern and apply internal controls. In addition to this staff vacancies can also impact on capacity and on service continuity. 9. SUMMARY OF IMPLICATIONS 9.1 The table below shows whether risks and implications apply if the recommendations are agreed: SUBJECT YES NO Corporate Plan and 10 Year Plan (Local Outcome Improvement Plan) ✓ Policy and Legal ✓ Financial ✓ Risk ✓ Staffing Best Value and Transformation Property ✓ Information Communications Technology/Digital Equalities. Social Inclusion and Economic Impact ✓ Climate Change and Biodiversity Impact ✓ 9.2 Corporate Plan and 10 Year Plan (Local Outcomes Improvement Plan (LOIP)) Improved Collaborative Leadership, as part of continuous improvement through Best Value, will better enable the Council to fulfil the ambitions set out in its strategic plans. a) Links to Council Corporate Plan – The proposals in this report support and contribute to improved outcomes for communities as outlined in the following Council Plan strategic priorities: ☒ Tackle Poverty and Inequality. ☒ Build Stronger Greener Vibrant Economy. Page 18
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☒ Build Thriving, resilient, empowered Communities. b) Links to Local Outcomes Improvement Plan – The proposals in this report support and contribute to improved outcomes for communities as outlined in the following Local Outcomes Improvement Plan priorities: ☒ Developing a diverse, inclusive, and sustainable economy ☒ Building a better future for our children and young people in Moray. ☒ Empowering and connecting communities. ☒ Improving wellbeing of our population Financial Planning is integral to the Council’s overall planning processes and allows the Council to direct resources to its agreed priorities 9.3 Policy and Legal The Council is required by statute to set a balanced budget before the start of the financial year. The requirement is set out in the Local Government Finance Act 1992 (section 93). 9.4 Financial The proposed budget for 2026/27 is balanced and implications have been identified throughout the report. 9.5 Risk The specific risks relating to the budget are identified in section 8. As there are always uncertainties around budget setting there is always risk attached and the uncertainties and therefore the risk are heightened the further forward into the future the budget extends. 9.6 Staffing There are no staffing implications arising directly from this report. 9.7 Best Value and Transformation Further use of the earmarked reserve for Transformation is identified in section 4 of the report 9.8 Property There are no property implications arising directly from this report. 9.9 Information Communications/Technology/Digital There are no property implications arising directly from this report. 9.10 Equalities, Social Inclusion and Economic Impact There are no proposals in this report which directly impact on this area. 9.11 Climate Change and Biodiversity Impacts There are no implications for climate change and biodiversity arising from this report. Page 19
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10. CONSULTATION 10.1 This report, and associated proposed budget, has been prepared in consultation with Corporate Leadership Team and Heads of Service and any comments made have been incorporated into the report 11. BACKGROUND PAPERS 11.1 Held within accountancy section. Page 20
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MORAY COUNCIL REVENUE BUDGET 2026/27 2026/27 2027/28 2028/29 £000 £000 £000 REVENUE EXPENDITURE Service allocations 298,282 311,677 318,579 Adjustments to brought forward figure: 802 (577) 1,034 Opening budget 299,084 311,100 319,613 Provision for pay and price increases 7,615 7,660 7,910 Increase in Loan Charges 545 2,409 4,962 New Burdens 85 - - Expenditure to be matched by use of of earmarked reserves 748 66 - Budget pressures: - Approved or noted for future years when budget set 364 244 - - Emerging 7,682 - - TOTAL EXPENDITURE 316,123 321,479 332,485 REVENUE FUNDING General Revenue Grant / NDRI 243,679 245,961 248,421 LEIP funding - - 1,742 UKG funding for pEPR 3,359 2,500 2,500 Council Tax 63,590 67,802 68,234 Funding from General Reserves: Funded from Ear-marked reserves: Transformation 748 66 - MGD cash flow - 379 716 Service concession 301 1,871 3,518 TOTAL FUNDING 311,677 318,579 325,131 SAVINGS REQUIRED 4,446 2,900 7,354 Savings Summary Savings Approved: Approved when budget set 3,822 1,505 305 Temporary savings including financial flexibility 117 50 - Indicative Savings from Transformation Programme 447 149 - Other savings proposed 60 60 - Savings to be identified - 1,136 7,049 Estimated balance on Free General Reserve 6,000 6,000 6,000 Estimated balance on Transformation Reserve 3,639 3,573 3,573 Estimated balance on MGD cash flow reserve 3,699 3,320 2,604 Estimated balance from retrospective service concession saving 7,225 5,354 1,836 Earmarked reserves 14,563 12,247 8,013 Total Reserves 20,563 18,247 14,013 APPENDIX 1 Page 21
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Budget Pressures Approved 2026/27 2027/28 £000 £000 Approved or noted for future years when budget set Economic Growth and Development Local Plan examination MC 08/02/24 50 - Development Plan Scheme - transportation appraisals P&R 23/03/21 25 - Education School roll numbers - 174 MGD revenue contribution STEM MC 03/03/21 39 40 Corporate / cross service Contingency for emerging budget pressures MC 26/02/25 250 - 364 214 Emerging Health and Social Care Whole Family Wellbeing Fund 619 - MIJB - RLW in adult social care (passported) 2,927 - MIJB - RLW in children's services (passported) 387 - MIJB - Uplift for 26/27 pay award (passported) 227 - MIJB - Uplift for RLW 200 - MIJB - Provision for overspend 900 Economic Growth and Development Craigwatch Windfarm Public Inquiry 65 - Education Bilbohall, Elgin Phase 1 - Spoil heap removal 274 - Corporate External Valuations- HRA Dwellings 40 - NDR Revaluations 300 - ICT - Antivirus software 69 - Corporate / cross service Contingency for emerging budget pressures 1,674 - 7,682 - TOTAL BUDGET PRESSURES 8,046 214 APPENDIX 2 Page 22
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APPENDIX 3 Proposed Service Redesign and Budget Redistribution Key: Comms Readiness 1 – Information only 1 – Ready to go 2 – Workforce 2 – Engagement 3 – Public 3 – Consultation 4 – Not required 4 – Further development required Savings template and integrated impact assessment available as background papers. Service REF Description Budget for redistribution Staffing Implications IIA Needed Comms Readiness 2026/27 £000 2027/28 £000 2026/27 £000 Y/N FTE V R Housing, Property and Communities Housing Strategy & Development C4-2 Remove remaining discretionary grants for essential repairs to private properties for elderly homeowners. 70 71 - Y 2 N N Y 2,3 4 Page 23
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Report to: Special Meeting of Moray Council Meeting Date: 25 February 2026 Report by: Executive Director for Education, Housing and Communities Author: Edward Thomas Contact Email: edward.thomas@moray.gov.uk Subject: Housing Revenue Account Annual Budget 2026-27 1. PURPOSE ☒ For Decision ☐ For Information 1.1 This report presents details of the proposed Housing Revenue Account (HRA) budget for 2026/27 for approval. 1.2 This report is submitted to Council in terms of section (II) (1) of the Council’s Scheme of Administration relating to the setting of rent levels for council houses, garages etc. 2. SUMMARY 2.1 This report presents the HRA Budget proposals for 2026/27. It also includes a three-year financial projection to 2028/29. The rental increase of 6% for 2026/27 is the second of three years under the current rental strategy. 3. RECOMMENDATIONS 3.1 It is recommended that Council: i) considers and notes the key provisions of the Housing Business Plan 2025 as detailed in section 4; ii) agrees the proposed HRA Budget for 2026/27 (APPENDIX I) and Housing Investment Plan (APPENDIX II), including the level of HRA reserves in line with the Housing Reserves Policy as detailed in paragraph 6.13; iii) notes that Council house rents will increase by 6% in 2026/27, year two of the three-year rent strategy; iv) notes that garage rents and garage site rents will increase by 6% in 2026/27, year two of the three-year rent strategy; Item 4. Page 25
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v) agrees provision of £250k for service developments, as detailed in paragraph 7.16; and vi) notes the three-year projection to 2028/29 (APPENDIX III). Edward Thomas Head of Housing, Property and Communities 4. BACKGROUND 4.1 Housing Business Plan The Housing Business Plan was first developed in 2005 when Councils were required to demonstrate that they had the financial means to improve their housing stock to meet the Scottish Housing Quality Standard (SHQS). At that time, the Council’s Business Plan was developed by Arneil Johnston Consultants, working alongside Council staff. 4.2 The Business Plan assesses the affordability and feasibility of Council plans in relation to housing over a 30-year period. It considers risk scenarios and tests the affordability of the Plan against these potential risks. The Business Plan is reviewed on a three-year cycle and provides the assurance that the Council is able to fund its housing activities within the constraints of the accounting regime for housing. 4.3 The Business Plan was last fully reviewed in 2025 and was reported to the Council on 26 February 2025 (paragraph 4 of the minute refers). 4.4 Objectives The review of the Business Plan sought to consider: • The development of a revised baseline business plan with updated assumptions; • A review of investment plans for current stock; • The latest New Build investment programme; • A review of the housing debt profile to ensure debt affordability thresholds are managed over the course of the 30-year plan; and • Impact assessment of alternative business plan scenarios. 4.5 Rent Affordability Using the 2023/24 Annual Return on the Charter (ARC) data from the Scottish Housing Regulator (SHR), Arneil Johnston compared the Council’s average rent levels with Scottish Local Authority peers as well as with locally operating non-specialist peer Registered Social Landlords (RSLs). The Council average rents remain the lowest amongst all social landlords in Scotland. Page 26
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Table 1: Average Weekly Rents Average Weekly Rents by Landlord operating in Moray (self-contained units, 2024/25) Landlord/Property Size 1 Apt 2 Apt 3 Apt 4 Apt 5 Apt Overall Average Albyn Housing Society £92.36 £92.36 Ark Housing Association £121.20 £113.74 £185.28 £120.88 Blackwood £118.22 £134.24 £153.70 £166.73 £136.43 Cairn Housing Association £90.68 £103.39 £117.65 £121.90 £101.96 Castlehill Housing Association £100.44 £104.27 £112.28 £101.04 Grampian Housing Association £92.42 £109.11 £121.54 £145.21 £111.61 Hanover Scotland Housing Association £139.31 £184.70 £134.63 £145.93 £156.08 Langstane Housing Association £89.74 £102.68 £116.09 £130.07 £100.69 Moray Council £49.45 £66.35 £74.71 £89.79 £108.36 £76.55 Osprey Housing £84.20 £99.80 £109.99 £123.10 £102.50 Source: Scottish Housing Regulator 4.6 Business Plan Assumptions The HRA business plan modelling tool is designed to prepare 30-year projections, and to model the HRA over this period. The tool has been designed in a way that enables the Council to assess the appropriate levels of borrowing required to achieve its objectives and commitments. The business plan is based on agreed assumptions on stock numbers, current rental policy, inflationary rate increases, known income and expenditure, fixed costs, new build commitments and loan charges relating to borrowing. 4.7 The baseline model was built following detailed analysis of the Council budget assumptions from 2024/25 and actual income and expenditure over the previous year. To this base budget the following planning assumptions have been considered to arrive at the 30-year baseline business plan: • Income Inflation; • Expenditure Inflation; • 30-Year Capital Investment Levels; • Stock and New Build Assumptions; and • Debt Assumptions. 4.8 It is noted that there is considerable scope for variance in several of these elements beyond the control of the Council, including the level of inflation and interest rates, whilst the extent of investment in existing and new build properties is periodically reviewed to ensure it remains affordable. 4.9 The business plan model reflects an opening HRA stock of 6,359 units. From this, the Council anticipates building 268 units and acquiring 30 properties, therefore adding a further 298 units to the stock. The current new build programme includes development up to 2029/30 and will be subject to review in line with strategic need and availability of funding prior to this juncture. 4.10 Following the considerable investment in the accelerated investment programme in 2024/25, there is provision within the plan for investment levels within the plan to fully attain the Scottish Housing Quality Standard (SHQS), component replacement, Energy Efficiency Standard for Social Housing (EESSH) and also an estimated provision for anticipated further enhancement of minimum standards. Page 27
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4.11 Debt Affordability The Council has typically set a prudential limit of 35% as a reference point for the HRA, against which to consider debt affordability. This ensures that the baseline business plan is fundable and limits the proportion of rental income required to service debt. 4.12 By approving rental increases of 6% annually for three years at the meeting of the Council on 26 February 2025 (paragraph 4 of the minute pertains), the HRA is set to achieve the ambitious investment objectives whilst limiting the extent and duration of the threshold being exceeded. Based on this, the debt affordability is projected to be 32.17% in 2026/27, 34.42% in 2027/28 and peaking at 34.66% in 2028/29, falling back beneath the threshold thereafter. Additional detail is set out within the Appendix III of the Treasury Management Prudential Indicators report elsewhere on this agenda. 4.13 It is emphasised that there are considerable variables which may contribute to the outturn being lower or higher within this period, some of which such as interest rates and inflation are external. Notwithstanding, the proposed approach is deemed to be prudent in meeting the Council’s responsibilities as a landlord and balancing the stock investment required to meet this with keeping the rents as affordable as possible. Other variables such as reactive repairs expenditure, void property refurbishment costs and planned maintenance programmes are all subject to greater management control and considerable focus will be applied to monitoring these across the budgetary period. The Head of Housing, Property and Communities will also work with the Chief Financial Officer to monitor the actual position in relation to the prudential limit and consider the need for any changes to spend and borrowing plans. 5. PROPOSALS 5.1 The proposed Housing Investment Plan for 2026/27 – 2028/29 is detailed in APPENDIX II. 5.2 Whereas the Council is generally performing well as a landlord across the range of benchmarked performance indicators, there remains an identified need for improvement in relation to the Scottish Housing Quality Standard (SHQS) and Energy Efficiency Standard for Social Housing (EESSH). As at 31 March 2025, 43.7% of the Council’s properties met the SHQS compared with a local authority average of 82.9%, whilst the figure for EESSH was 69.7% compared with an average of 89.4%. 5.3 In addition to the routine repairs and maintenance of the Council’s housing stock, the principal focus of the Housing Investment Plan therefore remains on completing the investment required to meet the provisions of the SHQS and EESSH. 5.4 Following the considerable progress made in the course of 2024/25 and 2025/26 to upgrade properties to SHQS/EESSH standards, the broader Housing Investment Plan is now able also to reflect the investment priorities which tenants identified within the most recent tenant survey. The key components of this focus will be kitchens, bathrooms and window replacements. 5.5 The budgetary provision within this investment plan enables the upgrading of windows in at least 300 properties, 100 combined kitchen and bathroom upgrades and a further 100 new bathrooms. Accordingly, over the three-year period of this programme, 900 properties (14% of stock) would have replacement windows, 300 would have kitchen and bathrooms replaced Page 28
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(4.7% of stock) and a further 300 would have bathrooms upgraded (4.7% of stock). Provision is also made for up to 230 heating system replacements annually, over and above the exceptional budget for SHQS compliance in 2026/27. 6. PROJECTED HRA OUTTURN 2025/26 6.1 On 26 February 2025, the Council agreed its HRA Budget for 2025/26 (paragraph 4 of the Minute refers). Reports on budgetary performance have been presented to Housing and Community Safety Committee throughout 2025/26. 6.2 The most recent HRA budget monitoring report presented to the Housing and Community Safety Committee on 18 November 2025 (paragraph 7 of the draft minute refers) identified the main variations in the projected outturns to 31 March 2026, which have subsequently been updated with the most recent position as follows: - Expenditure 6.3 Supervision and Maintenance An underspend of £234k is projected. This variance arises from an underspend in staffing costs arising from vacancy levels (£318k), lower than anticipated expenditure on software consultancy (£46k) and other minor underspends (£20k). These are expected to be partially offset by anticipated overspends in voids (£100k) and Council Tax (£50k), based on cost of refurbishment and charges levied on empty properties respectively. 6.4 Sheltered Housing An underspend of £5k is anticipated based on lower than budgeted energy expenditure. 6.5 Repairs and Maintenance An overspend of £54k is projected. This is comprised of £75k higher than anticipated property fees, partially offset by a £21k underspend in planned/cyclical maintenance. 6.6 Financing Costs An underspend of £286k is projected due to lower than estimated interest costs on borrowing. 6.7 Bad and Doubtful Debts There is no variance currently projected. 6.8 Capital From Current Revenue The level of Capital from Current Revenue (CFCR) is projected to be £277k lower than budgeted, in order to bring the year-end balance in line with the reserve provision. 6.9 Downsizing Incentive Scheme There is no variance currently projected. 6.10 Service Developments There is no variance currently projected. 6.11 Total expenditure on the HRA is projected to be £748k lower than budgeted. 6.12 Income Page 29
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Total income to the HRA is projected to be £731k lower than originally budgeted for 2025/26, with £757k less income from council house rents arising from the continuation of discounts for properties still requiring energy efficiency upgrades and £74k less interest received on balances held. This is expected to be partially offset by higher than anticipated income from other sources (£100k). 6.13 HRA Reserves Overall, a surplus balance of £1.500m is projected for the HRA budget in 2026/27. This is determined as a prudent level of reserves under the terms of the Housing Reserves Policy approved by Housing & Community Safety Committee on 15 November 2022, incorporating: • £500k - minimum policy provision; • £500k – risks associated with interest rates in current market conditions; and • £500k – provision for inflation. This is a reduction from the reserves balance of £2.250m for 2025/26, arising from a diminished risk profile in relation to the development programme (£550k), following the resolution of electrical constraints for the Bilbohall development, and £200k less provision for interest rate volatility, given the relatively more stable fiscal position. 7. PROPOSED HRA BUDGET 2026/27 7.1 As in previous years, Officers have considered in detail the base budget agreed for 2026/27. Each cost centre within the HRA budget is scrutinised by the Head of Housing, Property and Communities, Finance staff and the budget service managers and this has included an assessment of the continued impact of economic conditions on both income and expenditure. 7.2 APPENDIX I details the proposed HRA Budget for 2026/27. Comments on the proposed budget can be made as follows: - 7.3 Expenditure The total expenditure proposed amounts to £31.958m. The main areas of expenditure are considered below. 7.4 Supervision and Management The budget proposed for supervision and management costs is £7.083m. This provides for the 3.5% pay award. 7.5 Sheltered Housing The Sheltered Housing Budget is reduced to £0.056m for 2026/27, arising from an anticipated reduction in utility expenditure. 7.6 Repairs and Maintenance Proposed revenue expenditure for Repairs and Maintenance of £10.529m. This includes provision for the revised grass cutting scheme predicated on a 4.8% uplift in line with other Council charges and continuation of the £50k transitional funding for 2026/27, concurrent with a review of cost and resourcing. Capital expenditure for Planned Maintenance & Investment Programmes and Improvements of £28.426m is included in the Housing Investment Plan, summarised in APPENDIX II. These budgets make provision for typical levels of activity as well as the strategic investment priorities. Page 30
