Item 10 Appendix 1
West Dunbartonshire Council · 26 August 2026
Back to West Dunbartonshire Council — 26 August 2026 and its agenda
Text extracted from the council's PDF. Layout and reading order may differ from the original.
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FINANCIAL STRATEGY August 2026
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Page | 2 Table of Contents Section Page 1. Introduction 3 2. Economic Context and Outlook 4 3. Scottish Government Medium Term FInanical Strategy and Financial Sustainability Delivery Plan 5 4. Revenue Budget 5 5. Reserves 13 6. Revenue Outlook Beyond 5 Years – Risks and Issues 16 7. Capital Plan 16 8. Treasury Management 18 9. Housing Revenue Account 19 10. Conclusion 19 11. Appendix 1 – Policy on Reserves and Balances 21
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Page | 3 1. Introduction 1.1 West Dunbartonshire Council (the Council), like all councils, faces significant financial challenges and is required to operate within tight fiscal constraints for the foreseeable future due to the continuing difficult national economic outlook and increased demand for services. This Financial Strategy (the Strategy) recognises the Council’s duty to set a prudent, sustainable budget, and seeks to provide a foundation for the provision of value for money in the delivery of Council services in the longer term. 1.2 The Strategy is an important component of the Council’s financial planning process. It underpins the longer term sustainability of the Council. The primary purpose of the Strategy is to ensure the Council lives within its means, balancing expenditure against the income raised through government grants, Non-Domestic Rates, Council Tax and fees and charges. As such the Strategy is a key tool to help ensure that: • resources are deployed to facilitate delivery of the Council’s strategic objectives with decisions on that deployment made within the appropriate financial context • Elected Members can take full account of the impact of decisions on the overall financial position of the Council in the short, medium and long term • the Council has a comprehensive balanced budget for General Services and the Housing Revenue Account (HRA) • there is a clear financial planning link between Council decisions on capital planning and the General Fund and HRA revenue budgets • resources are invested effectively, efficiently and on a sustainable basis • there is an ongoing focus on securing efficiencies across the Council and closing our budget gaps • there is a clear understanding of the challenges and risks that impact on the Council’s finances. 1.3 The adoption of a medium to longer term approach for financial planning enables the Council to plan the delivery of service changes across financial years through modernising services, investing in new technology, and in developing its strategic partnerships to provide longer term benefits. Whilst it is hoped this approach enables required service change to be delivered in a more planned manner and reduces the need for reactive cuts to services, that expectation needs to be considered alongside the fact that the Council continues to be in a period of single year settlements which doesn’t provide any degree of financial certainly into the medium term. Furthermore ring fencing of funding can limit what the Council can do and additional policy and legislative implications, not always fully funded, puts financial pressures on councils. 1.4 The Strategy planning approach encompasses a longer term 10 year look forward that seeks to identify the challenges facing the Council. There is however, nothing to indicate that Local Government will receive a real terms
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Page | 4 funding boost in the medium term over and above the implementation of Scottish Government policies and national initiatives. In this context it is likely that Local Government in Scotland is faced with a continuing reduction in resources which will have a clear impact on service delivery. Given the current level of uncertainty surrounding future funding, it is therefore considered that a strategy covering the period 2027/28 to 2031/32 in detail with very high level estimates for 2032-2036 is reasonable and appropriate for planning purposes. 1.5 The Strategy makes a number of key estimates and assumptions. These will continue to be reviewed on a regular basis and reported to the Council as part of regular Financial Updates 1.6 The inclusion of information in the Strategy does not infer approval and all financial estimates and issues will have to be subject to approval through the budget process. 2 Economic Context and Outlook 2.1 The economic health of the UK and Scotland is important context for the Financial Strategy. Public services are effectively funded through income from taxes which increase when the economy is performing strongly and decrease when the economy takes a downturn. 2.2 As in recent years, economic growth remains low. In March 2026 the Office of Budget Responsibility published their updated economic and fiscal outlook in which they state they expect real terms gross domestic product (GDP) growth to slow from 1.4% in 2025 to 1.1% in 2026 before increasing to 1.6% in the period 2027-2030. The 1.1% forecast in 2026 is a reduction of 0.3% on the November 2025 forecast which reflects weaker than expected GDP outturns at the end of 2025. 2.3 This low growth means tax receipts are not growing fast enough and as a result there is less money available for public services. The money that is available must be allocated between health, defence, further education, local government and other areas. 2.4 Over the course of 2025 the bank base rate has reduced from 4.5% in February to 3.75% in December and the Bank of England voted to hold the rate at 3.75% at their last meeting in April 2026. When deciding to hold it at 3.75% they specifically noted • the war in the Middle East disrupting transportation and supply of energy resulting in price increases • inflation rising to 3.3%, higher than predicted in February 2026 (before the start of the war) and an expectsation it will increase further during 2026 • an expectation that energy price rises will have knock-on effects; as businesses’ bills go up.
