Item 11 Financial Update
West Dunbartonshire Council · 18 June 2025
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WEST DUNBARTONSHIRE COUNCIL Report by Chief Officer - Resources Council: 18 June 2025 Subject: Financial Update 1. PURPOSE 1.1 To provide an update on the financial challenges facing the Council and the estimated 2026/27 – 2029/30 revenue budget gaps. Note the revenue budget is normally forecast over a five-year window. Due to ongoing work pressures we are still rebuilding the financial forecasting model so for the purposes of this report we have only extended it to four years and are only reporting on the mid-range scenario. The five-year window, and reporting in best case, mid- range and worst-case scenario will be restored for the Finance Update report to be presented to Council in October 2025. 1.2 This is the first financial update since the 2025/26 budget was set on 5 March 2025 and rolls forward previous estimates as well as updating assumptions. The assumptions will continue to be refined as the financial year progresses. 2. RECOMMENDATIONS 2.1 Members are asked to note the updated position regarding projections for the Council’s estimated revenue budget gaps in 2026/27-2029/30, particularly the updated estimated mid-range 2025/26 budget gap of £8.274m. 3. BACKGROUND 3.1 On 5 March 2025, the Council agreed a balanced 2025/26 revenue budget, a revised capital budget and revenue estimates for 2026/27-2029/30. That budget report also highlighted estimated future year budget gaps based on a range of assumptions including future Scottish Government funding, inflation and future interest rates. The consequences of the decisions taken by Council on 5 March to agree a balanced 2025/26 budget reduced the cumulative estimated future budget gap in the mid-range as set out in Exhibit 1. Exhibit 1 – Future Year Estimated Cumulative Budget Gaps (Mid-Range) 5 March 2025 Budget Budget Gap 26/27 £000 27/28 £000 28/29 £000 29/30 £000 Mid-Range Gap Before Council Decisions 16,304 25,786 40,779 49,863 Management Adjustments (898) (898) (898) (898) Saving Options (3,696) (3,696) (3,696) (3,696) Council Tax Increase (4,685) (4,685) (4,685) (4,685) Council Growth Items 2,239 2,239 2,239 2,239 Mid-Range Gap After Council Decisions 9,264 18,746 33,739 42,823 ITEM 11
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4. MAIN ISSUES 4.1 Since the budget was agreed on 5 March 2025, the key assumptions and cost pressures detailed in the Council Budget paper have been revisited. This is summarised in the paragraphs below. 4.2 Scottish Government Finance Settlement The 5 March 2025 report advised that assumptions in relation to future year Scottish Government funding were: • Best Case - Flat Cash • Mid-Range – Flat Cash • Worst Case - 1.0% reduction. Future Scottish Government funding levels is one of the key assumptions within the Finance Update. While it is considered good practice to prepare longer term financial plans it is challenging to do so with great accuracy due to single year Scottish Government finance settlements. As part of the 2025/26 budget setting report members were advised that while the cash increase for 2025/26 was significant in comparison to previous years it was largely funded through significant increases in revenue to be raised through taxation and increased investment in UK public spending and that it is not considered realistic to assume similar increases in future years. At this stage it is prudent to retain the assumption of a flat cash settlement in the best case and mid-range scenarios and a 1% reduction in the worst-case scenario. This will be kept under close review and may be updated if further information about future funding becomes available. In particular the publication of the Scottish Government’s Medium Term Financial Strategy which has been delayed until later June to allow consideration of the UK Government Spending Review which is expected to be published on 11 June. 4.3 Changes to Base Budget There have been five changes to the Council’s base budget since the 5 March 2025 Budget report to Council. These are set out below. 4.4 Base Budget Adjustment 1 – Service Concession Adjustment (£2.190m Favourable) A proportion of the benefit to the Council of the Service Concession Adjustment first reported to Council on 21 December 2022 was already built into the 2026/27 budget gap however through our budget reconciliation process we have identified a further £2.190m which should be applied to 2026/27 increasing to £4.265m in 2028/29 with a small decrease in 2029/30 to £4.186m.