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7.7 Garages and Garage Sites Charges in relation to garages and garage sites are subject to an annual uplift of 6% in line with house rents for each of the three years to 2028/29. 7.8 New Build Housing Programme Affordable housing is a central national priority for the Scottish Government, supported by a long-term commitment to deliver 110,000 affordable homes by 2032. At least 70% of this investment is directed toward homes for social rent, with a minimum of 10% allocated to rural and island communities, underscoring the Government’s focus on tackling housing need, inequality, and place-based delivery across Scotland. 7.9 Following wide consultation with stakeholders, the consultative draft Local Housing Strategy (LHS) 2025-2030 was agreed by Housing and Community Safety Committee on 9 September 2025 (paragraph 7 of the minute refers). The final LHS will be considered on 12 March 2026. The key objectives of increasing the supply of affordable housing and tackling homelessness are included in the Council’s Corporate Plan 2023. The Housing Need and Demand Assessment 2023 (HNDA) suggests that 3,827 new affordable houses are required over a 20- year period to address existing and projected housing need in Moray. 7.10 Expenditure of £23.874m is budgeted for in relation to the new build programme for 2026/27, with £19.32m and £10.599m allocated for 2027/28 and 2028/29 respectively, representing the anticipated schedule of forthcoming developments. In each of these years a provision of £2.5m for acquisitions is also made. Officers will also commence feasibility work in the course of 2026/27 with an intention of including a proportion of regeneration projects in future development programmes, with a particular focus on bringing vacant and derelict properties back into use. 7.11 On 18 November 2025, the Housing and Community Safety Committee approved the Council’s Strategic Housing Investment Plan (SHIP) (paragraph 11 of the Minute refers). In accordance with Scottish Government guidance, the SHIP over-commits on available grant funding to provide opportunities to take up slippage grant subsidy should it become available. The SHIP includes several projects assigned to the Council’s own development programme, and includes several projects prioritised due to their inclusion in the Growth Deal Housing Mix Project. The LHS and SHIP will direct funding priorities and in line with the previous Business Plan finding that continuing with a development/acquisition programme of 50 properties per year actually reduces the debt affordability %, albeit with a higher debt per unit, it is envisaged this level of output remains realistic and prudent. The HRA Business Plan Review 2024 made provision for prudential borrowing sufficient to fund 50 Council new build completions per year. Given there can be uncertainty over the capacity of the local housing associations to develop, it can be assumed that the scale of the Council’s house building programme will be a key factor in ensuring that the available resources are fully utilised in Moray. Developments which are in the pipeline are continuing to progress, with 331 units included in the Business Plan between 2025/26 and 2030/31. Individual projects will, however, be subject to value for money assessments until fully committed, to ensure they remain affordable, and will be subject to Service Committee approval. It is envisaged that the Council’s participation in the SSENT (Scottish & Southern Energy Electricity Networks Transmission) workforce housing strategy will be a significant net contributor to the stability of the HRA in the longer term. Page 31
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7.12 Financing Costs Financing costs are projected at £9.785m for 2026/27. This is predicated on current interest rates, noting the potential for fluctuation in the course of the year and is consistent with the approach for General Services. 7.13 Capital from Current Revenue CFCR enables the Council to utilise available revenue resources to help fund capital projects and reduce the requirement for prudential borrowing. The Housing Investment Plan sets out the repairs and maintenance priorities for 2026/27. These will be financed through the HRA revenue and capital budgets. For 2026/27, it is proposed to set CFCR at £3.863m, to reduce the requirement for borrowing and will maintain an HRA balance of £1.500m at year end. 7.14 Downsizing Incentive Scheme It is proposed to maintain the annual budget for the Downsizing Incentive Scheme at £72k for 2026/27. 7.15 Tenancy Sustainment Fund It is proposed to maintain the annual budget for the Tenancy Sustainment Fund at £60k for 2026/27. 7.16 Service Developments Service developments of up to £250k have been included in the budget for 2026/27 to make provision for emergent priorities. Specific details will be reported to service committees in the course of the reporting year. 7.17 Income Rental income is the primary source of income for the HRA and income projections represent uplifts following energy upgrades as well as revenue from new builds/acquisitions. The HRA must balance (or the deficit must be funded from General Services). The level of income generated within the HRA continues to influence what the Council can fund with regards to its housing activities. Rent collection rates remain in the upper quartile compared with other local authority landlords. 8. SUMMARY OF IMPLICATIONS 8.1 The table below shows whether risks and implications apply if the recommendations are agreed: SUBJECT YES NO Corporate Plan and 10 Year Plan (Local Outcome Improvement Plan) X Policy and Legal X Financial X Risk X Staffing X Best Value and Transformation X Property X Page 32
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Information Communications Technology/Digital X Equalities. Social Inclusion and Economic Impact X Climate Change and Biodiversity Impact X 8.2 Corporate Plan and 10 Year Plan (Local Outcomes Improvement Plan (LOIP)) Improved Collaborative Leadership, as part of continuous improvement through Best Value, will better enable the Council to fulfil the ambitions set out in its strategic plans. a) Links to Council Corporate Plan – The proposals in this report support and contribute to improved outcomes for communities as outlined in the following Council Plan strategic priorities: ☒ Tackle Poverty and Inequality. ☐ Build Stronger Greener Vibrant Economy. ☒ Build Thriving, resilient, empowered Communities. b) Links to Local Outcomes Improvement Plan – The proposals in this report support and contribute to improved outcomes for communities as outlined in the following Local Outcomes Improvement Plan priorities: ☐ Developing a diverse, inclusive, and sustainable economy ☒ Building a better future for our children and young people in Moray. ☐ Empowering and connecting communities. ☒ Improving wellbeing of our population 8.3 Policy and Legal Proposed approaches to achieving investment objectives aligned with the rent setting policy are set out within this report and will be subject to reporting to service committees in the course of the year. There are no legal implications arising from this report. 8.4 Financial The 2025 Business Plan review provides for the legislative work programmes that the Council will be required to deliver in future years and sets a rental framework within which it can be sustainably delivered. It concluded that an increase in housing rents of 6% over three years would ensure that the Council’s housing activities remain fundable and affordable. 8.5 Risk The 2025 Business Plan review included detailed risk assessment and sensitivity analysis, which demonstrated that the HRA remains within acceptable limits under the range of scenarios tested. Given the extent of economic uncertainty, this position will remain under review in the course of 2026/27. There is also risk arising from potential slippages in investment programmes, which will be actively monitored throughout the reporting period. 8.6 Staffing There are no direct staffing implications arising from this report. Page 33
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8.7 Best Value and Transformation There are no direct best value and transformation implications arising from this report. 8.8 Property There are no direct property implications arising from this report. 8.9 Information Communications/Technology/Digital There are no direct information communication/technology/digital implications arising from this report. 8.10 Equalities, Social Inclusion and Economic Impact There are no equalities/socio economic impacts directly arising from this report. 8.11 Climate Change and Biodiversity Impacts Delivery of the Housing Investment Programme will make a significant contribution to meeting EESSH standards within the Council’s stock, thereby reducing energy ratings and carbon emissions. Similarly, the Council’s affordable housing supply programme is predicated on delivering low-carbon developments. 9. CONSULTATION 9.1 This report has been prepared in consultation with Finance staff. Consultation on this report has also been carried out with the Chief Financial Officer, the Service Manager Legal Services, Service Manager Democratic Services, Equal Opportunities Officer and Senior Managers within the Housing, Property and Communities Service and any comments made have been incorporated into the report 10.1 BACKGROUND PAPERS 10.1 Housing Revenue Account Annual Budget 2025-26 Housing Revenue Account Annual Budget 2025-26 - Appendix I Housing Revenue Account Annual Budget 2025-26 - Appendix II Housing Revenue Account Annual Budget 2025-26 - Appendix III Housing and Property Budget report to 30 September 2025 Page 34
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Housing Revenue Account APPENDIX I Proposed Budget 2026/27 Service Description Annual Budget 2025-26 Projected Outturn to 31st Mar 2026 Projected Variance to 31st March 2026 Draft Budget 2026-27 Variation between 2025-26 & 2026-27 inc / (dec) Expenditure £,000 £,000 £'000 £'000 £'000 Supervision & Management 6,455 6,221 234 7,083 628 Sheltered Housing 66 61 5 56 (10) Repairs and Maintenance 10,183 10,237 (54) 10,529 346 Financing Costs 8,413 8,127 286 9,785 1,372 Bad & Doubtful Debts 250 250 0 260 10 CFCR 3,089 2,812 277 3,863 774 Downsizing Incentive Scheme 72 72 0 72 0 Service Development 310 310 0 250 (60) Tenancy Sustainment Fund 60 60 Total Gross Expenditure 28,838 28,090 748 31,958 3,060 Income £,000 £,000 £,000 £,000 £,000 Non-dwelling rents 275 275 0 291 16 House rents 28,034 27,277 (757) 30,414 2,380 IORB 350 276 (74) 250 (100) Other income 179 279 100 253 74 Total Income 28,838 28,107 (731) 31,208 2,370 Surplus / (Deficit) 0 17 17 (750) Balance carried forward 2,233 2,250 Estimated Balance at end of Period 2,250 1,500 Page 35
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Housing Investment Plan 2026/27 to 2028/29 APPENDIX II 1. The investment proposals for 2026/27 to 2028/29 can be summarised as shown below: - Investment Heading Programme 2026/27 2027/28 2028/29 Response Repairs West Area 998 1,028 1,059 East Area 1,567 1,614 1,662 Central Area 900 927 955 Gas Heating Repairs 655 675 695 Total 4,120 4,244 4,371 Void Repairs Void House Repairs 2,060 2,122 2,185 Estate Works Garage Upgrades 0 0 0 Asbestos 130 134 138 Landscape Maintenance 95 98 101 Estates/Forum Upgrades 500 515 530 Community payback 50 52 53 Playpark 100 103 106 Total 875 901 928 Cyclical Maintenance Gas Servicing 432 445 458 Solid Fuel Servicing 16 16 17 Air Source Heat Pump Servicing 67 69 71 Solar and battery 25 26 27 PIV 50 52 53 Smoke Detector Servicing 16 16 17 EICR 5 Year programme 130 134 138 External decoration & fabric repairs 860 886 912 General Servicing 30 31 32 Fire Risk Assessments & associated works 160 165 170 Inspections/House Surveys 50 Total 1,836 1,840 1,895 Planned Capital Kitchens and Bathrooms 1,339 1,379 1,421 Bathroom Replacements 639 658 678 Central Heating 1,900 1,957 2,016 Doors and Windows 3,000 3,090 3,183 EESSH - Insulation 3,500 750 750 EESSH - Heating 3,500 1,000 1,000 EESSH - solar and battery 2,450 1,000 1,000 Damp Mould Condensation 700 721 743 Roof replacements 1,052 1,084 1,116 Total 18,080 11,639 11,906 Planned Revenue Rainwatergoods 300 309 318 Rainwatergoods - Roof Moss Cleaning 240 247 255 Roof and Fabric Repairs 0 0 0 Plumbing Upgrades 90 93 95 Page 36
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Electrical Upgrades 150 155 159 Safety & Security 26 27 28 Sheltered Housing 12 12 13 Decoration Vouchers 124 128 132 Common Stairs 62 64 66 Total 1,004 1,034 1,065 Other investment Disabled Adaptations 400 412 424 Enabling Projects 51 53 54 Total 451 465 478 Proposed Investment 28,426 22,244 22,829 2. Capital expenditure proposed for 2026/27 to 2028/29 can be summarised as:- 2026/27 2027/28 2028/29 £'000 £'000 £'000 CAPTIAL EXPENDITURE Investment Programme Capital 18,080 11,639 11,906 New Build Phase 10 23,074 8,400 624 New Build Phase 11 800 10,920 9,975 Acquisitions 2,500 2,500 2,500 TOTAL Capital Expenditure 44,454 33,459 25,005 3. For the same period, capital funding is projected at:- Projected Income 2026/27 2027/28 2028/29 £'000 £'000 £'000 New Build Phase 10 - government grant -4,650 0 0 New Build Phase 10 - commuted sums -274 0 0 New Build Phase 10 - growth deal / SSEN -9,100 -2,115 0 New Build Phase 11 - government grant -716 -9,975 -2,120 New Build Phase 11 - use of Flood reserve / usable capital receipts 0 -945 -2,079 Acquisitions - government grant -1,250 -1,250 -1,250 Council Tax discount - affordable housing -700 -700 -700 CFCR -3,863 -4,017 -4,812 Borrowing -23,901 -14,457 -14,044 TOTAL Funding -44,454 -33,459 -25,005 Page 37
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Housing Revenue Account APPENDIX III Three Year Projection Service Description Annual Budget 2026- 27 Annual Budget 2027-28 Annual Budget 2028- 29 Expenditure £,000 £,000 £,000 Supervision & Management 7,083 7,295 7,514 Sheltered Housing 56 58 60 Repairs and Maintenance 10,529 10,742 11,064 Financing Costs 9,785 11,469 12,322 Bad & Doubtful Debts 260 276 293 CFCR 3,863 4,017 4,812 Downsizing Incentive Scheme 72 72 72 Service Developments 250 100 100 Tenancy Sustainment Fund 60 60 60 Total Gross Expenditure 31,958 34,089 36,297 Income £,000 £,000 £,000 Non-dwelling rents 291 308 326 House rents 30,414 33,320 35,552 IORB 250 200 150 Other income 253 261 269 Total Income 31,208 34,089 36,297 Surplus / (Deficit) (750) 0 (0) Balance carried forward 2,250 1,500 1,500 Estimated Balance at end of Period 1,500 1,500 1,500 Page 38
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1 Report to: Special Meeting of Moray Council Meeting Date: 25 February 2026 Report by: Executive Director Finance, Strategy & Transformation Author: Susan Souter Contact Email: Susan.souter@moray.gov.uk Subject: Medium to Long Term Financial Strategy 1. PURPOSE 1.1 The purpose of this report is to approve an updated Medium to Long Term Financial Strategy, to facilitate financial planning for the next five to ten years. 1.2 This report is submitted to Council in terms of Section III (A) 2 of the Council’s Scheme of Administration relating to long term financial plans. 2. SUMMARY 2.1 This report presents the updated Medium to Long Term Financial Strategy for the period 2026/27 to 2035/36. The Strategy provides a high-level view of the financial pressures, risks and assumptions expected to affect the Council over the next decade and sets out the key levers available to support long-term financial sustainability. 2.2 The Medium to Long Term Financial Strategy builds on and complements the Short to Medium Term Financial Strategy, which governs the first two years (2026/27 and 2027/28). While the Short to Medium Term Financial Strategy focuses on the immediate budget gap, the Medium to Long Term Financial Strategy provides the longer-term strategic direction for transformation, income generation and service redesign. 2.3 The Medium to Long Term Financial Strategy indicates a mid-case scenario budget shortfall of £2.59m in 2026/27, £4.98m in 2027/28, £9.71m in 2028/29 and a cumulative shortfall of £44.13m in the following 7 years. A reconciliation of these budget gaps to the more detailed assumptions used in the Short to Medium Term Financial Strategy is included within the Strategy. ☒ For Decision ☐ For Information Item 5. Page 39
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2 2.4 The long-term modelling indicates recurring pressures arising from inflation, pay awards, demographic change, contract inflation and capital financing. The Strategy sets out optimistic, mid-range and pessimistic scenarios for these key assumptions to support informed financial planning. 2.5 The Strategy identifies that achieving long-term sustainability will require a sustained programme of transformation, particularly in relation to the Council’s estate, workforce, and service models. 3. RECOMMENDATIONS 3.1 It is recommended that Council approve: i) The Medium to Long Term Financial Strategy for 2025/26 to 2034/35 as set out in APPENDIX 1; ii) The use of the mid-range scenario as the Council’s planning assumption for long-term financial modelling; and iii) The approach to monitoring risks and updating long-term assumptions as national and local conditions evolve. 3.2 It is recommended that Council notes: iv) The financial risks and uncertainties set out in the Strategy, including those relating to pay, inflation, demographic change, capital financing, and the Moray Integration Joint Board (MIJB) v) That the first two years of the period covered by the Strategy continue to be governed by the Short to Medium Term Financial Strategy. Susan Souter Senior Accountant 4. BACKGROUND AND CONTEXT 4.1 The existing Medium to Long Term Financial Strategy was approved by Council on 4 December 2024. The updated Strategy now presented provides refreshed assumptions, reflects national and local developments, and incorporates the most recent economic and fiscal forecasts from the Scottish Fiscal Commission (SFC) and Office for Budget Responsibility (OBR). 4.2 The Medium to Long Term Financial Strategy is a key component of the Council’s financial planning framework, providing a 10-year view of the Council’s financial outlook and identifies the main drivers of pressure, including pay, inflation, demographic change, capital financing costs, and service demands. Given that General Revenue Grant (GRG) and Non Domestic Rates (NDR) account for around 80% of funding, and settlements Page 40
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3 continue to be provided on a single-year basis, long-term assumptions are essential for financial resilience. 4.3 The Council faces significant challenges, including: • long-term demographic pressures, particularly rising demand for health and social care • volatility in pay and inflation • increasing contract and energy costs • affordability issues in the Capital Plan, particularly around the Learning Estate • persistent pressures within MIJB services • the requirement to deliver a sustainable budget 4.4 The strategy collates all known factors that affect the financial position and financial sustainability of the Council over the term, in one place, and addresses their impact on tackling these challenges. 4.5 The Short to Medium Term Financial Strategy covers the first two years of financial planning. The Medium to Long Term Financial Strategy then sets the strategic direction from 2028/29 onwards. 4.6 The Strategy does not represent approval of any spending or savings proposals. All decisions remain subject to Council approval through the annual budget setting process. 5. PROPOSALS 5.1 The Medium to Long Term Financial Strategy sets out three main areas of focus that will underpin the Council’s long-term financial sustainability. Transformation 5.2 Transformation remains the Council’s primary lever for achieving a balanced and sustainable budget over the next decade. Key programmes include: • Smarter Working – reducing and modernising the office estate • Depot and Stores Review – rationalising operational depots • Energy Transformation – LED and solar PV investment • Learning Estate Review – addressing affordability and long-term condition issues These programmes will reduce the size of the Council’s estate and create recurring revenue savings. Income Generation 5.3 The Medium to Long Term Financial Strategy aligns with the Council’s current Income Strategy and acknowledges that Council Tax remains the most significant income lever. Long-term assumptions include: • recommended 10% increase assumed for 2026/27 • scenario-based modelling thereafter (optimistic, mid-range, pessimistic and freeze scenarios) • assumed 1% annual tax base growth Page 41