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Page | 5 2.5 The ongoing concerns around the persistence of inflation, which is rising faster than expected, and that higher inflation potentially becoming embedded in consumer behaviour through higher pay claims and expected shop price rises could make it more difficult for the Bank of England to achieve the 2% inflation target, meaning interest rates could stay higher for longer. 2.6 In summary the continuing and volatile pressures experienced by local government throughout the UK has resulted in some councils facing extreme financial hardship and crisis. Members will already be aware that councils in England have experienced severe financial problems leading to some Section 151 Officers (S95 in Scotland) issuing formal S114 Notices to cease all but essential spend. There are inevitable questions around whether councils experiencing significant financial pressure remain a “going concern” and whilst this has been isolated to English councils so far, Scottish councils are in no ways immune from it. This may lead to greater emphasis from external auditors on the assurance and demonstration of financial management and resilience for local authorities. 3 Scottish Government Medium Term Financial Strategy and Financial Sustainability Delivery Plan 3.1 The Scottish Government’s Medium Term Financial Strategy was published in June 2025 covering the period 2025/26 to 2030/31. It estimates a funding gap of almost £5 billion, for both revenue and capital spending, in the period to 2029/30. Spending requirements continue to outpace funding growth and it is therefore inevitable that difficult decisions will need to be taken. 3.2 Alongside the Medium Term Financial Strategy, the Scottish Government published the Financial Sustainability Delivery Plan which sets out a number of approaches that the Scottish Government may take to tackle the revenue funding gap outlined in their Medium Term Financial Strategy. This includes a reduction in workforce of 0.5% per annum and the need for public sector efficiencies and reform. 4 Revenue Budget Aggregated External Finance Settlement 4.1 Mainstream funding support for Local Government from the Scottish Government is collectively known as Aggregate External Finance (AEF) and comprises: • General Revenue Grant to support expenditure on all Council Services. • A distribution of funding from the National Non-Domestic Rates Pool. • Ring-fenced grants which must be used for specified purposes. 4.2 Approximately 78% of the Council’s budget is supported by Aggregated External Finance from the Scottish Government. This includes general revenue grant, specific grants and Non Domestic Rate income. The
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Page | 6 remaining 22% is made up from Council Tax and other Council sources of finance e.g. fees and charges and rental income. Consequently the Council has limited access to levers to influence income levels. In addition the Scottish Government currently produces single year financial settlements for Local Government making it extremely challenging for the Council to accurately estimate future funding levels. The breakdown of the Council’s 2026/27 budgeted revenue income is shown in Exhibit 1. Exhibit 1 – West Dunbartonshire Budgeted Revenue Income 4.3 The Scottish Government Three Year Spending Review published in January 2026 outlines multi-year spending plans for various portfolios spanning from 2026/27 to 2028/29. This is summarised in Exhibit 2 and illustrates that Local Government funding, in cash terms, is expected to decrease slightly over the three-year period. The real term impact of this (taking inflation into account) is a continuing erosion of core funding for councils as a “flat-cash” settlement requires councils to absorb inflationary pressures and unfunded elements of and pay awards.
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Page | 7 Exhibit 2 – Summary of Scottish Government Portfolio Three Year Spending Plans as per January 2026 Spending Review) Portfolio 2026/27 £m 2027/28 £m 2028/29 £m Change over three year period £m % Change over three year period Local Government 14,783 14,772 14,773 -10 -0.07% Finance (excluding Local Government) 421 363 365 -56 -13.30% Health and Social Care 21,952 22,786 23,896 1,944 8.86% Social Justice 8,024.3 8,485.7 8,875.7 851 10.61% Education & Skills 3,556.1 3,594.5 3,592.1 36 1.01% Justice & Home Affairs 4061 3,890.8 3,680.4 -381 -9.37% Transport 3,952.4 4,053.2 4,335.1 383 9.68% Deputy First Minister, Economy and Gaelic 1,362.3 1,342.9 1,264.2 -98 -7.20% Housing 1,205.3 1,272.7 1,370.0 165 13.66% Rural Affairs, Land Reform & Islands 1,111.4 1,116.9 1,128.7 17 1.56% Climate Action and Energy 435.8 434.8 433.4 -2 -0.55% Constitution, Eternal Affairs & Culture 397.5 445.9 437.8 40 10.14% Crown Office & Procurator Fiscal Service 248.6 246.8 245.3 -3 -1.33% Scottish Parliament and Audit Scotland 166 163 168 2 1.20% Total Scotland 61,677 62,968 64,565 2,888 4.68% 4.4 The Scottish Government has historically provided one year funding settlements to Local Authorities which has impacted on the ability to plan over the longer term with certainty. Single year settlements from Scottish Government have required the Council to make assumptions in the revenue plan from years 2-5 and plan on that basis. For financial year 2026/27 another one year settlement was provided in January 2026 however the spending review summarised in exhibit 2 provides an indication of future funding levels without being definitive. 4.5 Looking forward, the direcition of travel for funding as set out in the Scottish Government Spending Review pressures being experienced at a Scotland and UK wide level, drive a broad expectation that resources for local government services will continue to be constrained for the foreseeable future. Each 1% deviation from a flat cash position settlement accounts for