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4 Income from charges will continue to follow the current Charging for Services Policy. Service Redesign 5.4 The Strategy highlights that deeper redesign of services will be required over the medium to long term, particularly given the scale of workforce and demographic pressures. This includes: • rationalisation of the future asset base • redesigned service delivery models • greater use of digital tools and automation • workforce sustainability planning Financial Scenarios 5.5 The Medium to Long Term Financial Strategy provides detailed scenario modelling for: • Scottish Government funding • Council Tax • Pay • Contract inflation • Energy costs • PPP/PFI costs • Capital financing 5.6 These scenarios illustrate the scale of risk and support flexibility in long-term decision making. 5.7 This Strategy will be reviewed annually as part of the Council’s financial planning process. 6. SUMMARY OF IMPLICATIONS 6.1 The table below shows whether risks and implications apply if the recommendations are agreed: SUBJECT YES NO Corporate Plan and 10 Year Plan (Local Outcome Improvement Plan) X Policy and Legal X Financial X Risk X Staffing X Best Value and Transformation X Property X Information Communications Technology/Digital X Equalities. Social Inclusion and Economic Impact X Climate Change and Biodiversity Impact X Page 42
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5 6.2 Corporate Plan and 10 Year Plan (Local Outcomes Improvement Plan (LOIP)) Improved Collaborative Leadership, as part of continuous improvement through Best Value, will better enable the Council to fulfil the ambitions set out in its strategic plans. a) Links to Council Corporate Plan – The proposals in this report support and contribute to improved outcomes for communities as outlined in the following Council Plan strategic priorities: ☐ Tackle Poverty and Inequality. ☐ Build Stronger Greener Vibrant Economy. ☐ Build Thriving, resilient, empowered Communities. b) Links to Local Outcomes Improvement Plan – The proposals in this report support and contribute to improved outcomes for communities as outlined in the following Local Outcomes Improvement Plan priorities: ☐ Developing a diverse, inclusive, and sustainable economy ☐ Building a better future for our children and young people in Moray. ☐ Empowering and connecting communities. ☐ Improving wellbeing of our population 6.3 Policy and Legal There are no policy or legal implications arising directly from this report. 6.4 Financial The financial implications are noted within the report and the Medium to Long Term Financial Strategy in Appendix 1. 6.5 Risk There are material risks to the Council’s medium to long-term financial sustainability arising from persistent revenue budget overspends, uncertainty in future funding settlements, and the ongoing dependence on delivering planned savings. These risks are compounded by inflationary pressures, demographic changes, and increasing demand for core services. 6.6 Staffing No immediate staffing implications arise, though long-term workforce sustainability is a key theme. 6.7 Best Value and Transformation The Strategy reinforces the role of transformation in delivering Best Value. 6.8 Property The Strategy highlights that the Council’s estate will need to reduce significantly to remain affordable. 6.9 Information Communications/Technology/Digital Digital transformation remains a key enabler for long-term service redesign. Page 43
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6 6.10 Equalities, Social Inclusion and Economic Impact There are no equalities, social inclusion or economic impacts arising from this report. 6.11 Climate Change and Biodiversity Impacts The Strategy supports investment in energy efficiency and contributes to the Council’s Net Zero ambitions. 7. CONSULTATION 7.1 This report has been prepared in consultation with the Corporate Leadership Team and any comments made have been incorporated into the report 8. BACKGROUND PAPERS 8.1 Held within Accountancy Page 44
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7 APPENDIX 1 Medium to Long Term Financial Strategy 2026/27 to 2035/36 1. Background 1.1 The Medium to Long Term Financial Strategy (MLTFS) forms part of a suite of documents used in the Council’s financial planning: • the three-year budget reported when the Council Tax for the year is set, and regularly updated in reports to Council • the indicative 10-year Capital Plan, underpinned by the Council’s Capital Strategy • the Council’s Reserves Policy • the Council’s Charging Policy • the Treasury Management Policy • the Short to Medium Term Financial Strategy (SMTFS) • sitting above all these, the Council’s Corporate Plan 1.2 The Council continues to operate in a challenging financial environment. While reliance on reserves to support the revenue budget was removed in 2025/26, pressures remain from rising service demand and cost increases. In addition, although Scottish Government funding may remain broadly stable in cash terms, it is projected to reduce in real terms once inflation is taken into account over the medium to long term. This reinforces the importance of forward planning and maintaining financial resilience. 1.3 It should be noted that the Council has set aside ear-marked reserves for specific purposes, principally for Transformation of services. Use of these reserves in accordance with the Council’s intent reflects prudent and forward-looking financial planning. 1.4 Given the extent of financial challenges experienced by local authorities, it is vital that the Council develops an understanding of the wider financial environment within which it functions. The MLTFS will help enable that by identifying and managing risk factors and ensure that the Council shows resilience by being fully aware of the key financial challenges and uncertainties that it faces. This will place them in a stronger position for successful delivery of their Corporate priorities. 1.5 The key objectives of the MLTFS are: Page 45
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8 • Summarise the Council’s financial position over the next 10 years for the period 2026/27 to 2035/36 based on a range of scenarios. • Identify and explain the key variables that are influential in the financial planning of the Council and quantify the potential impact of these together. • Provide a framework which enables the Council to effectively allocate its financial resources to achieve its objectives. • Focus on the resources available to the Council to ensure they are directed to support the Corporate Plan. • Ensure that the Council is fully aware how current financial challenges and uncertainties may impact on the financial position of the Council for the period of the Strategy and how to be resilient in its decision making. • Help achieve a sustainable and balanced budget • Highlight and maximise the importance of income generation in the period of the MLTFS. 2. Key Financial Levers 2.1 The financial levers recognised in both the Short to Medium Term, and Medium to Long Term, remain relevant and central to the Council’s planning. These levers represent the components of the budget that the Council can directly influence or control. Movement in one lever affects the others, and the strategic balance between them is essential to achieving a sustainable financial position. 2.2 The Council continues to face significant financial challenges, including rising costs, increasing demand for some services, and a long period of flat or reduced core funding. This Strategy helps us plan ahead and build resilience so we can make good decisions with a full understanding of the long-term pressures, Council Tax Other Income generation Staff establishment Asset base Page 46
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9 building on the foundation of the Short to Medium Term Financial Strategy (SMTFS). 2.3 The SMTFS covers the first two years (2026/27 and 2027/28) and this MLTFS, using 2025/26 as the base year, focuses on the period from 2028 onwards at a higher level. 2.4 The inclusion of information in the Strategy does not imply approval. All financial estimates are subject to approval by Council as part of the budget setting process. 2.5 The scope of this Financial Strategy is the Council‘s General Fund. The Council’s Housing Revenue Account (HRA) is ring-fenced, according to statutory requirements, and consequently financial planning for the HRA is a separate exercise. 3. Influences and Risks 3.1 The Council’s financial position is affected by a mix of external and internal factors. The most significant are: External Climate Internal • Scottish Government funding • Inflation and pay awards • Interest rates and borrowing costs • Demographic change • National policy changes • Digital and cyber risks • Climate change – Council’s policy and legislative requirements • Net Zero targets • Weather related emergencies • Impact of changed weather patterns on service requirements • Coastal erosion • Workforce capacity • Service Demand (especially social care and children’s services) • Condition and size of the asset base • Transformation and service redesign • Procurement and contract costs • Pension Liabilities (actuarial assumptions) • Corporate priorities • Participatory Budgeting commitment Page 47
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10 3.2 These are key variables that influence the financial planning of the Council and, while not an exhaustive list, these factors will continue to be monitored and used to update our long-term assumptions. 4. Cost Drivers and Variables 4.1 Several areas will continue to place pressure on the Council’s budget. The Council’s budget of £396 million gross revenue expenditure for 2025/26 includes £211 million for employee costs, making pay and pensions key cost drivers. A two- year pay deal has been agreed for 2025/26 and 2026/27 for non-teaching and teaching staff, providing short-term stability. Any further increases beyond this point would have a significant impact on financial planning. A 1% pay award equates to approximately £2 million in additional annual expenditure, including Moray Integration Joint Board (MIJB) staff, highlighting the need for ongoing scenario planning and close monitoring of national negotiations. Pension costs also remain uncertain, with potential changes following the next Local Government Pension Scheme (LGPS) triennial valuation in 2027. 4.2 A large proportion of the Council’s services are outsourced, with 19% of the Council’s budgeted expenditure being on services delivered by third parties. The procurement process therefore has a strong influence on the costs borne by the Council and significant savings have been made by procurement on the purchase of supplies and services as well as on out-sourced services. 4.3 The split of the Council budget is shown below. Employee Costs Property Costs Supplies and Services Transport & Plant Costs Support Services Third Party Payments Transfer Payments Financing Costs 2025/26 Budget Page 48
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11 Inflation 4.4 Cost pressures arise from those of the Council’s contractual obligations which are uplifted for inflation. Forecasting these uplifts remains challenging due to ongoing economic uncertainties, particularly around energy and food prices. The Bank of England’s monetary policy and global market factors continue to influence inflation, which in turn impacts the Council’s major contracts, including the PPP schools contracts and utility costs. These factors have contributed to additional budget pressures identified in the revenue budget. Inflation has been reducing and is forecast to reduce further to the Treasury target of 2%, but above inflation pay awards amongst other factors are considered likely to contribute towards the reduction in inflation rates being a slow process. 4.5 The Council’s budgeting strategy continues to incorporate inflationary allowances to mitigate risk and ensure financial sustainability. 4.6 The Scottish Fiscal Commission (SFC) is a non-Ministerial Office which produces Scotland’s official, independent economic and fiscal forecasts to support the Scottish Government’s Budget cycle, and which is accountable to the Scottish Parliament for its functions (set out in the Scottish Fiscal Commission Act 2016), reporting twice a year. At the UK level, the Office for Budget Responsibility (OBR), remains the official independent fiscal watchdog that produces detailed forecasts for the economy and public finances. The OBRs November 2025 Economic and Fiscal Outlook provides the latest projections for inflation and other economic indicators, which are essential inputs for the Council’s financial planning and risk assessment. 4.7 CPI inflation peaked at 11.1% in late 2022, the highest rate for over forty years. It has since eased sharply, falling to 2.5% during 2024. The OBR’s November 2025 outlook forecasts a temporary short-term increase in inflation, with CPI expected to rise to around 3.5% in 2025, driven primarily by higher services and food price inflation. The latest published data from the Office of National Statistics (ONS), published on 21 January 2026, was CPI inflation in December 2025 of 3.4%. Inflation is then expected to fall back to 2.5% in 2026. From 2027 onwards, the OBR projects inflation to return to the Bank of England’s 2% target, indicating a stabilising medium-term outlook. Page 49
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12 CPI Inflation Source: OBR Economic and Fiscal Outlook (November 2025) Forecasts for Inflation (CPI, year on year) 4.8 The latest published forecast CPI inflation rates from the OBR from November 2025 are: Source: Office for Budget Responsibility - November 2025 “Economic and fiscal outlook" 4.9 When the 2025/26 revenue budget was approved, indicative figures for 2026/27 and 2027/28 were based on the forecast assumptions at that time that inflation would rapidly return to the 2% target. A budget provision of £6.1m was included in the 2025/26 budget for expected inflationary increases, including pay awards which was included at 3%. Scottish Government has provided funding for the element of the pay award above 3% but the Council’s base budget for expenditure is now higher than forecast last year and this has an impact for future years. Demographics 4.10 Population changes continue to vary across Scotland, and between council areas year-on-year. The National Records of Scotland (NRS) most recent population estimates report is the Mid-2024 Population Estimates, Scotland (NRS). These 2024/25 2025/26 2026/27 2027/28 2028/29 2029/30 2030/31 2031/32 2032/33 2033/34 2034/35 2035/36 Inflation (CPI) 2.33% 3.50% 2.50% 2.00% 2.00% 2.00% 2.00% 2.00% 2.00% 2.00% 2.00% 2.00% Page 50
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13 estimates give Scotland’s population as at 30 June 2024, published in August 2025. 4.11 Population change is a significant long-term financial driver for the Council. Scotland’s population reached 5.55 million in mid-2024, with growth driven mainly by net migration, while natural change (births minus deaths) remains negative. Scotland’s population is ageing, with over 20% now aged 65 and above. In Moray, the population increased slightly to 95,010 in mid-2024, again driven by net migration rather than local birth rates. Moray’s population is ageing faster than the national average: around 24% of residents are aged 65 and over, while only 16% are aged 0–15. The number of residents aged 90+ is projected to grow significantly over the next decade, increasing pressure on adult health and social care services. Although the Council received additional funding in General Revenue Grant as a result of this increase in older population this does not significantly ameliorate the cost pressures. 4.12 At the same time, school-age populations are forecast to decline, with both primary and secondary rolls expected to fall over the next three years. This has implications for the Council’s funding, as over 30% of Grant Aided Expenditure is linked to pupil numbers. Falling school rolls are therefore likely to reduce the Council’s General Revenue Grant unless offset by changes in national distribution formulas. 4.13 Household numbers in Moray have grown steadily, rising 7.6% over the past 10 years, and are projected to increase further by 2034. This may generate modest Council Tax base growth, although a high proportion of properties remain in Bands A–C. In Moray, Council Tax band A-C dwellings are the highest proportion at 63.3%, with Council Tax band F-H dwellings making up 7.3%. (Source National Records of Scotland - Households and Dwellings in Scotland, 2024). 4.14 Overall, demographic change presents a dual financial challenge: • increasing demand for support services for an ageing population, and • reducing funding linked to school-age children. These trends reinforce the need for long-term service transformation, prioritisation, and careful planning of the future asset base, particularly within the Learning Estate and social care services. 5. Financial Outlook – Key factors and assumptions Funding from the Scottish Government Page 51
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14 5.1 Scottish Government funding through General Revenue Grant (GRG) and the allocation of Non-Domestic Rates (NDR) income accounts for around 80% of the Council’s funding, with the balance to be funded from Council Tax income and the utilisation of Council earmarked reserves for planned purposes. Single year settlements from the Scottish Government mean the Council must make assumptions in the revenue plan from years 2-10, and plan on that basis. For financial year 2025/26 a one year settlement was provided in draft in December 2024 and for 2026/27 a one year settlement was provided in draft in January 2026. 5.2 The Scottish Government’s 2025 Medium-Term Financial Strategy (MTFS) sets out a challenging fiscal environment for the public sector, with resource funding projected to grow by only 1% per annum in real terms and capital funding expected to decline by 1.1% in real terms between 2025-26 and 2029-30. The MTFS forecasts a widening resource fiscal gap, from £963 million in 2026-27 to £2.6 billion by 2029-30, and a capital gap rising to £2.15 billion by 2029-30. These projections reflect ongoing economic volatility, sustained inflation pressures, and increasing demand for public services, particularly in health and social care. The MTFS highlights significant fiscal risks, including inflation, demographic change, and the sustainability of public sector pay. 5.3 As part of its Medium-Term Financial Strategy 2025 the Scottish Government have indicated a transition from single-year to multi-year spending plans to support more effective financial planning for local authorities. Informed by the UK Government’s multi-year review, this will see indicative resource allocations for 2027/28 and 2028/29, and capital plans to 2029/30, published alongside the 2026/27 Scottish Budget in March 2026. For the Council, this increased certainty will enhance our ability to plan strategically, align resources with local priorities, and manage financial risks over the medium to long term. The move to multi-year settlements supports our commitment to sustainable service delivery and long- term financial resilience. Multi-year financial planning can be integrated with service and workforce planning, enabling more strategic investment and transformation. 5.4 The chart below shows the current breakdown of funding sources budgeted for the Council in 2025/26. Page 52
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15 5.5 The block grant from UK Treasury to the Scottish Government continues to be determined by the Barnett Formula. However, recent Government decisions, such as bespoke funding arrangements to offset changes in employers national insurance contributions in the public sector and any changes in UK Government funding in addition to Scottish Government policies and economic forecasts may impact on the level of Council funding. 5.6 The Verity House Agreement between the Scottish Government and local government aims to provide greater flexibility and reduce ring-fencing, supporting local decision-making. However, the MTFS makes clear that non-protected budgets are likely to face continued pressure, and local government funding will remain constrained outside of priority areas such as health and early years. 5.7 The current assumption in the Council’s MLTFS is that there will be a flat cash settlement each year in the core grant from the Scottish Government. Each 1% movement from this flat cash position accounts for around £2.3m of movement in funding. This is a particularly important assumption in financial planning. For the Council, this means continuing to plan for a range of funding scenarios, with a prudent mid-range assumption of flat cash settlements, recognising that any deviation from this could have a material impact on the Council’s financial position. This approach is consistent with the Scottish Government’s own scenario planning as outlined in their MTFS. 5.8 Until the settlement is announced, non-protected budgets are expected to face reduced settlements in the medium to long term. The optimistic scenario assumes a 2% increase from 2025/26, mid-range assumes 1% increase for one year then flat cash for the remainder of the plan. The pessimistic scenario assumes a 1% reduction year on year. The optimistic scenario is that the local government settlement covers target inflation but no growth. The pessimistic 80% 19% 1% Budgeted Sources of Council Funding 2025/26 Scottish Government Funding Council Tax Use of Reserves Page 53
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16 scenario assumes no inflation uplift and a reduction in nominal terms. This translates to the cash movements detailed below. • Increase 2% - £4.68m • No increase • Decrease 1% - (£2.34m) Optimistic Mid-range Pessimistic Assumption +2% Flat cash -1% Year 1 – 2026/27 £4.68m - (£2.34m) Year 2 – 2027/28 £4.77m - (£2.32m) Year 3 – 2028/29 £4.87m - (£2.29m) Years 4-10 – 2029/30-2035/36 £36.91m - (£15.42m) Council Tax Income 5.9 Council Tax income accounts for 19% of the Council’s revenue and is the main fiscal lever that local authorities have. In setting Council Tax, estimated income is based on a combination of Band D equivalent numbers (the Council Tax base), householder base (single occupancy and other discounts) and the expected rate of collection. 5.10 The Council has discretion to increase tax levels however this has been capped in recent years through conditions set out by the Scottish Government in the annual local government settlement. The Council’s Band D equivalent was £1,135 for 10 years between 2007/08 and 2016/17 when the Scottish Government’s Council Tax freeze ended. The freeze was reinstated in 2021/22 during the Covid-19 pandemic and again in 2024/25 when its Band D equivalent is £1,431. An increase of 10% in 2025/26 raised the Band D equivalent to £1,573.76. 5.11 The rate of Council Tax must provide the Council with a degree of certainty around current and future funding levels. The system must therefore be stable and buoyant to provide this certainty and must not expose the Council to an unmanageable degree of financial risk by reduced collection rates. The number of chargeable dwellings between bands increase modestly year on year, reflecting new dwellings and developments in the area as well as properties removed. 5.12 There are general assumptions made when budgeting for Council Tax revenue raised: collection rates and the buoyancy of the tax base. The scenarios adopted in the long-term planning are twofold: increases in Council tax and an assumption for an element of growth in the tax base. Page 54
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17 5.13 For each 1% increase in Council Tax rates, at current 2025/26 rates, the Council could raise approximately £560,000 in additional revenue. In developing the Council Tax income scenarios for the MLTFS, the modelling does not simply apply a flat percentage increase to the Band D charge each year. The projections incorporate an assumed 1% annual growth in the Council Tax base (Band D equivalents) across all scenarios, reflecting expected housing growth and historic buoyancy trends, and maintain a stable collection rate of 96.5% (plus 2% for prior year collections). The model also builds in the impact of Council Tax Reduction (CTR), recognising that increases in Council Tax liability result in higher CTR awards and therefore reduce the net income retained by the Council. This approach ensures that the forecast Council Tax yield represents a net and prudent estimate over the life of the strategy, capturing both tax-base growth and CTR costs alongside the Council Tax rate. 5.14 It should be noted that the Short to Medium Term Financial Strategy assumes a Council Tax increase of 10% in 2026/27 and a further indicative increase of 6% in 2027/28, both of which were approved by Council for planning purposes when the 2025/26 budget was set. These assumptions are therefore reflected consistently within the Medium to Long Term Financial Strategy, with scenarios applied from 2028/29 onwards. 5.15 In 2023 the Council’s revised Charging for Services Policy set an income strategy for fees and charges for Council Services for the period 2024/25 to 2026/27. The revised Charging Policy is a default increase of CPI including owner occupiers housing costs (CPIH) plus 1% as measured for October of the year before the increase takes effect. 5.16 The scenarios for Council tax receipts are: • The optimistic scenario: 5% annual increases post 2027/28, reflecting stronger economic conditions and greater fiscal flexibility. • The mid-point scenario: aligns with the Council’s current Income Strategy, applying CPIH + 1% annually from 2028/29. • The pessimistic scenario: assumes a 2% annual increase, broadly matching long-term inflationary pressures and reflecting constrained fiscal capacity. • A Council Tax freeze scenario assumes no increase in rates, with income growth limited to 1% tax base expansion. For this option to be viable, it is assumed that the Scottish Government would provide compensatory grant funding to offset the shortfall in Council Tax receipts. Page 55
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18 5.17 All figures presented below incorporate the 10% baseline increase in 2026/27, 6% indicative in 2027/28 followed by the scenario-specific annual percentage uplifts described above. Optimistic Mid-range Pessimistic Council Tax freeze Assumption 5% CPI+1% 2% Year 1 – 2026/27 £6.29m £6.29m £6.29m £6.29m Year 2 – 2027/28 £4.47m £4.47m £4.47m £4.47m Year 3 – 2028/29 £4.11m £2.75m £2.08m £0.68m Years 4-10 2029/30-2035/36 £36.73m £22.71m £16.45m £4.98m 5.18 Other revenue-raising methods that may give rise to additional income depending on the development of Council policy are: • Council Tax on second homes and empty properties – currently charged at legal maximum but recent legislation enables lifting of the cap on these and subject to regulations being laid and any Scottish Government guidance provided this will be a flexibility available to the Council going forward • NDR Empty Property Relief which has been devolved to local authorities. Relief is a cost to the authority but this cost could be reduced by varying the policy • Local Visitor Levy 5.19 Following successive changes in legislation the Council has adopted a premium on second homes and a levy on empty homes and has taken a policy position on NDR empty property relief. No further changes are assumed in the Medium to Long Term Financial Strategy and given the uncertainties about any future proposals for Council Tax nationally, no additional income is assumed at this stage. It would not be prudent to import this into longer term calculations without a degree of certainty. 5.20 The Council continues to monitor the development of the national Visitor Levy (Scotland) Act 2024 and the emerging guidance for local authorities. Since last year’s update, the legislation has progressed significantly, with several councils (including Edinburgh, Glasgow and Aberdeen) now having approved schemes that will go live between 2026 and 2027, following the statutory implementation period of around 18 months. In line with the Act, any revenue raised locally from a visitor levy must be reinvested in the visitor economy, including services and infrastructure used substantially by visitors. The levy would operate in addition to existing funding streams and would require detailed consultation with local businesses and communities before any scheme could be introduced. Page 56
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19 Pay 5.21 Pay continues to represent over 72% of the Council’s net budgeted expenditure, making it the most significant cost driver within the financial plan. As a result, accurate forecasting of future pay settlements is critical, as even a 1% variation in assumptions can create substantial unfunded pressures. Pay awards for both teaching and non-teaching staff are negotiated nationally, and the most recent 2025/26 pay agreements now provide multi-year settlements, offering greater stability but still requiring careful consideration of affordability over the medium term. Although the Council previously budgeted for lower levels of pay growth, recent settlements have been above initial forecasts. The multi-year deals agreed in 2025/26, including those for the Scottish Joint Council (SJC) and the Scottish Negotiating Committee for Teachers (SNCT), will shape the pay bill in the coming years. A Scottish Government funding package continues to support local government pay, with allocations confirmed annually. The Council must satisfy itself that the pay bill and pay awards for the workforce are affordable and sustainable and remain within existing budget allocations. 5.22 Pay costs have risen significantly in recent years and remain one of the Council’s largest financial risks. The Scottish Government’s Integrated Pay and Workforce Policy 2026/27 reaffirms the national three-year pay framework covering 2025/26 to 2027/28, which includes an indicative total pay envelope of 9% and a cap of 3% in any single year. Although this framework reflects the Government’s wider assumptions on public sector affordability, it is not binding on Local Government, as council pay is negotiated nationally between COSLA and the trade unions. The policy is still relevant for financial planning because it indicates the fiscal environment in which future pay settlements will be negotiated and highlights a stronger national emphasis on workforce reform and productivity to control the overall public sector pay bill. The Council must therefore continue to adopt prudent and realistic assumptions when forecasting future pay awards. 5.23 The Policy also notes that many existing pay deals cover only the first two years of the three-year framework and that the Scottish Government intends to review its overall approach as part of the 2027/28 Budget process. This creates uncertainty for the later years of the financial plan and underlines the need for the Council to remain flexible in its workforce and financial planning assumptions, recognising that actual Local Government pay outcomes may diverge from national policy metrics. Source: Scottish Budget 2026 to 2027: integrated public sector pay and workforce policy 5.24 For planning purposes, the following scenarios are presented. The multi-year framework provides the basis for the mid-range assumption of 3% annual growth, reflecting increases above target inflation. The optimistic scenario applies a 2% Page 57
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20 increase, while the pessimistic scenario assumes a 4% increase falling fully to the Council. These assumptions reflect the ongoing risk that pay costs may rise faster than general inflation and the likelihood that national policy reforms will continue to influence workforce costs. 5.25 In summary, the projected budget pressures arising from workforce pay, across both teaching and non-teaching staff, are shown in the table below, including MIJB. These figures represent the gross cost pressures before any Scottish Government funding or flexibilities are applied, and therefore illustrate the scale of risk that pay growth poses to the Council’s medium to long-term financial position. Optimistic Mid-range Pessimistic Assumption 2% 3% 4% Year 1 – 2026/27 £7.52m £7.52m £7.52m Year 2 – 2027/28 £4.45m £6.67m £8.89m Year 3 – 2028/29 £4.53m £6.87m £9.25m Years 4-10 - 2029/30-2035/36 £34.38m £54.20m £75.94m Contract Inflation 5.26 Inflation assumptions continue to require close monitoring across both the short-medium and medium-long term. While headline inflation has eased towards the Bank of England’s 2% target, recent years have demonstrated how quickly external shocks, such as the conflict in Ukraine, energy price volatility, supply-chain disruption and higher interest rates, can significantly increase the Council’s costs, and how the corresponding rise in interest rates have an impact on borrowing costs. Although the economic outlook has stabilised compared to the peak inflation period, uncertainty remains high, particularly regarding how inflation and interest rates will react over the next few years. Given this volatility, the MLTFS takes a prudent and cautious approach to contract related inflation to avoid underestimating future budget pressures. 5.27 Most major contracts receive an annual inflationary uplift based on the prior 12-month inflation period. However, for many service contracts the actual cost increases faced by providers are higher than CPI because they are driven by Real Living Wage (RLW) increases, which have outpaced inflation in recent years. As a result, building in only CPI-based uplifts would underestimate the real cost pressures the Council is likely to face. 5.28 For scenario planning from 2026/27 onwards, updated assumptions have been applied in line with the latest OBR forecasts, which indicate inflation gradually returning towards the 2% target over the medium term, plus an additional allowance to reflect RLW cost pressures: the optimistic scenario uses the OBR Page 58
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21 forecast, reflecting the OBR’s expectation that inflation will normalise around the target level. The mid-range scenario uses a rate of CPI +0.5%, reflecting a slower return to expected target and recognising that providers may face higher staffing costs due to continued RLW increases. The pessimistic scenario applies CPI +1%, to reflect the risk that RLW increases or inflation could remain elevated for longer. This approach helps the Council build resilience against future economic shocks. 5.29 Inflationary cost pressure are considered across three key areas, with each area assessed individually to ensure inflation assumptions reflect the specific nature of cost drivers: • Service contracts • PPP and energy related contracts • Pay 5.30 In summary, cost pressures arising with service contract inflation (excluding pay awards, energy and PPP contract uplifts which are shown separately) are as follows: Optimistic Mid-range Pessimistic Assumption CPI forecast CPI forecast +0.5% CPI forecast +1% Year 1 – 2026/27 £0.30m £0.36m £0.42m Year 2 – 2027/28 £0.25m £0.31m £0.37m Year 3 – 2028/29 £0.25m £0.32m £0.38m Years 4-10 – 2029/30-2035/36 £1.90m £2.45m £3.029m Energy Contracts 5.31 Energy costs cover gas, electricity, oil, heat, water and street lighting, and remain a volatile area of Council expenditure. Although total energy consumption decreased by 4% in 2024/25, overall utility costs still increased by 9.3%, demonstrating that market prices and standing charges can rise independently of usage. Scottish Procurement has secured forward wholesale gas and electricity prices for 2025/26 through national framework arrangements, which provides a degree of short-term stability for the wholesale element of costs. This is relevant for the MLTFS as it improves certainty in the early years of the planning period; however, a significant proportion of energy expenditure remains subject to volatile non-energy charges and standing charges. As a result, energy continues to represent a key area of risk and uncertainty in medium to long-term financial planning. 5.32 The Energy Team has provided detailed cost forecasts for 2025/26, 2026/27 and 2027/28, based on actual 2024/25 consumption and the fixed 2025/26 tariffs. These give a high level of confidence for the next two financial years, with overall Page 59
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22 utilities expected to reduce in line with the fixed wholesale prices and consumption trends. Beyond 2027/28, forecasts continue to assume current consumption levels as a baseline. However, it is reasonable to expect a gradual reduction in usage over the medium term as the Council’s LED replacement programme, Solar PV installations, heating-control upgrades, and other energy-efficiency initiatives take effect. These measures have already contributed to reduced heating and electricity demand in several buildings and will help offset some future cost pressures. 5.33 Forecasts beyond 2026/27 remain uncertain, and usage will continue to be influenced by weather, building use and further efficiencies. Given the fact that energy prices do not move in line with CPI, the MLTFS takes a cautious approach when planning for future energy cost increases. For 2026/27 and 2027/28 the model follows the Energy Team’s forecasts, reflecting fixed tariff and from 2028/29 onwards the scenarios apply uplifts: • Optimistic scenario (1.5%) assumes energy costs broadly track CPI from 2028/29 and that efficiency projects contribute to reduce consumption helping to contain the inflationary pressure. • Mid-range scenario (2.5%) applies CPI with some headroom from 2028/29 to reflect the fact that non energy charges typically outpace inflations even when wholesale prices fall. • Pessimistic scenario (3.5) assumes a higher risk environment and market instability from 2026/27. Optimistic Mid-range Pessimistic Assumption 1.5% 2.5% 3.5% Year 1 – 2026/27 (£0.32m) (£0.32m) (£0.10m) Year 2 – 2027/28 (£0.10m) (£0.10m) £0.22m Year 3 – 2028/29 £0.09m £0.15m £0.52m Years 4-10 – 2029/30-2035/36 £0.67m £1.17m £2.11m PPP/PFI Contract 5.34 The Council’s schools PPP/PFI contracts attract an annual inflationary uplift. The increase applied each year is based on the Retail Price Index (RPI) for the preceding February, with the revised charge taking effect from 1 April. 5.35 As with the above scenarios for service contract and energy costs, the PPP assumptions will follow the same reasoning: the optimistic scenario will assume tracking RPI, mid-range scenario will apply the forecast RPI rate +1% and the pessimistic at 1% higher than mid-range. 5.36 In summary, budget pressures associated with the PPP contact are as follows: Page 60
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23 RPI Optimistic Mid-range Pessimistic Assumption RPI forecast RPI forecast +1% RPI forecast +2% Year 1 – 2026/27 £0.37m £0.46m £0.55m Year 2 – 2027/28 £0.34m £0.43m £0.53m Year 3 – 2028/29 £0.29m £0.39m £0.50m Years 4-10 – 2029/30-2035/36 £1.834m £2.72m £3.71m The Cost of Capital Borrowing 5.37 The Council’s revenue budget is interconnected to the financing of its capital expenditure and to the treasury management function that lies beneath the day- to-day transactions of the Council’s service provision. When the Capital Plan is approved, the impact of debt and borrowing requirements that will arise from it are factored into the revenue budget. The affordability of the recurring interest and principal debt repayments are a significant part of the Council budget and changes to interest rates can create unexpected budget pressures. When there is a pressure on the revenue budget, this in turn can put a strain on decision making within the capital programme. 5.38 It is a statutory requirement under Section 93 of the Local Government Finance Act 1992 for the Council to produce a balanced budget. The Act specifies that a local authority must calculate its budget requirement for each financial year to include the revenue costs incurred from capital financing decisions. The Council is also required to establish the affordability of its Capital Plan in accordance with the CIPFA Prudential Code. Under the code, the sustainability of borrowing costs need to be considered against revenue budget. The Council has established an internal Key Performance Indicator, setting an affordability ceiling of 10%. This is measured as a ratio of financing costs to net revenue stream. Financing costs are principal and interest loan charges, and charges associated with certain lease payments, primarily the Public-Private Partnership (PPP) and Design, Build, Finance, Maintain (DBFM) school contracts. Net revenue stream is defined as Scottish Government Revenue Grant, Council Tax income and NDR income. This clearly defined limitation of the amount of revenue which is determined by capital expenditure facilitates a full and separate discussion on capital expenditure whilst retaining consideration of the impact of capital decisions on revenue requirements. 5.39 Given the volatility of interest rates in recent years, the Council is carefully monitoring the impact of current commitments and existing plans. The Treasury Management Team, in partnership with the Council’s treasury advisors Arlingclose, will continue to monitor closely the situation around interest rates and take any necessary action on a day-to-day basis to avoid risk to the Council’s finances. Page 61