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Page | 8 around £2.7m of movement in funding. A robust multi-year funding settlement from Scottish Government including clarification on ring-fencing of funding remains an aspiration for local government and it is hoped this may be forthcoming in future years. 4.6 Financial Update Reports The Council’s future revenue budget gap is updated with the latest assumptions and reported to Council as part of Financial Update reports provided by the Chief Officer Resources. These report the projected gap over a five year period which provides a longer term view of the Council’s estimated budget gap. Scenario Planning 4.7 The Financial Update reports uses scenario planning to present estimates using a best case, mid-range and worst case scenario. Scenario planning is an alternative to conventional forecasting that is better suited to an environment with numerous uncertainties. Conventional forecasting encourages organisations to focus on a narrow range of possibilities centred on a single view about the most likely future outcome. Scenario planning, in contrast, does not attempt to use a series of static assumptions to predict the future. Rather, it generates a dynamic series of plausible outcomes that generates a range of possibilities. Relatively small variations in assumptions can lead to fairly significant changes in the outcome. Whilst the outcome will no doubt differ from the scenarios outlined here, they provide a useful illustration of the overall financial envelope. Note that best case, mid-range and worst case scenarios are only applied to material areas of expenditure. Budget Gap Assumptions 4.8 The future year assumptions used when projecting future year budget gaps are set out in Exhibit 3. Exhibit 3– Future Year Budget Assumptions Assumption Best Case Mid-Range Worst Case Scottish Government Funding 0.5% Increase Flat Cash 0.5% Decrease Pay Award 3% 3% 4% Strathclyde Pension Fund Contribution Rate 13% 15% 17.5% General Non-Pay Inflation £500,000 £500,000 £500,000 Unidentified Cost and Demand Pressures £1,000,000 £1,000,000 £1,000,000 Sales, Fees & Charges 5% Increase 5% Increase 5% Increase Council Tax Increase No assumption No assumption No assumption
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Page | 9 Council Tax Base Growth 0.5% 0.5% 0.5% Expenditure Baseline 4.9 The starting point for forecasting, is to use the current year’s expenditure budget as the baseline. The Council agreed the 2026/27 budget at its meeting on 4 March 2026. The agreed budget provides a base budget of £325.673m (£227.937m for general services and £97.736m for the Health and Social Care Partnership (HSCP)). Future expenditure budgets are then forecast taking account of base budget adjustments, known unavoidable cost pressures, profiling of previously taking saving options, and estimates/ assumptions around issues such as pay awards, incremental pay progression, and non pay inflation including utility costs and changes in interest rates. This is summarised in Exhibit 4 to provide a projected 2027/28 expenditure budget of £333.969m Exhibit 4 – 2027/28 Base Budget Calculation £,000 2026/27 Base Budget 325,673 Additional RSG 2026/27 – Early Learning Childcare 248 Additional RSG 2026/27 - Mansion Tax 345 Base Budget Adjustments 80 Employee Costs (adjusted for anticipated reduction in pension contribution) 4,640 Non-Pay Inflation 1,348 Cost and Demand Pressures 3,463 Increase in Sales, Fees and Charges (increased income) (471) Profiling of Prior Year Saving Options (1,357) 2027/28 Baseline Budget 333,969 Income Projections 4.10 The key sources of income for the Council are Aggregate External Finance, other UK or Scottish Governement funding, Council Tax and, where appropriate, use of reserves. Note Sales Fees and Charges is an income but the way the Council’s budget gap is created these are netted off against expenditure which is why they are referenced in the expenditure section above. Exhibit 5 sets out the breakdown of the projected mid-range income in 2027/28 based on current assumptions. Exhibit 5 – 2027/28 Mid-Range Projected Income £,000 Aggregate External Finance 267,822 Council Tax 50,019 Other Funding (Extended Producer Responsibility) 2,397 Use of Reserves (release from temporary pension reserve) 3,726 2027/28 Projected Income 323,964
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Page | 10 Five Year Budget Gap (2027/28 to 2031/32) 4.11 Based on the assumptions summarised above the extrapolcatyed five year budget gap in the mid-range is summarised in Exhibit 6. Exhibit 6 – Five Year Budget Gap – Mid-Range Scenario 2027/28 £,000 2028/29 £,000 2029/30 £,000 2030/31 £,000 2031/32 £,000 Base Budget 325,673 333,969 344,782 354,866 364,224 Additional committed RSG 2026/27 593 0 0 0 0 Base Budget Adjustments 80 927 0 (650) 0 Employee Costs 4,640 6,611 6,788 6,970 7,159 Non-Pay Inflation 1,348 1,375 1,382 1,388 1,388 Cost and Demand Pressures 3,463 2,697 2,434 2,195 1,695 Sales, Fees and Charges (471) (495) (520) (545) (572) Previous Saving Options (1,357) (302) 0 0 0 Expenditure 333,969 344,782 354,866 364,224 373,894 Aggregate External Finance (267,822) (267,822) (267,822) (267,822) (267,822) Council Tax (50,019) (50,234) (50,449) (50,877) (51,514) Other Funding (2,397) (2,397) (2,397) (2,397) (2,397) Use of Reserves (3,726) 0 0 0 0 Total Income / Funds Available (323,964) (320,453) (320,668) (321,096) (321,733) Budget Gap (Cumulative) 10,005 24,329 34,198 43,128 52,161 Budget Gap (Cumulative) 10,005 14,324 9,869 8,930 9,033 4.12 Exhibit 7 sets out a best case, mid-range and worse case analysis based on the assumptions set out in Exhibit 3. Exhibit 7 – Best Case, Mid-Range and Worst-Case Summary Scenario 2027/28 £000 2028/29 £000 2029/30 £000 2030/31 £000 2031/32 £000 Best Case 7,069 21,393 31,263 40,192 49,225 Mid-Range 10,005 24,329 34,198 43,128 52,161 Worst Case 13,212 27,536 37,406 46,335 55,368 Council Tax Income