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24 5.40 The Council has a revenue budget for debt charges and the increases in capital expenditure between 2026-36 means that the revenue debt budget needs to be reviewed and increased. Current assumptions in respect of the debt charges are shown below along with optimistic and pessimistic scenarios based on the indicative 10-year Capital Plan approved at Council on 28 January 2026 (paragraph X of the minute refers). Although the indicative plan is inclusive of a cap on capital, the financial sustainability of the Council’s asset base is still a priority as current investment demand outstrips available funding. Several strands of the Transformation Strategy – Smarter Working, Depot and Stores review, Leisure review and Libraries review – are currently in development, but the most significant aspect is the Learning Estate review as it is the requirements of the Learning Estate which is creating the severe pressure in the latter years of the Plan which render it unaffordable. • Optimistic spend is 60% expenditure of the approved plan and assumes underspends rather than carry forward to the following year. Baseline and pessimistic are full delivery of the approved capital plan. Pessimistic cannot exceed 100% delivery as this is capped in accordance with the above-mentioned affordability indicator. • Interest rates for the scenarios use the forecast internal rate of borrowing which is closely linked to UK Gilt Yield forecasts from the Office for Budget Responsibility. Gilt rates are different to the Bank of England base rate and is tracked by the Public Works Loans Board (PWLB) so are more reflective of the borrowing rates the Council would get. Since peaking at 5.25% in August 2023, the Bank of England has steadily reduced the base rate to 3.75% in December 2025 as inflation eased and economic growth weakened. Long‑dated gilt markets have mirrored this shift, with 25‑year gilt yields now just above 5.05%, reflecting softer rate expectations and reduced issuance of longer‑dated gilts amid changing investor demand. Markets currently anticipate rates drifting downward in 2026, influenced by slowing inflation, weaker GDP data, and shifts in government bond‑issuance strategy. • The optimistic scenario assumes a lower internal rate of borrowing -0.5%, baselined is the forecast internal rate of borrowing (IRB) each year, and the pessimistic is the forecast IRB forecast +1.0%. it is difficult to predict what will happen to interest rates, particularly in the long term, as it depends on whether inflation remains consistent near to the inflation target (see paragraphs 4.6-4.7 above). Page 62
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25 5.41 Prudential borrowing levels are based on the capital expenditure of each scenario less the funding from capital grant and receipts. The loans charges are based on these borrowing requirements. Optimistic Baseline Pessimistic Assumption 60% spend on Capital Plan IRB -0.5% As per 10-year capital plan 2026-36 100% spend on Capital Plan IRB +1.0% Year 1 – 2026/27 (Decrease)/Increase in Loans Charges £(0.11)m £1.20m £3.86m Year 2 – 2027/28 Increase in Loans Charges £0.98m £2.41m £2.80m Year 3 – 2028/29 Increase in Loans Charges £2.56m £4.96m £5.62m Year 4-10 – 2029/30-2035/36 Increase in Loans Charges £4.66m £8.10m £12.49m Charging for Services 5.42 The Council approved an Income Strategy for 2024/25 to 2026/27, covering both Council Tax and charges for services. The Strategy provides a framework for planning and sets a minimum income requirement. As part of the 2025/26 budget setting process, indicative Council Tax increases for 2026/27 and 2027/28 were included at levels above this minimum, reflecting the Council’s likely approach in future years. 5.43 The review of Council Tax and service charges will continue to be carried out within the framework of the Income Strategy. 5.44 Following the budget-driven approach, income levels for 2024/25 and forecast levels for 2025/26 have been reviewed and income budgets increased where this can be supported. It is recognised that increased income may also require additional expenditure in some cases, and therefore service-by-service discussion between departments and Accountancy will continue to be required. 5.45 Income generated from charging for services remains around £8 million, of which approximately £1 million relates to the MIJB. Based on this budget level, a 1% increase in charges is expected to generate around £70,000, subject to demand remaining stable. It is recognised that higher price increases may result in reduced usage of some services and limit income gains. Page 63
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26 5.46 Under the Council’s Charging for Services Policy, charges within the Council’s control are reviewed annually. The Policy, supported by the Income Strategy, requires that charges are generally uplifted each year. Services should also consider scope for full cost recovery, with benchmarking against other local authorities providing a good test of reasonableness. 5.47 Council approved the revised Charging for Services Policy at a special meeting on 12 December 2023 (paragraph 7 of the minute refers) including the default inflation increase for fees and charges for Council Services for the period 2024/25 to 2026/27, set at CPIH (October) +1%. 5.48 Not all charges are within the Council’s control, some are levied by statute and are excluded from the Policy and the scenarios below. 5.49 Assumptions used in the scenarios below are: • Optimistic – 5 % (or 2 ½ times forecast inflation) – a significant income boost • Mid-range – CPIH+1% - per current Income Strategy • Pessimistic – 2% - target inflation only – minimum position per the Charging for Services Policy Optimistic Mid-range Pessimistic Assumption 5% CPIH +1% 2% Year 1 - 2026/27 £0.35m £0.34m £0.14m Year 2 – 2027/28 £0.37m £0.27m £0.14m Year 3 – 2028/29 £0.39m £0.23m £0.15m Year 4 – 2029/30-2035/36 £3.30m £1.80m £1.11m Additional Financial Risks 5.50 There are several additional financial risks that cannot currently be quantified or classed as budget pressures. These are therefore categorised as risks that may or may not materialise during the period covered by this Strategy. Should they arise, officers will update the financial assumptions and report the implications to Members. Current risks include: • Moray Integration Joint Board (MIJB) - Health and social care and children’s social work services are delivered by NHS Grampian and Moray Council under the direction of the MIJB. The Council has no direct control over how these services are managed and is liable for 47% of any overspend. MIJB continues to experience significant pressures, particularly in adult health and social care due to demographic trends. While the MIJB Page 64
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27 has an approved savings plan and the Council has budgeted for an element of overspend, this remains a material financial risk. • Growing demand for Additional Support Needs across Early Years and school settings. Additional funding has been provided in recent years, but demand may continue to rise. • Out of Area placements, with costs potentially accruing to both MIJB and the Council directly • Central Supply teachers expenditure pressures • Other demand-led expenditure, including homelessness, temporary accommodation and winter maintenance. These costs vary in response to social, economic and weather-related factors and may exceed budgeted levels if conditions worsen. 5.51 This MLTFS incorporates known service specific cost pressures, either existing or anticipated to be new burdens. The risks outlined above, and any further emerging risks, will be monitored continuously and incorporated into future iterations of the MLTFS. Identification, monitoring and mitigation of unquantified risks form an essential component of long-term financial planning. 6. Supporting Change Programmes Transformation Strategy 6.1 Transformation remains the Council’s primary long-term lever for achieving financial sustainability. While the MLTFS focuses on structural change over the next decade, the Short to Medium Term Financial Strategy (SMTFS) sets out the immediate priorities for 2026/27 and 2027/28. The two strategies are designed to operate together: the SMTFS drives short-term delivery, while the MLTFS provides the longer-term direction of travel. 6.2 In the short term, the SMTFS highlights Smarter Working, the Depots and Stores Review, and Energy Transformation (LED and Solar PV programme) as deliverable savings or cost-avoidance measures. While these projects contribute to reducing the immediate budget gap, the larger long-term savings are expected to come from wider transformation programmes such as digital modernisation, workforce change and emerging socio-economic funding opportunities. 6.3 Over the medium to long term, the wider Transformation Strategy will continue to deliver structural change through service redesign, digital improvement and a reduction of the Council’s asset base. The Learning Estate Review is central to this work, with significant potential to reduce revenue running costs and future capital investment pressures. Page 65
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28 6.4 The SMTFS also sets out a budget-led approach, requiring services to address recurring overspends and maintain expenditure within approved budgets. Transformation supports this by enabling more efficient operating models, modernised processes and workforce changes that help ensure services can be delivered sustainably. 6.5 Transformation, income generation and service redesign form the Council’s agreed savings hierarchy, with transformation as the primary mechanism for bridging the structural gap identified in this MLTFS. 6.6 The Council’s Transformation Strategy continues to evolve to support long-term financial sustainability. An update on the Strategy was reported to Full Council on 24 September 2025, setting out progress on existing work and the next stage of development. This includes a focus on redesigning services around communities, making more effective use of assets and places, and improving internal systems and ways of working. The update reflected progress across key programmes such as digital transformation, workforce change, depots and stores, customer services, energy efficiency and the review of major asset-based services, including sport and leisure. Together, these programmes underpin the Council’s longer-term approach to managing financial pressures and delivering more sustainable services. A further update is scheduled for Corporate Committee on 17 February 2026. Sustainable Development 6.7 Sustainable development is a core component of the Council’s Best Value duties and provides the wider context for long-term financial planning. The Council’s Sustainable Development Statement, approved in November 2024, sets out how sustainability is embedded in the Corporate Plan 2024–2029, in governance arrangements, and across key strategies including the Climate Change Strategy, Learning Estate Strategy, Community Wealth Building Strategy and Economic Strategy. 6.8 For financial planning, sustainable development influences long-term decisions on the asset base, capital investment, energy efficiency, service redesign and resource allocation, ensuring that choices made today support social, economic and environmental wellbeing over the next decade. The draft Climate Change Strategy 2025 - 2035 reinforces sustainable development as a key part of decision-making, helping ensure investment choices support long-term resilience and environmental responsibility. 6.9 This MLTFS therefore recognises sustainable development both as a guiding principle for prioritising investment and as an important factor in ensuring the resilience and affordability of Council services in the long term. Page 66
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29 Asset Management 6.10 Asset-related transformation is a key part of achieving long-term financial sustainability. The Smarter Working programme is now in its third phase and is reducing the size and running costs of the Council’s office estate. The Depot Review has progressed to Full Business Case approval and implementation and is intended to modernise and consolidate operational depots, improving efficiency and reducing the cost of maintaining multiple sites. The Learning Estate Review has also progressed and has significant potential to reduce running costs and future capital investment requirements. Alongside this, continued investment in energy efficiency measures supports the Council’s wider sustainability and Net Zero objectives and will help lower the cost of operating the estate over time. 6.11 Capital investment is one of the main reasons the Council faces financial pressure over the long term. To keep borrowing costs affordable, the Council will need to reduce the size of its capital programme and continue to rationalise its estate, as many other councils are also doing. This will mean reviewing how services are delivered in future so that they can operate effectively from a smaller, more efficient set of buildings. While the SMTFS sets out the short-term steps already underway, this MLTFS is required to set the longer-term direction for a sustained programme of estate consolidation. Place Based Approach 6.12 The Council’s future asset base must support sustainable service delivery while remaining financially affordable. The MLTFS assumes that, as the estate reduces over time, services will increasingly be delivered from a smaller number of strategically located, energy-efficient buildings. A place-based approach enables the Council to balance financial sustainability with accessibility, ensuring that the remaining estate is aligned with population need, travel patterns and service usage. This approach complements the Transformation Strategy by ensuring rationalisation decisions consider both cost and community impact. Service Redesign and Workforce Sustainability 6.13 Service redesign is essential to achieving long-term financial sustainability. The MLTFS identifies the pay bill as the most significant cost driver, and therefore modernising how services operate, through digital improvements, streamlined processes, automation and more efficient operating models, is essential over the coming decade. While the SMTFS requires services to bring spending back within approved budgets in the short term, the MLTFS recognises that deeper redesign Page 67
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30 will be required in the medium to long term to manage workforce costs, respond to demographic change and support a sustainable staffing structure. Partnership Working 6.14 Effective partnership working remains an important element of financial sustainability. The Moray Integration Joint Board (MIJB) continues to face significant cost pressures and represents a material financial risk for the Council. Close collaboration will be required to support the delivery of MIJB’s financial recovery plans and mitigate the impact of increasing demand in adult health and social care services. Over the medium to long term, the Council will continue to explore opportunities for shared services, collaboration with other public bodies and more efficient commissioning models, where these can deliver better value and reduce duplication of activity. Participatory Budgeting 6.15 Participatory Budgeting (PB) will continue to form part of the Council’s wider democratic engagement framework, in line with national expectations, working towards the Scottish Governments target where at least 1% of Council budgets will be subject to PB. While PB strengthens transparency and community involvement, it is not expected to materially influence the financial position over the period of this Strategy and therefore does not form a core financial lever within the MLTFS. PB activity will continue to be developed through the Council’s Best Value arrangements rather than as a driver of financial sustainability. 6.16 Embedding PB into the Councils business as usual processes is embedded in our Best Value Action Plan. This is exemplified through our budget engagement approach and consultation on major components of the Transformation Strategy such as the Learning Estate, Leisure and Libraries reviews. 7. Conclusion 7.1 This Strategy brings together the key financial assumptions, cost pressures and risks that will shape the Council’s finances over the next decade. The long-term modelling shows recurring pressures due to demographic changes, inflation, pay and capital financing costs. 7.2 The mid-case scenario table that follows summarises how these assumptions combine to create the projected gap. 7.3 The first two years of the period covered by this Strategy continue to be governed by the Short to Medium Term Financial Strategy (SMTFS). This includes a Page 68
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31 requirement to deliver savings of £2.5 million in 2026/27 and to maintain the Council Tax assumptions already agreed. Progress during this period will be monitored through the Budget on a Page approach. 7.4 Over the medium to long term, the Council will need to take a strategic and planned approach to its services and asset base. Three areas of work will be critical to long-term financial sustainability: • a smaller, more efficient estate, aligned with a place-based approach; • a more streamlined organisation, supported by digital improvements and modernised service models; and • future-proofing services, using up-to-date demographic and economic information to guide decisions. 7.5 Transformation will remain the Council’s main tool for addressing the recurring budget gap. The Learning Estate Review, Smarter Working programme and Depot Review will help reduce running costs and limit future capital investment pressures. Alongside this, service redesign and workforce planning will support more efficient and financially resilient service delivery. 7.6 Sustainable development will continue to guide how the Council prioritises investment and allocates resources. Ensuring that decisions support social, economic and environmental wellbeing will strengthen resilience and help protect essential services over the long term. 7.7 This Strategy will be reviewed annually to reflect new financial information, national policy changes and decisions taken by the Council. Regular review ensures that Members have a clear understanding of the financial challenges ahead and the actions required to address them. As further projects within the Transformation Strategy’s existing workstreams are developed and approved, the MLTFS will be updated to reflect these, ensuring that the Council remains focused on long-term financial sustainability. 7.8 A reconciliation of budget gaps for 2026/27 and 2027/28 as developed using the mid case assumptions in the Medium to Long Term Financial Planning process to the more detailed development of these used and reported in the Short to Medium Term Financial Plan is given below: 2026/27 £m 2027/28 £m Budget gap per Short to Medium Term Financial Plan (Council 28 Jan 2026) 0.060 3.717 Inclusion of MIJB pay award assumptions in MLTFS (para 5.25) 1.640 1.360 Page 69
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32 Impact of settlement recognised in SMTFP 2.389 - Interest on Revenue Balances saving (0.650) - Decrease in school rolls (0.997) - Revised gap per Medium to Long Term mid case 2.590 4.980 A residual difference of £0.148m in 2026/27 and £0.097m in 2027/28 is considered to reflect timing differences. Page 70
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Mid-case Assumptions within the Financial Strategy Para. Scenario Assumption 2026/27 £m 2027/28 £m 2028/29 £m 2029/30 - 2035/36 £m Year 1 Year 2 Year 3 Years 4-10 Income Government Grant core funding 5.8 Mid 0% £0.00 £0.00 £0.00 £0.00 Council Tax Income 5.17 Mid CPI + 1% £6.29 £4.47 £2.75 £22.71 Income - discretionary charges 5.49 Mid CPI + 1% £0.34 £0.27 £0.23 £1.80 Total Income £6.63 £4.74 £2.98 £24.51 Expenditure Pay Award 5.25 Mid 3% £7.52 £6.67 £6.87 £54.20 Inflationary pressures/contract inflation general 5.30 Mid CPI +1% £0.36 £0.31 £0.32 £2.45 Contract inflation - Energy (tariff changes) 5.33 Mid 2.50% (£0.32) (£0.10) £0.15 £1.17 Contract inflation - PPP 5.36 Mid RPI +1% £0.46 £0.43 £0.39 £2.72 Loans Charges - borrowing for capital programme 5.41 Mid 10 year capital plan £1.20 £2.41 £4.96 £8.10 Total Expenditure £9.22 £9.72 £12.69 £68.64 BUDGET GAP £2.59 £4.98 £9.71 £44.13 Page 71
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Report to: Special Meeting of Moray Council Meeting Date: 25 February 2026 Report by: Executive Director Finance, Strategy and Transformation Author: Jamie Fraser Contact Email: jamie.fraser@moray.gov.uk Subject: Treasury Management Strategy Statement and Prudential Indicators 1. PURPOSE ☐ For Decision ☐ For Information 1.1 The purpose of this report is to ask Members to approve the Treasury Management Policy and Strategy and the Investment Strategy for 2026/27 and to approve the indicators which will be used to measure the Council’s performance in capital investment decisions. 1.2 This report is submitted to Council in terms of Section III B (8) of the Council’s Administrative Scheme relating to the implementation and monitoring of the Treasury Policy Statement dealing with the management of all money and capital market transactions in connection with cash funding resources of the Council. 2. SUMMARY 2.1 The Council is required to approve an annual Treasury Management Strategy and Borrowing Strategy before the beginning of each new financial year. Accompanying this, the Council must also establish a set of prudential indicators as set out in the CIPFA Prudential Code for Capital Finance. 2.2 Treasury management is the management of cash flows, borrowing and investments, and the associated risks. Moray Council has borrowed and invested substantial sums of money and is therefore exposed to financial risks including the revenue effect of changing interest rates the loss of invested funds. The successful identification, monitoring and control of financial risk are therefore central to prudent financial management. The Council has appointed Arlingclose as treasury management advisors. 2.3 The prime objective of the Councils treasury management investment activities is the security of funds, and to avoid exposing public funds to unnecessary or unquantified risk. The strategies presented as part of this paper do not deviate from those presented to this committee in prior year, bar the inclusion of a new Environmental, Social and Governance Policy which forms part of the Investment Strategy for 2026/27. See APPENDIX 1. Item 6. Page 73
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3. RECOMMENDATIONS 3.1 It is recommended that Council approves: i) the Treasury Management Strategy Statement for 2026/27; ii) the Investment Strategy for 2026/27 in APPENDIX 1; iii) the Prudential Indicators and Limits for 2026/27 in APPENDIX 3; and iv) the Treasury Management Policy Statement in APPENDIX 5. 3.2 It is recommended that Council considers and notes the indicative Prudential Indicators and limits for 2027/28 and 2028/29. Jamie Fraser Service Manager Strategic Finance 4. BACKGROUND AND CONTEXT 4.1 Treasury management is the management of cash flows, borrowing and investments, and the associated risks. Moray Council has borrowed and invested substantial sums of money and is therefore exposed to financial risks including the revenue effect of changing interest rates the loss of invested funds. The successful identification, monitoring and control of financial risk are therefore central to prudent financial management. 4.2 Treasury management at the Council is conducted within the framework of the Chartered Institute of Public Finance and Accountancy’s Treasury Management in the Public Services: Code of Practice 2021 Edition (the CIPFA Code) which requires authorities to approve a treasury management strategy before the start of each financial year. In addition, the Scottish Government issued Consent for the Investment of Money by Scottish Local Authorities in April 2010 that requires the Authority to approve an investment strategy before the start of each financial year. This report fulfils the Authority’s legal obligation under the Local Government in Scotland Act 2003 to have regard to both the CIPFA Code and the Consent. 4.3 The Local Government (Scotland) Act 2003 requires the Council to adopt the CIPFA Prudential Code for Capital Finance in Local Authorities and to produce the prudential indicators set out in the Prudential Code. These indicators are designed to support and record affordable and sustainable capital investment and treasury management. TREASURY MANAGEMENT STRATEGY 2026/27 Current Treasury Position 4.4 The Council’s borrowing and investments as at 31 December 2025 are set out in the table below: Actual Rate £000 % Fixed Rate Debt PWLB 156,561 5.25 Page 74
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LOBO 10,100 3.95 Market 23,300 5.00 Variable Rate Debt PWLB - - LOBO - - Temporary Borrowing – Local Authorities 101,000 4.50 Total External Borrowing 290,961 4.93 Other Liabilities 58,555 n/a Total Gross External Debt 349,516 n/a less: Short Term Investments (11,400) 3.45 Net Debt 338,116 n/a 4.5 PWLB is the Public Works Loan Board. LOBO is Lender’s Option Borrower’s Option where the lender has the option to propose an increase to interest rates at set dates and the borrower (the Council) has the option to either accept the new rate or to repay the loan. Temporary borrowing is borrowing for periods of less than twelve months. Other liabilities are those relating to the financing of capital expenditure, finance leases and Public Private Partnership (PPP) arrangements. Short term investments are short-term deposits held in Money Market Funds. Interest Rates Forecast 4.6 The Council has appointed Arlingclose as treasury management advisers and receives advice on investment, debt and capital finance issues. The Council recognises that responsibility for treasury management decisions rests with the Council and cannot be delegated to the adviser. 4.7 The Bank of England’s Monetary Policy Committee (BoE MPC) cut then Bank Rate to 3.75% in December 2025, as expected. The vote to cut was 5-4, with the minority instead favouring holding rates at 4.0%. Those members wanting a cut judged that disinflation was established while those preferring to hold Bank Rate argued that inflation risks remained sufficiently material to leave rates untouched at this stage. Arlingclose, currently forecasts that the BoE MPC will continue to reduce Bank Rate in 2026, reaching around 3.25%. This forecast reflects amendments made following the Autumn Budget and an assessment of the fiscal measures and their market implications, and following the BoE MPC meeting held on 18th December. 4.8 Long-term gilt yields, and therefore interest rates payable on long-term borrowing, are expected to remain broadly stable on average, though with continued volatility, and to end the forecast period marginally lower than current levels. 10-year gilt yields as at December 2025 traded at an average of 4.49%, a minor reduction from the start of the year. Yields are likely to stay higher than in the pre-quantitative tightening era, reflecting ongoing balance sheet reduction and elevated bond issuance. Short-term fluctuations are expected to persist in response to economic data releases and geopolitical developments. 4.9 A more detailed economic and interest rate forecast provided by Arlingclose is attached at APPENDIX 4. 4.10 The Council has an internal rate of borrowing, which is the rate at which interest is charged to the loans pool and subsequently revenue budget. This rate is calculated by taking into account all relevant borrowing, treasury management costs and bank charges, offset by any interest income and Interest on Revenue Balances (IORB) income. The internal rate of borrowing typically tracks gilt yields but tends to be slightly higher and to adjust more slowly. For the purposes of setting the Capital Plan 2026-29, it has been assumed that the internal rate of borrowing will average 5.00%. The internal rate of borrowing as at 31 December 2025 is 5.28% Page 75
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Borrowing Strategy 2026/27 4.11 Given the significant cuts to public expenditure and in particular to local government funding, the Council’s borrowing strategy continues to address the key issue of affordability without compromising the longer-term stability of the debt portfolio. Short- term interest rates have fallen over the past year, and are expected to fall a little further, and it is therefore likely to be more cost effective over the medium-term to either use internal resources, or to borrow short-term loans instead. The risks of this approach will be managed by keeping the Council’s interest rate exposure within the limit set in the treasury management prudential indicators. 4.12 By doing so, the Council is able to reduce net borrowing costs (despite foregone investment income) and reduce overall treasury risk. The benefits of short-term / internal borrowing will be monitored regularly against the potential for incurring additional costs by deferring borrowing into future years when long-term borrowing rates are forecast to rise modestly. Arlingclose will assist the Council with this ‘cost of carry’ and breakeven analysis. Its output may determine whether the Council borrows additional sums at long- term fixed rates in 2026/27 with a view to keeping future interest costs low, even if this causes additional cost in the short-term. 4.13 The Council has previously raised the majority of its long-term borrowing from the PWLB but will consider long-term loans from other sources including banks, pensions and local authorities in order to lower interest costs and reduce over-reliance on one source of funding in line with the CIPFA Code. PWLB loans are no longer available to local authorities planning to buy investment assets primarily for yield; the Council intends to avoid this activity in order to retain its access to PWLB loans 4.14 The Council will continue to borrow short term loans, normally one to twelve months, to cover cash flow shortages. 4.15 The approved sources of long-term and short-term borrowing are:- • HM Treasury’s PWLB lending facility (formerly the Public Works Loan Board) • National Wealth Fund Ltd (formerly UK Infrastructure Bank Ltd) • any bank or building society authorised to operate in the UK • any other UK public sector body • UK public and private sector pension funds (except North East Scotland Pension Scheme) • capital market bond investors • special purpose companies created to enable local authority bond issues 4.16 At 31 December 2025 the Council held £10.1 million of LOBO loans where the lender has the option to propose an increase in the interest rate at set dates, following which the Council has the option to either accept the new rate or to repay the loan at no additional cost. The Council will take the opportunity to repay the remaining LOBO loan at no additional cost if the opportunity arises. 4.17 The revised Prudential Code and Treasury Management Code of Practice published December 2021 states that it is not prudent for local authorities to make investment or spending decisions that increases the capital financing requirement and so leads to new Page 76
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borrowing unless directly and primarily related to the functions of the local authority. In short, the Council is not permitted to borrow to invest primarily for financial return. 4.18 The revised code reminds Local Authorities that the prime objective of their treasury management investment activities is the security of funds, and they should avoid exposing public funds to unnecessary or unquantified risk. It is not prudent to make any investment or spending decision where any financial returns are either related to the financial viability of the project in question or otherwise incidental to the primary purpose of the Local Authority. Debt Rescheduling 4.19 The PWLB allows Councils to repay loans before maturity and either pay a premium or receive a discount according to a set formula based on current interest rates. Other lenders may also be prepared to negotiate premature redemption terms. The Council may take advantage of this and replace some loans with new loans, or repay loans without replacement, where this is expected to lead to an overall cost saving or a reduction in risk. The recent rise in interest rates means that more favourable debt rescheduling opportunities should arise than in previous years. Financial Derivatives 4.20 In the absence of any legal power to do so, the Council will not use standalone financial derivatives such as swaps, forwards, futures and options. Derivatives embedded into loans and investments may be used and the risks they present will be managed in accordance with the overall treasury risk management strategy. INVESTMENT STRATEGY 2026/27 4.21 The Local Government Investment (Scotland) Regulations 2010 require the Council to approve an annual Investment Strategy. This has been included as APPENDIX 1 to this report. 4.22 The primary principles governing the Council’s investment criteria is the security of capital and liquidity of its investments. The Council will also aim to achieve the optimum return on its investments commensurate with proper levels of security and liquidity. Where balances are expected to be invested for more than one year, the Council will aim to achieve a total return that is equal or higher than the prevailing rate of inflation in order to maintain the spending power of the sum invested. Under the current economic climate of inflation above the UK Treasury target and with recent reductions in interest rates this may be challenging in the short to mid-term. 4.23 The CIPFA Code requires local authorities to consider the counterparty policies in light of Environmental, Social and Governance (ESG) information, while recognising that there is not a developed approach to ESG for public sector organisations and not expecting authorities to use real-time ESG scoring/criteria for individual investments. An addition to the Investment Strategy 2026/27 is the inclusion of an Environmental, Sustainability and Governance (ESG) Policy which reflects the advice provided by Arlingclose. 4.24 The Council may invest its surplus funds with any of the Approved Counterparties listed in APPENDIX 2, subject to the cash and time limits shown. Page 77
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TREASURY MANAGEMENT PRUDENTIAL INDICATORS 4.25 The key objectives of the Prudential Code are to ensure that capital investment plans of the Council are affordable, prudent and sustainable; risks are proportionate, and decisions are taken in accordance with good professional practice. To demonstrate these objectives the Code sets ten prudential and treasury indicators designed to support and record capital investment and treasury decision making. These are detailed in APPENDIX 3. 4.26 It is a statutory requirement under Section 93 of the Local Government Finance Act 1992 for the Council to produce a balanced budget. In particular, a local authority must calculate its budget requirement for each financial year to include the revenue costs incurred from capital financing decisions. Affordability 4.27 The fundamental objective of affordability is to ensure that capital plans remain within sustainable limits. 4.28 Setting affordable limits for borrowing within a prudential framework is a specific requirement and helps ensure that the further objectives of sustainability and prudence are addressed. The Council has adopted a Performance Indicator (PI) of the percentage of revenue budget planned to be spent on servicing debt as an additional method of ensuring affordability. This is regularly reported as part of capital plan monitoring and is currently set at 10% for Moray Council and 35% for HRA (Housing Revenue Account). The three-year capital plan for 2026/29 and indicative 10-year capital plan reported to Council on 28 January 2026 (paragraph 7 of the draft minute refers) has been set ensuring the affordability indicator is met. 4.29 Given the agreed restrictions on the capital plan the Council does not envisage difficulties for the immediate future (i.e. next two or three years). The Treasury Management Team, in partnership with Arlingclose, will continue to monitor interest rates closely and take any necessary action to avoid risk to the Council’s finances. Sustainability 4.30 The sustainability of the Council’s finances underpins the overall financial framework and is supported by the Prudential Code. Sustainability of finances relates to the ability of the Council to sustain its current spending, tax and other policies in the long run without threatening Council solvency or defaulting on its liabilities or promised expenditure. Sustainability is gauged by the wider financial planning process and there are no prudential indicators specifically related to sustainability other than the affordability indicators. Prudence 4.31 The prudent level of borrowing is linked to ensuring that debt will only be for a capital purpose. It is also prudent that treasury management activities are carried out in accordance with good professional practice. Within the CIPFA Prudential Code, local authorities are required to adopt the CIPFA Treasury Management Code of Practice. 4.32 The Local Government in Scotland Act 2003 also requires the Council to determine and continuously review how much it can afford to allocate to capital expenditure. This is known as the “Affordable Capital Expenditure Limit”. Page 78
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4.33 The Indicators and Limits for 2026/27 are based on the General Services Capital Plan approved by Council on 28 January 2026 and HRA Investment Plan presented in separate reports for consideration at this meeting. 4.34 Prudential Indicators are for 2026/27 only, and whilst the capital plan for General Services was approved for three years, 2026-29, the importance of the indicators, as well as volatility of interest rates, would deem it appropriate to continue setting them annually. 4.35 Actual outturn figures for 2024/25 have previously been reported to Moray Council on 24 September 2025 (paragraph 9 of the Minute refers) and these figures have also been included in the report for comparison purposes. 4.36 This report also updates the previously approved indicators for 2025/26 based on the latest estimated outturn and shows that the Council remains within previously approved limits for borrowing. 5. TREASURY MANAGEMENT POLICY STATEMENT 5.1 The Treasury Management Policy Statement sets out the framework for managing treasury activities. Its purpose is to ensure that treasury management is conducted prudently, effectively and in line with strategic objectives. 5.2 The Treasury Management Policy contained in APPENDIX 5 has been updated to reflect recommended wording in accordance with the CIPFA Code. 6. SUMMARY OF IMPLICATIONS 6.1 The table below shows whether risks and implications apply if the recommendations are agreed: SUBJECT YES NO Corporate Plan and 10 Year Plan (Local Outcome Improvement Plan) ✓ Policy and Legal ✓ Financial ✓ Risk ✓ Staffing ✓ Best Value and Transformation Property ✓ Information Communications Technology/Digital Equalities. Social Inclusion and Economic Impact ✓ Climate Change and Biodiversity Impact ✓ 6.2 Corporate Plan and 10 Year Plan (Local Outcomes Improvement Plan (LOIP)) Improved Collaborative Leadership, as part of continuous improvement through Best Value, will better enable the Council to fulfil the ambitions set out in its strategic plans. Page 79