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Page | 11 4.13 Council Tax income accounts for approximately 14% of the Council’s funding and is an extremely important consideration for the Strategy and the budget setting process. Council Tax and Fees and Charges are the only income streams over which the Council has control, albeit these areas can be subject to Scottish Government direction. No assumptions are made about council tax increases when preparing financial updates. The setting of Council Tax is subject to a political decision and is the means by which the Council, can determine the extent they want to use Council Tax to deliver a legal balanced budget. 4.14 The Council’s level of Council Tax is broadly in line with the Scottish average. In 2026/27, the Council increased Council Tax by 7.8% resulting in a Band D annual charge of £1,681.53. This provided a further £3.541m to fund the delivery of crucial Council services. This places the Council at position 17 out of the 32 Scottish councils. A comparison of the Council’s Band D charge with other Scottish councils and the Scottish average is shown in Exhbit 8. Exhibit 8 – Scotland Wide 2026/27 Band D Council Tax Rates Rank Council 26/27 Band D (exc Water & Sewerage) 1 Midlothian £1,816.16 2 Argyll & Bute £1,783.33 3 Stirling £1,752.91 4 East Dunbartonshire £1,751.67 5 Aberdeen City £1,747.54 6 Moray £1,731.13 7 Dundee City £1,729.76 8 East Ayrshire £1,717.28 9 Falkirk £1,714.84 10 Glasgow City £1,706.50 11 East Lothian £1,697.62 12 South Ayrshire £1,694.96 13 Renfrewshire £1,690.55 14 Aberdeenshire £1,686.04 15 North Ayrshire £1,685.84 16 Clackmannanshire £1,683.67 17 West Dunbartonshire £1,681.53 18 Inverclyde £1,673.85 19 Perth & Kinross £1,673.84 20 Orkney Islands £1,669.07 21 Highland £1,633.99
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Page | 12 22 West Lothian £1,627.59 23 City of Edinburgh £1,626.05 24 East Renfrewshire £1,620.14 25 Scottish Borders £1,618.52 26 Angus £1,598.65 27 Dumfries & Galloway £1,578.66 28 Fife £1,573.70 29 North Lanarkshire £1,554.56 30 Comhairlie Nan Eilean Siar £1,505.50 31 Shetland Islands £1,487.90 32 South Lanarkshire £1,468.48 Scottish Average £1,661.93 4.15 In previous years the Scottish Government has frozen or capped Council Tax increases. It remains to be seen if this will be the case in 2027/28 or future years. This would be an extremely challenging position for the Council and would require significantly more savings to be identified to support financial sustainability 4.16 A 1% rise in Council Tax equates to £0.498m of additional income. The impact of Council Tax increases of between 7.5% and 15%, has been calculated and is summarised in Exhibit 9. It also shows the weekly increase for Band D households, assuming they have no discounts or exemptions applied to their bill. Exhibit 9 - Impact of Council Tax Increases Council Tax Band 2026/27 Council Tax (£) 7.5% Increase (£) 10% Increase (£) 12.5% Increase (£) 15% Increase (£) A 1,121.01 1,205.09 1,233.11 1,261.14 1,289.16 B 1,307.86 1,405.95 1,438.65 1,471.34 1,504.04 C 1,494.70 1,606.80 1,644.17 1,681.54 1,718.91 D 1,681.53 1,807.64 1,849.68 1,891.72 1,933.76 E 2,209.34 2,375.04 2,430.27 2,485.51 2,540.74 F 2,732.48 2,937.42 3,005.73 3,074.04 3,142.35 G 3,293.00 3,539.98 3,622.30 3,704.63 3,786.95 H 4,119.75 4,428.73 4,531.73 4,634.72 4,737.71 Band D Weekly Increase (£) 2.43 3.23 4.04 4.85 Total Additonal Revenue (£m) 3.735 4.980 6.225 7.470
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Page | 13 5 Reserves 5.1 The Council maintains a number of funds and balances, known as Reserves, which are reported to Elected Members as part of the budgetary control reports at regular intervals during the financial year. The existence and management of adequate reserves is a fundamental aspect of any sound financial strategy. 5.2 The Council holds reserves for four main purposes: 1. a working balance to help cushion the impact of uneven cash flows 2. a contingency to cushion the impact of unexpected events or emergencies 3. a means of building up funds, often referred to as earmarked reserves, to meet known or predicted liabilities. 4. statutory reserves which are set aside for specific purposes including maintenance of assets, income from the sale of assets which must be used to offset capital expenditure or associated loan charges. 5.3 The Council/s reserves strategy is based on maintaining an agreed General Fund contingency level (prudential target) of 2.5% of the budgeted net expenditure (net of requisitions) for the subsequent year. The adequacy of the prudential target is subject to annual review and was decreased to from 3% to 2.5% from 2026/27 onwards. Should this contingency have to be utilised the S95 Officer is required to put a recovery plan in place immediately to ensure the Council’s contingency balance is restored. 5.4 The strategy also assumes the continued use of earmarked reserves. In this way, earmarked reserves can be separated from the core General Fund Reserve which allows the Council to track the underlying reserves position. Earmarked Reserves are reviewed annually as part of the budget process and reported as part of the routine budgetary control reports. 5.5 The Council’s usable reserves are: • General Fund Revenue Reserve - held for services provided by the Council through Revenue Support Grant. It represents the Council’s contingency for unforeseen/ unquantifiable events and includes balances the Council has agreed to earmark for specific purposes. It excludes the Housing Revenue Account. • Housing Revenue Account Revenue Reserves – The Council is required to record all revenue expenditure and income relating to the provision of council dwellings and related services.. • Capital Receipts Reserve - capital receipts from asset sales are retained within this reserve and used to fund planned capital expenditure. • Capital Grant and Receipts Unapplied Reserve - Grants and other contributions given to the Council are retained within this reserve until all conditions agreed by the grant provider are satisfied.
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Page | 14 • Capital Items Replacement Fund - This reserve holds funds which are retained and used for the renewal or repair of school non-current assets. General Fund Revenue Reserve 5.6 Exhibit 10 shows how the general fund revenue reserve, and its component parts, have changed over the five year period 2021/22-2025/26 (note the 2025/26 figures are based on the unaudited accounts). Exhibit 10 – General Fund Revenue Reserve 5 Year Analysis 5.7 Exhibit 10 illutrates that the level of unallocated reserves dipped under the prudential target in 2024/25 with the position only relatively recently recovered. This means the Council’s financial stability is still vulnerable with there being limited capacity to absorb funding settlements which do not reflect inflation, or inflationary pressures exceeding assumptions. Note that the spike in both the overall general fund balance, and levels of earmarking in 2022/23 were largely as a consequence of the application of an accounting flexibility for service concession arrangements which resulted in the repayment of the service concession liability being reprofiled over the asset life, therefore extending the repayment period. This resulted in a material increase in the overall General Fund balance and the overall level of earmarking as agreed by Council in December 2022. 5.8 As at 30 June 2026, based on the 2026/27 period 3 budgetary control report to Council on 26 August 2026, the projection of the Council’s general fund balance at 31 March 2027 is summarised in Exhibit 11: Exhibit 11 – Projected 31/03/2027 General Fund Revenue Reserve Summary £m £m Prudential Target 5.510 Balance Below Prudential Target 1.221
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Page | 15 Total Unearmarked 4.289 Total Earmarked 10.059 Overall Total Reserves 14.348 5.9 Exhibit 11 highlights that, based on the forecast 2026/27 outturn as at 30 June 2026, the Council is projected to hold unearmarked reserves which are £1.221m below the 2.5% Prudential Target policy. Finance will continue to work with the services to try to mitigate the projected overspends. If this is not successful then a recovery plan will be required in order to rebuild the Council’s reserves. 5.10 Exhibit 12 summarises the £10.060m of earmarked reserves which are projected to be held at 31 March 2027 held for specific purposes Exhibit 12 – Projected 31/03/2027 Earmarked Reserves Reserve Description 31/03/27 Balance (£) Intromissions Future liability for historic child abuse cases 347,000 Previous provision for equal pay/holiday pay Equal pay/holiday pay claims and associated legal expenses 179,591 Employability Development and delivery of key employability initiatives to support vulnerable groups 221,000 Extended Producer Responsibility Deliver future recycling initiatives 675,000 Refugee Resettlement Resettlement costs if there is a timing difference between expenditure and grant income. 499,255 Empty Home Interest free/ low interest loans to property owners to renovate or bring empty properties back into use 150,000 CCTV Network Upgrade Costs of the CCTV project 21,000 School Meal Cost Hardship Fund Assist families just above eligibility threshold for free school meals who have been unable to pay for a school meal 9,768 Support for Apprenticeships Support the Apprenticeship Investment Programme 50,000 Leisure for children during holiday times Payments for holiday activities provided over Easter, summer and autumn 72,840 Family fun day events Family fun days over a four year period 16,000 Assist local food hubs Provision of food parcels 9,000 Voluntary Redundancy & Early Retirement Funding for voluntary redundancy and early retirement 2,313,897 Smoothing Fund Offset service overspends where delivery of savings/efficiencies hasve been delayed 1,770,756 Reduction in Strathclyde Pension Fund Contribution Build up of the SPFO saving to be used to balance the budget in future years as agreed in 2023/24. 3,724,758 Total 10,059,865
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Page | 16 5.11 Appendix 1 to this report details the Council’s Policy on Reserves and Balances. 6 Revenue Outlook Beyond 5 Years – Risks and Issues 6.1 Beyond five years, prediction become even more difficult. There are a number of uncertainties which may emerge and will have a bearing on the quantum of funds available to the Scottish Government and the distribution of that Scottish Government funding to local authorities. 6.2 The further we look into the future the greater the uncertainty about the financial challenges the Council will face. There are a number of further key issues and risks which may impact on the Council’s finances and future projections. These include: • future decisions of the Scottish Government regarding protection afforded to Local Government or other parts of the national budget • impact of population change/ demographic shifts on funding levels • impact of any new or revised legislation placing additional requirements on local authorities not supported by full funding • pay awards, both in terms of the totality of the award and the complexity • general inflation including energy and fuel costs • changes to pension contributions arising from the triennial review of Strathclyde Pension Fund • costs associated with sustainability including waste disposal and recycling • potential variation of tax raising powers, including the future of Council Tax and Non-Domestic Rates • rising demand and cost on Council Services due to demographic pressures • current global, UK and Scottish economic situation, impacted by the middle east conflict, and the medium-term impact on inflation and interest rates. 6.3 Whenever possible, future costs associated with issues such as those listed in paragraph 6.2 are built into future budget gaps if they can be reasonably estimated. Where it is not possible to estimate them with any degree of accuracy they will be highlighted as unquantifiable future cost pressures and/or future financial risks. 7 Capital Plan Financing the Capital Plan 7.1 The capital plan is funded by the Scottish Government (General Capital Grant and Specific Ring-Fenced Capital Grants), other capital grants, capital