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a) Links to Council Corporate Plan – The proposals in this report support and contribute to improved outcomes for communities as outlined in the following Council Plan strategic priorities: ☒ Tackle Poverty and Inequality. ☒ Build Stronger Greener Vibrant Economy. ☒ Build Thriving, resilient, empowered Communities. b) Links to Local Outcomes Improvement Plan – The proposals in this report support and contribute to improved outcomes for communities as outlined in the following Local Outcomes Improvement Plan priorities: ☒ Developing a diverse, inclusive, and sustainable economy ☒ Building a better future for our children and young people in Moray. ☒ Empowering and connecting communities. ☒ Improving wellbeing of our population None specifically arising from this report. 6.3 Policy and Legal The Local Government in Scotland Act 2003 provides the powers to borrow and invest as well as providing controls and limits on these activities. The Council has adopted the CIPFA Prudential Code and the CIPFA Treasury Management in the Public Services Code of Practice and Guidance Notes (“the CIPFA Code”) which was revised in 2021. The Council also complies with the Local Government Investments (Scotland) Regulations 2010 (“the Regulations”). All Treasury Management activities are carried out in accordance with the CIPFA Code and the Regulations. 6.4 Financial All financial considerations are contained within the body of the report and the attached APPENDICES 1 - 6. The net cost of Capital Investment and Treasury Management activities has a significant effect on the Council’s overall finances. When considering the level of future capital investment programmes, the Council should be aware of the impacts of proposed capital spend on the Revenue Budget. 6.5 Risk The Council is aware of the risks of passive management of the treasury portfolio and, with the support of the Council’s treasury advisers, will proactively manage its investments and debt over the year. Capital expenditure is closely monitored, and Budget Managers are aware of their responsibilities to manage budget allocations. 6.6 Staffing None specifically arising from this report. Page 80
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6.7 Best Value and Transformation None specifically arising from this report. Investment in transformation should take affordability into consideration when developing spend plans. 6.8 Property None specifically arising from this report. Investment in property should take affordability into consideration when developing spend plans. 6.9 Information Communications/Technology/Digital None specifically arising from this report. Investment in Information Communications/Technology/Digital should take affordability into consideration when developing spend plans. 6.10 Equalities, Social Inclusion and Economic Impact None specifically arising from this report. 6.11 Climate Change and Biodiversity Impacts None specifically arising from this report, however an ESG Policy has been included as a new element to the 2026/27 Investment Strategy. 7. CONSULTATION 7.1 This report has been prepared in consultation with Central Leadership Team and any comments made have been incorporated into the report 8. BACKGROUND PAPERS 8.1 Held within Financial Services. Page 81
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APPENDIX 1 THE ANNUAL INVESTMENT STRATEGY 2026/27 1. Background 1.1 The Council will adhere to the Local Government Investment (Scotland) Regulations 2010 (the Regulations), the CIPFA Prudential Code and the CIPFA Treasury Management in Public Services Code of Practice and Cross Sectoral Guidance Notes (“the CIPFA Code”) which was revised in 2021. 1.2 Both the CIPFA Code and the Regulations require the Council to invest its funds prudently, and to have regard to the security and liquidity of its investments before seeking the highest rate of return, or yield. The Council’s objective when investing money is to strike an appropriate balance between risk and return, minimising the risk of incurring losses from defaults and the risk of receiving unsuitably low investment income. The Authority aims to be a responsible investor and will consider environmental, social and governance (ESG) issues when investing 1.3 The Annual Investment Strategy covers: • Creditworthiness Policy • Investment Strategy • Permitted Investments • Non-Treasury Investments • Environmental Social Governance Policy 2. Creditworthiness Policy 2.1 The Council’s creditworthiness policy has been formulated after consultation with Arlingclose, the Council’s treasury advisers. 2.2 In addition to credit ratings provided by the three main credit rating agencies, Fitch, Moodys and Standard & Poor, the following tools are used to assess credit risk: • Sovereign support mechanisms • Credit default swaps (where quoted) • Share prices (where available) • Corporate developments, news articles, market sentiment and momentum 2.3 The Chief Financial Officer maintains a counterparty list in compliance with the minimum criteria detailed in 2.4 which is submitted to the Council for approval as necessary. All credit ratings are monitored on an ongoing basis and the counterparty list is amended to reflect any changes. The current Counterparty List is shown as APPENDIX 2. 2.4 The current minimum criteria was approved by Full Council on 27 February 2019 (paragraph 5 of the Minute refers) and it is not proposed to alter these. Page 82
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The Council’s minimum criteria are: • Banks – the Council will use banks which have at least the following Fitch or equivalent ratings. - Long Term: BBB+ • Building Societies – the Council will include Societies which meet the criteria for Banks outlined above. • Money Market Funds – Long Term: AAAmmf (Fitch) or equivalent. 2.5 The Council banks with Bank of Scotland and at the current time it meets the minimum credit criteria. However, if the credit rating falls below the Council’s minimum criteria, Bank of Scotland will continue to be used for short-term liquidity requirements (overnight and weekend investments) and business continuity arrangements. 3. Investment Strategy 3.1 The Local Government Investments (Scotland) Regulations 2010 states that local authorities are required to adopt a strategy that identifies the different types of treasury risk for the type of investments utilised. A local authority may invest money for any purpose relevant to its functions under any enactment, or for the purposes of prudent management of its financial affairs. Such investments or types of investments are defined as permitted investments. The risks that these investments are exposed to are credit or security risk (of default); liquidity risk (risk of committing funds to longer term investments); and market risk (effect of market prices on investment value). 3.2 The primary principle governing the Council’s investment criteria is the security of capital and liquidity of its investments. The Council will also aim to achieve the optimum return on its investments commensurate with proper levels of security and liquidity. 3.3 The Council’s in-house managed funds are mainly derived through cash-flow and the balance on the General Reserve. Investments will accordingly be made with reference to the Council’s cash flow requirements and the outlook for short-term interest rates. 3.4 Maximum investment levels with each counterparty will be set to ensure prudent diversification is achieved. Therefore a maximum deposit of £5 million can be placed with any one institution at any one time, with the exception of the Council’s Bankers when the limit is £10 million, and the Debt Management Office (DMO). 3.5 Given the Council’s requirement for sufficient liquidity for cash flow purposes, the investment strategy continues to focus on the utilisation of an unsecured call Page 83
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account with Council’s Banker and Money Market Funds as they offer the best return for investments with instant access. 4. Permitted Investments 4.1 The Council will undertake the most appropriate form of investments in keeping with investment objectives, income and risk management requirements and prudential indicators. The Council may invest its surplus funds with any of the counterparty types in the table detailed in paragraph 4.4 below, subject to the cash and time limits shown. 4.2 The permitted investments identified for the Council’s use are as follows: • UK Debt Management Office (DMO). This offers the lowest risk form of investment available to local authorities as it is effectively an investment placed with the UK Government. It is also easy to use as it is a deposit account and avoids the complications of buying and holding Government issued treasury bills or gilts. As it is low risk it also earns low rates of interest. The longest term deposit that can be made with the DMO is 6 months. • Bank (Unsecured). These are account deposits, certificates of deposit and senior unsecured bonds with banks and building societies. These investments are subject to the risk of credit loss via a bail-in should a bank be failing or likely to fail. Diversifying investments is crucial to managing bail-in risk in addition to determining proportionate counterparty maturity limits. Should the Council’s current bank, Bank of Scotland, be rated less than BBB+, investments with them will be restricted to overnight deposits. • Banks (Secured). These are covered bonds, reverse purchase agreements and other collateralised arrangements with banks and building societies. These investments are secured on the bank’s assets, which limits the potential losses in the unlikely event of insolvency, and means they are exempt from bail-in. • Money Market Funds (MMFs). MMFs are pooled funds that invest in short- term debt instruments. They provide the benefits of a pooled investment, as investors can participate in a more widely diversified portfolio than they could do individually. Due to the high level of expertise of the fund managers and the very large amounts of money invested in MMFs, and the fact that the weighted average maturity (WAM) cannot exceed 60 days, MMFs offer a combination of high security, instant access to funds, high diversification, very low or no volatility and competitive rates of return. Page 84
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1. Securities Issued or Guaranteed by Governments a) Treasury Bills. These are short-term bills (up to 12 months) issued by the Government and therefore are backed by the sovereign rating of the UK. An advantage compared to a time deposit in the DMO is that they can be sold if there is a need to access cash at any point in time. However there is a spread between purchase and sale prices so early sales may incur a net cost which would result in a fall in the nominal value of the instrument. b) Gilts. These are longer term debt issuance by the UK Government and are backed by the sovereign rating of the UK. 2. Lending to other Local Authorities. Lending to other local authorities will normally be in the form of fixed term deposits for periods up to one year. 4.3 All investments in the table at 4.4 are subject to the following risks:- 1. Credit and Counter-Party Risk: this is the risk of failure by a counterparty (bank or building society) to meet its contractual obligations to the Council, particularly as a result of the counterparty’s diminished creditworthiness, and the resulting detrimental effect on the Council’s capital or current (revenue) resources. There are no counterparties where this risk is zero although AAA rated organisations have a very high level of creditworthiness. Credit ratings are obtained and monitored by the Council’s treasury advisers, who notify changes in ratings as they occur. 2. Liquidity Risk: this is the risk that cash will not be available when it is needed. While it could be said that all counterparties are subject to at least a very small level of liquidity risk as credit risk can never be zero, in this strategy liquidity risk has been treated as whether or not instant access to cash can be obtained from each form of investment instrument. However while some forms of investment, e.g. gilts or corporate bonds, can usually be sold immediately if the need arises, there are two caveats: (a) cash may not be available until a settlement date up to three days after the sale and (b) there is an implied assumption that markets will not freeze up and so the instrument in question will find a ready buyer. The column in the table below at section 4.4 headed as ‘market risk’ shows each investment instrument as being instant access; sale T+1 = transaction date plus one business day before you get the cash, or term i.e. money is locked in until an agreed maturity date. 3. Market Risk: this is the risk that, through adverse market fluctuations in the value of the principal sums an organisation borrows and invests, its stated treasury management policies and objectives are compromised, against which effects it has failed to protect itself adequately. 4. Interest Rate Risk: this is the risk that fluctuations in the levels of interest rates create an unexpected or unbudgeted burden on the Council’s finances, against which the Council has failed to protect itself adequately. Page 85
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The Council has set limits for its fixed and variable rate exposure in its previously agreed Treasury Indicators. 5. Legal and Regulatory Risk: this is the risk that the Council or an organisation with which it is dealing in its treasury management activities, fails to act in accordance with its legal powers or regulatory requirements, and that the Council suffers losses accordingly. 6. Bail-In Risk: this is the risk, arising from the EU Bank Recovery and Resolution Directive which has been implemented in the UK, that a bank’s creditors and depositors are forced to bear some of the burden of rescuing a failing bank. 4.4 The following table provides details of the proposed investment limits and maturity periods for Permitted Investments: *The only investment of this type used is a Call Account with the Council’s own Bank. 4.5 Controls on Treasury Risks 1. Credit and Counter-Party Risk: the Council has set minimum credit criteria to determine which counterparties are of high creditworthiness to enable investments to be made safely. Minimum Credit Criteria (Fitch or Equivalent) Liquidity risk Market risk Bail-In Risk Maximum Value of investments Maximum maturity period Debt Management Office n/a term no n/a No Limit 6 months Term Deposits: Local Authorities n/a term no n/a £5m 364 Days Banks (Unsecured) Long-Term: BBB+ Instant* no yes £5m (£10m Council’s own Bank) n/a Banks (Secured) Long-Term: BBB+ term no no £5m (£10m Council’s own Bank) 3 months Money Market Funds AAAmmf instant no n/a 0.5% of Money Market Fund size Government Money Market Funds – 2% of Fund size n/a Treasury Bills UK Sovereign Rating Sale T+1 No (If held to maturity ) n/a No Limit 12 months UK Government Gilts UK Sovereign Rating Sale T+1 No (If held to maturity ) n/a No Limit 12 months Page 86
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2. Liquidity Risk: the Council has cash flow forecasting models to enable it to determine how long investments can be made for and how much can be invested. 3. Market Risk: the Council does not directly purchase and/or account for investment instruments which are subject to market risk in terms of fluctuation in their value. If this position changes, instruments exposed to market risk will initially be purchased and held with the intention to hold them until maturity, thus mitigating market risk. 4. Interest Rate Risk: the Council manages this risk by having a view of the future course of interest rates and then formulating a treasury management strategy accordingly which aims to maximise investment earnings consistent with minimising risk or alternatively, seeks to minimise expenditure on interest costs on borrowing. 5. Legal and Regulatory Risk: the Council will not undertake any form of investing until it has ensured that it has all necessary powers and also complied with all regulations. 6. Bail-In Risk: The Council will diversify investments to manage this risk. Any investments subject to the risk of bail-in are restricted to overnight deposits with the Council’s own Bank (Call Account). 4.6 Unlimited Investments 4.6.1 The Regulations state that the Council can deem an investment as being ‘unlimited’ in terms of the maximum amount of the total portfolio that can be put into that type of investment but an explanation must be given for using that category. 4.6.2 The Council has only given the UK Government (Debt Management Office, Treasury Bills and Gilts) an unlimited category. This is considered to be the lowest risk form of investment available to local authorities. 5. Non-Treasury Investments 5.1 Investments defined in the regulations include the acquisition of properties, share or loan capital. These types of investments may have originally been made for service or policy reasons or for treasury management purposes. Should the Council make an investment which is not listed as a permitted investment, that investment will not be made in accordance with the Consent of Ministers and as such will be ultra vires. The exception to this is where the Council makes a financial transaction that relies on separate legislative powers such as loans to third parties. 5.2 General powers to borrow and lend money are conferred by s165 of the Local Government etc (Scotland) Act 1994 and ensuing regulations. Specific regulations for loans to third parties by local authorities are contained in the Page 87
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Housing (Scotland) Act 1987, the Housing (Scotland) Act 2006 and the general power to advance well-being contained in the Local Government in Scotland Act 2003 at section 20. The inclusion of loans to third parties as part of the investments of the Council is to identify the value of local authority monies utilised in this way, monies which would otherwise be available for general investment and give rise to investment income. 5.3 The following table provides a summary of the Councils Non-Treasury Investments at 31 March 2025 and the maximum value of investments that the Council will hold. Actual Value at 31 March 2025 £m Max Value of Investments £m Investment Property * - Council £0.395m £10m Share Holdings - Council Note ** £0.1m Loans to 3rd Parties Market Rate - Council £0.116m £2.0m Loans to 3rd parties – Below Market Rate - Council £0.05m £0.5m Investment Property * - Common Good Funds £2.409m £12m Share Holdings - Common Good Funds Nil Nil Loans to 3rd Parties Market Rate – Common Good Funds Nil £0.5m Loans to 3rd parties – Below Market Rate – Common Good Funds Nil Nil Investment Property * - Trust Funds £0.080m £1.0m Share/ Unit Trust Holdings – Trust Funds £3.233m £3.5m Notes * Investment Properties have been categorised using IFRS guidelines and is mainly land which the Council will use for development in the future. ** Although the Council has 20.44% of total share capital in The Grampian Venture Capital Fund Limited no value has been attached this share holding in its current Balance Sheet due to the fact that the Council has no exposure to commercial risk and the Council has not passed on control of any of its assets. The fund was voluntarily liquated in 2025/26. Page 88
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6. Environmental, Social and Governance Policy 6.1 Environmental, social and governance (ESG) considerations are increasingly a factor in global investors’ decision making, but the framework for evaluating investment opportunities is still developing. At this time, the Council considers the advice of its treasury management advisors when compiling its Counterparty list. Our advisors are informed by credit ratings agencies whom supply such ratings on potential counterparties. These ratings incorporate ESG risks alongside more traditional financial risk metrics, therefore ESG considerations are already incorporated in our Counterparty list to an extent and include institutions who are committed to UN Principles of Responsible Banking, UN Principles of Responsible Investing, UK Stewardship Code 2020 and/or Net-Zero Asset Managers Initiative. 7. End of Year Investment Report 7.1 At the end of the financial year, the Council will report on its investment activity as part of its Annual Treasury Management Report. Page 89
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APPENDIX 2 THE MORAY COUNCIL APPROVED COUNTERPARTIES LIST UK Banks Limit (£m) Time Limit Long Term Rating See Note Bank of Scotland (Lloyds) 10 Call AA-/A1/A+ Barclays Bank 5 35 days A+/A1/A+ HSBC 5 35 days AA-/A1/A+ Lloyds Bank 5 35 days AA-/A1/A+ National Westminster Bank (RBS) 5 35 days AA-/A1/A+ Royal Bank of Scotland 5 35 days AA-/A1/A+ Santander (UK) 5 35 days A+/A1/A Standard Chartered Bank 5 35 days A+/A1/A+ UK Building Societies Nationwide 5 35 days A+/A1/A+ Page 90
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Other Institutions Debt Management Office Unlimited 6 Months AA-u/Aa3/AAu UK Local Authorities 5 2 years Money Market Funds Standard Life Sterling Liquidity Fund 5 Call AAAmmf/Aaa-mf/ AAAm Federated Sterling Prime Fund 5 Call AAAmmf/Aaa-mf/ AAAm Blackrock Institutional Sterling Liquidity Fund 5 Call AAAmmf/Aaa-mf/ AAAm Insight Sterling Liquidity Fund 5 Call AAAmmf/Aaa-mf/ AAAm Deutsche Bank Managed Sterling Fund 5 Call AAAmmf/Aaa-mf/ AAAm Page 91
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CCLA Public Sector Deposit Fund (UK) 5 Call AAAmmf/Aaa-mf/- Notes 1.The long term ratings for each institution above are in the format Fitch/ Moodys/ Standard & Poor. The minimum ratings are as follows: - Fitch: BBB+ Moodys: Baa1 Standard & Poor: BBB+ Page 92
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APPENDIX 3 Prudential and Treasury Indicators Capital Expenditure Indicators 1. Capital Expenditure The Council is required to establish and keep under review capital investment plans which are affordable. It should make reasonable estimates of total capital expenditure that it plans to incur during the forthcoming year and the following two years. This indicator outlines capital spending plans for 2026-29 are based on the approved three-year Capital Plan. For comparison purposes, the actual spend for 2024/25 is presented together with estimates for 2025/26 based on the latest available figures. 2024/25 Actual £000 2025/26 Estimate £000 2026/27 Budget £000 2027/28 Budget £000 2028/29 Budget £000 Capital Expenditure General Services 27,219 46,995 67,894 105,003 48,710 HRA 23,256 38,005 44,454 33,459 25,005 Total Capital Expenditure 50,475 85,000 112,348 138,462 73,715 Financed by: Capital Receipts 1,712 1,215 9,474 2,217 100 Capital Grants 22,038 31,910 29,257 41,900 23,650 Revenue 954 3,512 4,563 5,662 7,591 Total Funding 24,704 36,637 43,294 49,777 31,341 Net financing need for the year 25,771 48,363 69,054 88,685 42,374 The increase on General Services capital expenditure from 2026/27 includes major investment in the Learning Estate over the next three years (£116.329m) with the delivery of two Learning Estate Investment Programme (LEIP) projects. Three large economic regeneration projects, Moray Growth Deal, Levelling Up Fund and Elgin Neighbourhood board, will from the second largest expenditure (£64,762m). The remaining spend is allocated to the Council’s core assets, with notable expenditure across the Leisure Estate (£6,648m); Fleet and Plant (£6,532m); and Property Estate (£5.568m) which will see the delivery of the Depots and Store review. Page 93
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The increase on the HRA from 2026/27 relates principally to the phasing of the new build housing programme, along with an increase in investment in existing Housing Stock. An allowance is also allocated to acquisitions. The Local Housing Strategy (2024-30) is due for approval in March 2026 with the key objective being the increase in supply of affordable housing and tackling homelessness. 2. Capital Financing Requirement The capital financing requirement (CFR) measures the Council’s underlying need to borrow for capital investment. The CFR rises over the period as a large proportion of the Council’s capital expenditure is financed by additional borrowing thus increasing the Council’s total outstanding debt. The Council pays off an element of the accumulated debt each year through a revenue charge (the scheduled debt amortisation). 2024/25 Actual £000 2025/26 Estimate £000 2026/27 Estimate £000 2027/28 Estimate £000 2028/29 Estimate £000 Opening CFR 370,593 383,054 418,012 472,589 545,647 Add: General Services 27,219 46,995 67,894 105,003 48,710 HRA 23,256 38,005 44,454 33,459 25,005 Less: Grants & Other conts. (23,750) (33,125) (38,731) (44,115) (23,750) Direct revenue conts. (954) (3,512) (4,563) (5,662) (7,591) Scheduled debt amortisation (13,310) (13,405) (14,477) (15,627) (16,652) Closing CFR 383,054 418.012 472,589 545,647 571,269 Movement in CFR 12,461 34,958 54,577 73,058 25,722 Page 94
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Affordability Indicators The following three indicators measure whether the Council’s level of borrowing is affordable and financially prudent. 3. Ratio of Financing Costs to Net Revenue Stream This indicator provides a measure of the percentage of the budget that is being set aside to pay debt financing costs. For General Services this is the ratio of financing costs of borrowing against net expenditure financed by government grant and local taxpayers. For Housing, the indicator is the ratio of financing costs to gross house rental income. As part of General Services capital monitoring, this indicator is regularly updated to give prevalence to the affordability of the Capital Plan. This indicator is currently set at 10% for General Services and 35% for Housing. Service 2024/25 Actual 2025/26 Estimate 2026/27 Estimate 2027/28 Estimate 2028/29 Estimate General Services 10.63% 9.43% 9.27% 9.18% 9.45% HRA 30.00% 29.79% 32.17% 34.42% 34.66% The percentages in General Services from 2024/25 to 2028/29 reflect the ongoing general requirement to increase borrowing to fund capital expenditure in the capital plan, particularly in the Learning Estate, Libraries and Leisure Estate and Moray Growth Deal. The Learning Estate will see the completion of two Learning Estate Investment Programme (LEIP) funded major rebuild/refurbishments at Forres Academy and Elgin High School. Funding is paid through revenue on completion of construction, and the Council has made provision for this. Similarly, the Growth Deal expenditure is front-loaded against the anticipated grant profile and the Council has made a separate provision for this. The breach of 10% in 2024/25 was as a result of the introduction of the accounting standard IFRS 16 Leases from 1 April 2024 whereby additional costs previously treated as service expenditure are now included. These costs have now been incorporated into future estimates. The increase in percentages in the HRA from 2026-29 reflects the ongoing requirement to increase borrowing due to the ongoing programme of new build housing and an increase in investment in existing housing stock. This is reflected in the latest HRA business plan. Work is phased to ensure the 35% threshold is not breached in any single year. 4. Estimates of Incremental Impact of New Capital Investment Decisions on Council Tax and House Rents This indicator demonstrates the incremental impact of planned capital expenditure and associated borrowing on council tax and rent levels, were these to rise to cover the cost of capital. 2024/25 Actual 2025/26 Estimate 2026/27 Estimate 2027/28 Estimate 2028/29 Estimate Page 95
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Council Tax - Band D £238.74 (£40.26) (£0.82) £19.94 £45.30 Average Weekly Housing Rents £7.36 £1.05 £4.91 £4.91 £2.45 Both 2025/26 and 2026/27 show a decrease in the effects of capital investment on Council Tax. This is a result of the recovery from the increased financing costs and breaching of the affordability threshold in 2024/25. The phasing of loans repayment also impacts on this figure. The increases from 2027/28 align with the planned increase in capital expenditure and subsequent increase of financing costs. In the HRA, the increase in incremental impact on housing rents from 2025/26 onwards demonstrates that the accelerated capital investment plans, including for new affordable housing, require an incremental increase on average rents to fund the cost of additional borrowing, hence the incremental impact of additional borrowing decreases over time. Page 96
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Prudence Indicators 5. Gross Debt and the Capital Financing Requirement This indicator records the extent that gross debt is less than the capital financing requirement (see Indicator 2 above). This indicator shows prudence by demonstrating that over the medium term external borrowing is used only for a capital purpose. The values are measured at the end of each financial year. Debt is the sum of external borrowing and other liabilities relating to the financing of assets (e.g. PPP and other finance leases). Reported debt must include all liabilities relating to the financing of assets. 2024/25 Actual £000 2025/26 Estimate £000 2026/27 Estimate £000 2027/28 Estimate £000 2028/29 Estimate £000 Borrowing 299,057 333,573 389,752 463,461 489,888 Other Liabilities 58,555 50,527 49,655 49,004 48,299 Gross Debt 357,612 384,830 439,407 512,485 538,187 CFR 383,054 418,012 472,589 554,647 571,369 Under Limit By 25,442 33,182 33,182 33,182 33,182 The above figures confirm that the Council’s borrowing will be under the Capital Financing Requirement. External Debt Indicators The prudential indicator for actual external debt is considered at a single point in time, which is at the end of each financial year. Therefore, it is only comparable to the authorised limit and operational boundary at that specific time. The actual external debt reported in the annual accounts for the previous year is required to be shown in the tables below for comparison purposes only. 6. The Authorised Limit For External Debt The authorised limit for external debt is required by the Prudential Code to separately identify external borrowing and other liabilities such as PPP and finance lease obligations. This limit provides a maximum figure to which the Council could borrow at any given point during each financial year. The authorised limit should contain sufficient headroom to provide for any anticipated payments as well as being based on the Council’s capital investment plan. Page 97
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The authorised limits shown above are based on the proposed capital investment plan for 2025/26 to 2028/29 and anticipated Other Liabilities and take account of Treasury Management policy and practice. The figures allow sufficient headroom for unanticipated cash movements. Total debt must include all liabilities relating to the financing of assets. 7. Operational Boundary for External Debt This indicator is a management tool for in-year monitoring and is lower than the Authorised Limit as it is based on an estimate of the most likely level of external borrowing at any point during each year. Operational Boundary 2024/25 Actual Maximum £000 2025/26 Estimate Maximum £000 2026/27 Estimate Maximum £000 2027/28 Estimate Maximum £000 2028/29 Estimate Maximum £000 Borrowing 299,057 405,015 479,895 558,376 592,076 Other Liabilities 59,555 51,257 50,655 50,004 49,299 Total External Debt 358,612 456,272 530,550 608,380 641,375 8. Liability Benchmark The liability benchmark was introduced as a new treasury management prudential indicator in the 2021 edition of the CIPFA Treasury Management Code. Unlike other indicators, the liability benchmark is to be shown graphically and consists of three lines – the loans capital financing requirement, the net loans requirement and the liability benchmark itself, with also an area for actual borrowing: • The Loans Capital Financing Requirement (LCFR) is the total Capital Financing Requirement (CFR) less the amounts that are met by other long-term liabilities, such as lease liabilities. The Council does not need to borrow for these amounts as the liability is effectively providing the cash to fund that part of the CFR. • The Net Loans Requirement (NLR) is the amount of borrowing needed to keep treasury investments at zero. It is almost lower than the LCFR due to the balance sheet resources that create cash. 2024/25 Actual Maximum £000 2025/26 Estimate Maximum £000 2026/27 Estimate Maximum £000 2027/28 Estimate Maximum £000 2028/29 Estimate Maximum £000 Borrowing 319,057 410,015 494,895 573,376 607,076 Other Liabilities 59,555 52,257 51,655 51,004 50,299 Total External Debt 378,612 462,272 546,550 624,380 657,375 Page 98
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The LCFR can be described as the maximum permitted level of borrowing. The NLR is the minimum possible if borrowing, at which investments would be zero. This would expose the authority to the liquidity risk of being unable to make payments when due. The liability benchmark is the point between the two, where an appropriate balance of risks can be struck between these two extremes. 9. Compliance with CIPFA Code of Practice for Treasury Management in the Public Services This is an adoption statement aimed at ensuring that treasury management is led by a clear and integrated forward treasury management strategy and recognition of the council’s existing borrowing and investments portfolio. There are four treasury prudential indicators, the purpose of which is to contain the activity of the treasury function within certain limits, thereby managing risk and reducing the impact of an adverse movement in interest rates. However if these are set to be restrictive they will impair the opportunities the Council may have to reduce financing costs. 9.1 Fixed and Variable Rate Limits Upper limits on variable rate exposure – this indicator identifies a maximum limit for variable interest rates based upon the debt position net of investments. Page 99
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Upper limits on fixed interest rate exposure – similar to the previous indicator, this sets a maximum limit on fixed interest rates. 2024/25 Actual 2024/25 Estimate 2025/26 2026-29 Interest Rate Exposures Upper Limit Upper Limit Upper Limit Upper Limit Limits on Fixed Interest Rates based on Net Debt 100% 100% 100% 100% Limits on Variable Interest Rates based on Net Debt 0% 35% 35% 35% 9.2 Maturity Structure of Fixed Interest Rate Borrowing Maturity structure of borrowing – these gross limits, both lower and upper, are set to reduce the Council’s exposure to large fixed rate sums falling due to be refinanced within the same financial year. 2024/25 Actual 2025/26 2026/27 2027-29 Lower Upper Lower Upper Lower Upper < 12 months 37.84% 0% 40% 0% 40% 0% 40% 12 – 24 months 6.38% 0% 20% 0% 20% 0% 20% 2 – 5 years 9.26% 0% 25% 0% 25% 0% 25% 5 – 10 years 12.65% 0% 50% 0% 50% 0% 50% >10 years 33.87% 0% 85% 0% 85% 0% 85% 9.3 Maximum Principal Sums Invested Greater than 364 days Following changes arising from the Investment Regulations applicable from 1 April 2010, the Council can invest for periods longer than 364 days. The Council does not currently take advantage of this change and therefore has set a limit of Nil for investing over 364 days. 2022/23 Actual 2023/24 2024/25 2025/26 & 2026/27 Principal Sums Invested > 364 days £0M £0M £0M £0M Page 100
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APPENDIX 4 Arlingclose Economic & Interest Rate Forecast – 22 December 2025 Underlying assumptions: • The Bank of England duly delivered on expectations for a December rate cut, but, despite softer economic data over the past two weeks, the minutes highlighted increased caution surrounding both the inflation outlook and the speed of future easing. With a close vote of 5-4 in favour of a rate reduction, this suggests that the bar for further monetary easing may be higher than previously thought despite the possibility of the CPI rate falling to target in 2026. • Budget policies and base effects will mechanically reduce the CPI rate in 2026, on top of the downward pressure arising from soft economic growth and the looser labour market. However, many policymakers appear concerned that household and business inflation and pricing expectations are proving sticky following recent bouts of high price and wage growth, which may allow underlying inflationary pressure to remain elevated. While, the Bank’s measure of household expectations ticked lower in December, it remains above levels consistent with the 2% target at 3.5%. • While policymakers hold valid concerns, these appear somewhat out of line with current conditions; CPI inflation fell to 3.2% in November, private sector wage growth continued to ease amid the highest unemployment rate since the pandemic, and the economy contracted in October after barely growing in Q3. Business surveys pointed to marginally stronger activity and pricing intentions in December but also suggested that the pre-Budget malaise was not temporary. These data are the latest in a trend suggesting challenging economic conditions are feeding into price and wage setting. • Risks to the growth and inflation outlook lie to the downside, which may ultimately deliver lower Bank Rate than our central case. However, the minutes suggest that the Current Mar-26 Jun-26 Sep-26 Dec-26 Mar-27 Jun-27 Sep-27 Dec-27 Mar-28 Jun-28 Sep-28 Dec-28 Official Bank Rate Upside risk 0.00 0.25 0.50 0.50 0.50 0.50 0.50 0.50 0.50 0.50 0.50 0.50 0.50 Central Case 3.75 3.50 3.25 3.25 3.25 3.25 3.25 3.25 3.25 3.25 3.25 3.25 3.25 Downside risk 0.00 0.00 -0.25 -0.50 -0.50 -0.50 -0.50 -0.50 -0.50 -0.50 -0.50 -0.50 -0.50 3-month money market rate Upside risk 0.00 0.25 0.50 0.50 0.50 0.50 0.50 0.50 0.50 0.50 0.50 0.50 0.50 Central Case 3.82 3.55 3.30 3.30 3.30 3.30 3.30 3.30 3.30 3.30 3.35 3.35 3.35 Downside risk 0.00 0.00 -0.25 -0.50 -0.50 -0.50 -0.50 -0.50 -0.50 -0.50 -0.50 -0.50 -0.50 5yr gilt yield Upside risk 0.00 0.40 0.45 0.50 0.55 0.60 0.65 0.70 0.70 0.70 0.70 0.70 0.70 Central Case 3.96 3.85 3.80 3.75 3.75 3.75 3.75 3.75 3.75 3.75 3.80 3.80 3.80 Downside risk 0.00 -0.50 -0.60 -0.70 -0.80 -0.85 -0.85 -0.85 -0.85 -0.85 -0.85 -0.85 -0.85 10yr gilt yield Upside risk 0.00 0.40 0.45 0.50 0.55 0.60 0.65 0.70 0.70 0.70 0.70 0.70 0.70 Central Case 4.52 4.40 4.35 4.30 4.30 4.30 4.30 4.30 4.30 4.30 4.35 4.35 4.35 Downside risk 0.00 -0.50 -0.60 -0.70 -0.80 -0.85 -0.85 -0.85 -0.85 -0.85 -0.85 -0.85 -0.85 20yr gilt yield Upside risk 0.00 0.40 0.45 0.50 0.55 0.60 0.65 0.70 0.70 0.70 0.70 0.70 0.70 Central Case 5.16 5.00 4.95 4.90 4.90 4.90 4.90 4.90 4.90 4.90 4.95 4.95 4.95 Downside risk 0.00 -0.50 -0.60 -0.70 -0.80 -0.85 -0.85 -0.85 -0.85 -0.85 -0.85 -0.85 -0.85 50yr gilt yield Upside risk 0.00 0.40 0.45 0.50 0.55 0.60 0.65 0.70 0.70 0.70 0.70 0.70 0.70 Central Case 4.74 4.65 4.60 4.60 4.60 4.60 4.60 4.60 4.60 4.60 4.65 4.65 4.65 Downside risk 0.00 -0.50 -0.60 -0.70 -0.80 -0.85 -0.85 -0.85 -0.85 -0.85 -0.85 -0.85 -0.85 Page 101
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bar to further rate cuts beyond 3.25% is higher and the near-term upside risks to our Bank Rate forecast have increased. Having said that, we believe inflation expectations will naturally decline alongside headline inflation rates. • Investors appear to have given the UK government some breathing space following the Budget, with long-term yields continuing to trade at slightly lower levels than in late summer/early autumn. Even so, sustained heavy borrowing across advanced economies, the DMO’s move towards issuing more short-dated gilts and lingering doubts about the government’s fiscal plans will keep short to medium yields above the levels implied by interest rate expectations alone. Forecast: • In line with our long-held forecast, Bank Rate was cut to 3.75% in December. • Continuing disinflation, rising unemployment, softening wage growth and low confidence suggests that monetary policy will continue to be loosened. • Arlingclose expects Bank Rate to be cut to 3.25% by middle of 2026. However, near- term upside risks to the forecast have increased. • Medium and long-term gilt yields continue to incorporate premia for UK government credibility, global uncertainty and significant issuance. These issues may not be resolved quickly and we expect yields to remain higher. Page 102
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APPENDIX 5 TREASURY MANAGEMENT POLICY STATEMENT 1. Moray Council defines its treasury management activities as the management of the authority’s borrowing, investments and cash flows, including its banking, money market and capital market transactions, the effective control of the risks associated with those activities and the pursuit of optimum performance consistent with those risks. 2. Moray Council regards the successful identification, monitoring and control of risk to be the prime criteria by which the effectiveness of its treasury management activities will be measured. Accordingly, the analysis and reporting of treasury management activities will focus on their risk implications for the authority and any financial instruments entered into to manage these risks. 3. Moray Council acknowledges that effective treasury management will provide support towards the achievement of its business and service objectives. It is therefore committed to the principles of achieving value for money in treasury management, and to employing suitable, comprehensive performance measurement techniques within the context of effective risk management. Page 103
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APPENDIX 6 GLOSSARY OF TERMS Bail-In: an arrangement in which creditors of a failing financial institution are required to cancel come of its debts as part of a plan to save it from collapse Financial Instruments: are assets that can be traded, or they can also be seen as packages of capital that can be traded Gilts: fixed-Interest loan securities (Bonds) issued by the UK Government Gilt Yield: the interest raids paid on UK Government Bonds Money Market Fund: a mutual fund that invests in highly liquid, near-term instruments Safe Haven: a type of investment that is expected to retain or increase in value during times of market turbulence, for example: gold or defensive stocks Page 104