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Page | 17 receipts from asset disposals, revenue contributions, earmarked reserves, and prudential borrowing. 7.2 The Scottish Government receive a grant for capital spending from the UK Government which is then allocated to individual councils. West Dunbartonshire Council receives approximately £6m per annum and this is expected to remain fairly constant for the next 4-5 years. Any spend above this level, not funded from other grants, is funded through borrowing which incurs interest charges. As such the Council’s revenue budget is inextricably linked to the financing of its capital expenditure. Consequently, when there is sustained pressure on the revenue budget this in turn causes pressure on capital finance and on the management of the capital programme and the debt and borrowing requirement that arises from it 7.3 Capital spend funded from borrowing results in loan charges until the borrowing is fully repaid. Exhibit 13 shows how the Council’s ten year capital plan between 2025/26 and 2035/26 (approved by Council in March 2026) is projected to be funded. Exhibit 13 – Funding the Capital Plan Source of Funding 25/26 (£,000) 26/27 (£,000) 27/28 (£,000) 28/29 (£,000) 29/30 (£,000) 30/31 (£,000) 31/32- 35/36 (£,000) Total (£,000) % of Total Resources Carried Forward 5,521 1,618 0 0 0 0 0 7,139 2.7%General Services Capital Grant 12,804 6,806 5,618 5,618 5,618 5,618 28,090 70,172 26.4% Ring-fenced Government Grant funding 14,945 7,088 396 396 396 396 1,980 25,597 9.6% Match-funding/other grants & contributions 1,812 3,007 912 818 818 818 4,090 12,275 4.6% Prudential Borrowing 23,933 37,262 19,177 36,150 4,733 4,668 23,044 148,967 56.1% Funded from Revenue 0 400 100 100 100 100 500 1,300 0.5% Total 59,015 56,181 26,203 43,082 11,665 11,600 57,704 265,450 100.0% 7.4 Exhibit 13 illustrates that 56% of the Council’s capital plan is funded from prudential borrowing. The current financial climate, and in particular, current bank interest rates, is having a significant impact on both the affordability and delivery of the capital programme. The repayment of borrowing used to fund capital creates a future revenue budget commitment over the entirety of the anticipated lifespan of the new asset. Additional borrowing to fund more expensive capital projects will increase the Council’s overall debt position and will accrue substantial interest charges. These pressures are not unique to the Council and are being faced by all councils. 7.5 Decisions on capital spend will need to focus on obtaining best value for money for the Council, including prioritisation to ensure the continued delivery of essential services, a focus on mitigation of key areas of risk and consideration of available external funding, new income generation opportunities and budget efficiency savings that can be achieved. 7.6 Another method of funding additional capital is through spend to save schemes where the savings in the revenue budget are used to fund the
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Page | 18 increase in loans charges to service additional borrowing. It is assumed that projects of this nature are cost neutral game in terms of forecasting, however, there could be additional revenue savings depending on the business case. Spend to save schemes need to be subject to robust financial assessment before consideration is given to their implementation. 8 Treasury Management 8.1 The Council is required to operate a balanced budget, which broadly means that cash raised during the year will meet cash expenditure. Part of the treasury management operation is to ensure that this cash flow is adequately planned, with cash being available when it is needed. Surplus monies are invested in low-risk counterparties or instruments commensurate with the Council’s low risk appetite, providing adequate liquidity initially before considering investment return. The second main function of the treasury management service is the funding of the Council’s capital plans. As set out in paragraph 7.4 these capital plans provide a guide to the borrowing needs of the Council, essentially the longer-term cash flow planning to ensure that the Council can meet its capital spending obligations. This management of longer-term cash may involve arranging long or short-term loans or using longer term cash flow surpluses. On occasion any debt previously drawn may be restructured to meet Council risk or cost objectives. 8.2 The Council’s Finance Team engage regularly with the the Council’s Treasury advisors, MUFG Corporate Markets in relation to forecast interest rates and options consider in relaton to Treasury Management. MUFG most recent interest rate forecast for Bank Rates and Public Works Loan Board (PWLB) borrowing rates is summarised in Exhbit 14. Exhibit 14 – Bank Interest / PWLB Rates Projection June 2026 – March 2029
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Page | 19 8.3 Exhibit 14 shows a steady downward path for both the projected bank rate and PWLB borrowing rates from June 2026 to March 2029. The projected Bank Rate remains at 3.75% through to June 2027, then falls to 3.50% in September 2027, before settling at 3.25% from March 2028 onward. PWLB rates follow a similar downward trend, with shorter maturities: (5 Year PWLB) falling from 5.00% to 4.10%, while the 10 Year PWLB declines from 5.50% to 4.60%. Longer-term rates remain higher throughout the period but also ease.The 25 Year PWLB drops from 6.00% to 5.10%, and the 50 Year PWLB falls from 5.80% to 4.90%. Overall, the table suggests borrowing costs are expected to moderate gradually, while the yield curve remains upward sloping, with longer maturities carrying higher rates than the bank rate and shorter PWLB maturities. This supports an ongoing strategy to reschedule maturing debt for shorter time periods instead of tying the Council into higher rates for an extended period of years. 9 Housing Revenue Account 9.1 The Council is required to maintain a separate Housing Revenue Account covering income and expenditure in respect of specified houses, buildings, and land. There is a legal requirement for Housing Revenue Account income and expenditure to be in balance at the end of each financial year. 9.2 The Housing Revenue Account expenditure budget for 2026/27 is set at £60.880m, an increase of £4.100m (7.2% over the previous year’s figures). The Housing Revenue Account is financed almost entirely by rents and other charges paid by Council tenants and cannot be funded in any way from the General Fund and revenue raised through the Council Tax (other than in the event the HRA has a deficit and no reserves with which to absorb it). The largest budget lines in HRA revenue are for repairs £12.668m and the repayment of loan charges £30.449m. 9.3 The Housing Revenue Account capital programme must be met from existing resources or funded through prudential borrowing. The 2026/27 budget is £58.434m of which £24.613m is for new build housing and the buy-back programme. HRA capital is funded by £13.064m of grant / owner contributions with a balance of £45.370m funded through prudential borrowing. 9.4 Since the repayment of loan charges makes up 50% of the HRA revenue budget, fluctuation in borrowing interest rates can have a significant impact on the HRA finances. A 30 year HRA business plan is used to look at the longer term viability of the HRA account. 10 Conclusion 10.1 The Council has effective financial management with elected members provided with appropriate information on funding gaps and saving options to enable them to make soundly based decisions when setting the budget. Sound financial management and transparency will continue to be crucial in
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Page | 20 the years ahead as the Council progresses this Financial Strategy and takes action to close the projected budget gap. 10.2 This financial strategy is deliberately disciplined. It does not rely on reserves to balance future years budgets, makes no assumptions in relation to funding growth beyond prudent assumptions in relation to the local government settlement and does not commit the Council to ambitious plans which it cannot afford to sustain. 10.3 The Council is forecast to have a budget gap of £52.2m for the period 2027/28 to 2031/32 based on current assumptions and the medium risk scenario. Financial planning will be key to meeting the challenges around resources and future funding and this Strategy will prepare the Council to take the necessary actions to counter the pressures and close the budget gap.
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Page | 21 Appendix 1 – Policy on Reserves and Balances Introduction A key component to sound financial and risk management is that the Council maintains adequate reserves and balances to meet known future commitments or expenditure arising from unforeseen, unexpected or emergency situations. Where appropriate, this policy adopts: • Local Authority Reserves and Balances (LAAP Bulletin 99) • The Statutory Basis for Accounting and Disclosing Reserves in Local Authorities in Scotland • CIPFA/LASAAC Code of Practice on Local Authority Accounting in the United Kingdom The purpose of this policy is to: • outline the legislative and regulatory framework underpinning the creation, use or assessment of the adequacy of reserves • identify the principles to be employed by the Council in assessing the adequacy of the Council’s balance and reserves • indicate how frequently the adequacy of the Council’s balances and reserves will be reviewed • set out arrangements relating to the creation, amendment and use of reserves and balances. The Council has a range of reserves and balances. These fall into two categories: • Usable Reserves • Unusable Reserves. Usable Reserves These are reserves available for use by the Council. They are held on the Council’s Balance Sheet for use, as appropriate, through this Policy. Usable Reserves are held for four main purposes: • A working balance to help cushion the impact of uneven cash flows - this forms part of general reserves. • A contingency to cushion the impact of unexpected events or emergencies. • A means of building up funds to meet unknown or predicted liabilities. • statutory reserves which are set aside for specific purposes including maintenance of assets, income from the sale of assets which must be used to offset capital expenditure or associated loan charges. For each reserve held, there should be a clear protocol on:
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Page | 22 • the reason for/purpose of the reserve • how and when the reserve can be used • a process and timescale for review of the reserve to ensure ongoing relevance and adequacy. The Usable Reserves held by the Council are: (a) General Fund Revenue Reserve The General Fund is held for all services provided by the Council through Revenue Support Grant provided by the Scottish Government and Council Tax paid by residents within the Council area. It excludes the Housing Revenue Account (HRA), which is funded from tenant rents. (b) HRA Revenue Reserve The Council is required by the Local Government and Housing Act (Scotland) 1987 to keep a HRA which records all revenue expenditure and income relating to the provision of council dwellings and related services. The use of this account is prescribed by statute and the Council is not allowed to use it to fund expenditure for non-housing related services. For both the General Fund and the HRA Reserves the level and utilisation of reserves will be determined formally by the Council, informed by the advice and judgement of the Section 95 Officer (Chief Officer Resources). Where the Section 95 Officer’s advice is not accepted, this should be recorded formally in the minutes of the appropriate Council meeting. The balance of these reserves normally comprises three elements: • Funds that are earmarked or set aside for specific purposes (in Scotland, the Council cannot have a separate Earmarked Reserve within the Balance Sheet, but can highlight elements of the General Fund Reserve balance required for specific purposes). • Funds which are not earmarked for specific purposes, but are set aside to deal with unexpected events or emergencies. Currently using a risk based assessment, the Council has a specific policy agreed each year and at present this ‘prudential target’ is set at 2.5% of net expenditure (excluding requisitions). • Funds held in excess of the prudential target and the identified earmarked sums. Reserves of this nature can be spent or earmarked at the discretion of Members. Principles to assess the adequacy of the reserves In order to assess the adequacy of unallocated reserves, the S95 officer should take account of strategic, operational and financial risks facing the Council. The assessment should include external risks (e.g. environmental or economic factors) as well as internal risks (e.g. the ability to deliver planned efficiency savings). Use of unallocated reserves Balancing the annual budget by drawing on unallocated reserves may be a legitimate short term option. However, CIPFA has commented that councils should be wary about the one-off use of reserves to deal with shortfalls in current funding or
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Page | 23 for recurring expenditure. The Council’s finance strategy makes no assumption about use of reserves to balance budgets. (c) Capital Receipts Reserve Under Schedule 3, paragraph 22 of the Local Government (Scotland) Act 1975, capital receipts on the sale of non-current assets received by the Council are retained within this Reserve until capital expenditure dictates the required use for the funds. Receipts for both General Fund and HRA are held separately, as specified above. Any receipts unused at 31 March will be held on the Balance Sheet as at that date. (d) Capital Grant and Reserves Unapplied Reserve Grants and other contributions given to the Council are retained within this Reserve until all conditions agreed by the grant provider are satisfied. The use of this fund is specified within the CIPFA/LASAAC Code of Practice on Local Authority Accounting in the United Kingdom, as revised each year. Any grants unapplied at 31 March will be held on the Balance Sheet as at that date. (e) Capital Items Replacement Fund (Other Reserve) Scottish Councils have explicit statutory powers under schedule 3 of the Local Government (Scotland) Act 1975 to establish Renewal and Repairs Funds. This reserve is used for the purpose of defraying expenditure to be incurred in repairing, maintaining and renewing any buildings, works, plant, equipment or articles belonging to the authority. At present the Council only holds one such fund, which is held within the Education Service. Separate and specific guidance is available for the use of this Fund. Funds are used for the renewal or repair of school non-current assets, with funds being linked specifically to the individual schools committing their budget for the purpose of repairs and renewals at a future date. (f) Capital Reserve This reserve is used to defray any expenditure of the Council to which capital is properly applicable, or in providing money for repayment of the principal of loans. It holds income (either specific capital receipts income or agreed contributions from revenue) which has been earmarked by Council for the funding of the Public Private Partnership (PPP) unitary charge on a specific annual phased amount. The PPP unitary charge liability can be split into revenue and capital related charges and this Reserve is used specifically to help fund the capital related charges. The Funds can be added to this Fund as agreed by Council (e.g. the sale of specific Education non- current assets) or at the discretion of the Section 95 Officer (i.e.in the event of a review identifying a risk of shortfall in the funding structure over the life of the project). Unusable Reserves These are reserves that are not available for use by the Council. They arise from the reconciliation of accounting requirements driven by reporting standards and statutory requirements. They are not resource-backed and are held on the Council’s Balance Sheet for use as appropriate through the CIPFA/LASAAC Code of Practice on Local Authority Accounting in the United Kingdom. The Unusable Reserves held by the Council are:
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Page | 24 (a) Capital Adjustment Account The Capital Adjustment Account absorbs the timing difference arising from the different rates at which assets are depreciated under proper accounting practice and are financed through the capital controls system. The account contains revaluation gains accumulated on property, plant and equipment before 1 April 2007, the date that the Revaluation Reserve was created to hold such gains. (b) Revaluation Reserve The Revaluation Reserve contains the unrealised gains arising from increases in the value of its property, plant and equipment (and intangible assets). The balance is reduced when assets with accumulated gains are: • re-valued downwards or impaired and the gains are lost • used in the provision of services and the gains are consumed through depreciation • disposed of and the gains are realised. The reserve contains only revaluation gains accumulated since 1 April 2007, the date that the reserve was created. Accumulated gains arising before that date are consolidated into the balance on the Capital Adjustment Account. (c) Pension Reserve The Pension Reserve absorbs the timing differences arising from the different arrangements for accounting for post-employment benefits and for funding benefits in accordance with statutory provisions. The Council accounts for post-employment benefits in the Comprehensive Income and Expenditure Statement as the benefits are earned by employees accruing years of service, updating the liabilities recognised to reflect inflation, changing assumptions and investment returns on any resources set aside to meet the costs. However statutory arrangements requires benefits earned to be financed as the Council makes employer’s contributions to pension funds or eventually pays any pension for which it is directly responsible. The debit balance on the pensions reserve therefore shows a substantial shortfall in the benefits earned by past and current employees and the resources the Council has set aside to meet them. The statutory arrangements will ensure that funding will have been set aside by the time the benefits come to be paid. (d) Employee Statutory Adjustment Account The Employee Statutory Adjustment Account absorbs the differences that would otherwise arise on the general fund/ HRA balance from accruing for compensated absences earned but not taken in the year, e.g. annual leave entitlement carried forward at 31 March. Statutory arrangements require that the impact on the General Fund balance is neutralised by transfers to or from this account. (e) Financial Instruments Adjustment Account The Financial Instruments Adjustment Account absorbs the timing difference arising from the different arrangements for accounting for income and expenses relating to certain financial instruments and for bearing losses or benefiting from gains per statutory provisions. The Council uses the account to manage premiums paid on the early redemption of loans. Premiums are debited to the Comprehensive Income and Expenditure Statement when they are incurred, but reversed out of the General
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Page | 25 Fund balance to the account in the Movement in Reserves Statement. Over time, the expense is posted back to the General Fund balance in accordance with statutory arrangements for spreading the burden on council tax. Accounting and Disclosure Expenditure should not be charged direct to any reserve. Any movement within Revenue Reserves is accounted for as an appropriation and is transparent. Entries within a reserve are specifically restricted to ‘contributions to and from the consolidated Income and Expenditure Account’ with expenditure charged to the service revenue account. The appropriation is made from the reserve to the Movement in Reserves to neutralise the impact on the Council Tax or the Housing Rents. Any revision to this Policy (including creation or amendment to any reserve or use of any reserve) requires to be reported, considered and approved by Council.