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4.5 Base Budget Adjustment 2 – Estimated adjustment to HRA central support allocation costs (£0.250m Adverse) The finance team are performing a comprehensive review of the Central Support Allocation model to ensure all central support costs are appropriately allocated between general fund services and other areas outwith the general fund. The review will be completed by the end of 2025/26 however a high-level estimate of a £0.250m reduction in the allocation to the Housing Revenue Account has been made at the current time. This will be further refined through the review. 4.6 Base Budget Adjustment 3 - Estimate of reduction in capital allocation (£0.580m Adverse) The ongoing review of the Central Support Allocation model referenced at paragraph 4.5 has also identified staff costs which were previously allocated to HRA capital budgets but with staff restructures and changes to service delivery it is no longer appropriate to recognise income to the general fund from the HRA capital budget. The review will be completed by the end of 2025/26 however a high-level estimate of a £0.580m reduction to the general fund income budget has been made at the current time. This will be further refined through the review. 4.7 Base Budget Adjustment 4 – Free School Meal Income (£0.350m Adverse) Historically Revenue Support Grant income was distributed to services. In 2024/25, to increase transparency of reporting in budget control reports and the Council’s financial statements, Revenue Support Grant was removed from services and reported on centrally. This reallocated £13.03m of income from services to the central budget line. A year end reconciliation identified that £0.350m remained within the service but was also included within the centralised amount. A budget adjustment is required to remove this double count. 4.8 Base Budget Adjustment 5 – Alternative Delivery of School Transportation (£0.480m Favourable) Education incurs a material cost for taxi provision for external day placement providers and to transport senior phase pupils from secondaries to college and get pupils to mainstream schools where use of buses is not appropriate. Since the COVID pandemic, a combination of fewer taxis being available and an increase in pupils requiring transportation has resulted in these costs almost doubling over a 5-year period from £0.728m to £1.438m. An exercise has been carried out to identify a more cost-effective way to provide school/college transportation through the procurement of minibuses and employing additional drivers. It is anticipated this will save £0.480m from 2026/27 onwards however this estimate will be refined as the new delivery model is implemented. Cost Pressures 4.9 Generally services work on the basis of having to contain any cost pressures
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within current resources, however, there are cost pressures which are unavoidable and need to be factored into future budget processes. There has been one new cost pressure identified since the 5 March 2025 Budget report to Council. 4.10 Cost Pressure 1 – Use of Capital Receipts (£0.500m Adverse) The revenue budget currently assumes £2.800m of capital receipts per annum which can be used to offset principal loan charges. It is not realistic to continue to assume the Council will generate that level of capital receipts each year as there is a finite number of surplus assets for potential disposal. Therefore, there is a need to phase out the reliance on capital receipts to help balance the revenue budget. Based on current projections it is considered manageable to phase this out over a 4–5 year period removing £0.500m each year cumulatively. In any year where capital receipts are greater than budget any over recovery can be transferred to the capital fund. Employee Costs 4.11 The Public Sector Pay Policy, published alongside the Scottish Budget, sets out a multi-year framework of a 9% pay envelope covering 2025/26, 2026/27 and 2027/28. For 2026/27 a planning assumption of the Council having to fund 3% of any pay award has been applied in the best case and mid-range scenarios, with 4% assumed in the worst-case scenario. 4.12 The 2025/26 pay awards for Scottish Joint Council and Chief Officers have still to be agreed and will impact the budget gap if the proportion the Council needs to fund exceeds the assumptions set out in paragraph 4.11. The Teachers pay award now covers the period August to July and for 2025/26 has already been agreed up to 31 July 2025, however, any increase beyond that date is subject to negotiation. It is noteworthy that the Scottish Government has reached a deal on NHS Agenda for Change pay, offering a 4.25% increase in 2025/26 and 3.75% in 2026/27 with the offer including an inflation guarantee, ensuring the increases are at least 1% above the Consumer Price Index (CPI) inflation rate. Union members have voted to accept the offer. Revised Mid-Range Estimated Budget Gap 4.13 Exhibit 2 sets out the revised cumulative estimated budget gap in the mid- range for 2026/27 to 2029/30. Exhibit 2 illustrates that, in the mid-range scenario the Council are faced with a budget gap of £8.274m in 2025/26 rising cumulatively to £41.337m in 2029/30. Exhibit 2 – Revised Mid-Range Estimated Budget Gaps (Cumulative) Para Ref 2026/27 £000 2027/28 £000 2028/29 £000 2029/30 £000 Budget Gap 5 March 3.1 9,264 18,746 33,739 42,823 Service Concession 4.4 (2,190) (2,973) (4,265) (4,186) HRA Central Support 4.5 250 250 250 250 Capital Allocation 4.6 580 580 580 580
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Free School Meal Income 4.7 350 350 350 350 School Transport 4.8 (480) (480) (480) (480) Use of Capital Receipts 4.10 500 1,000 1,500 2,000 Revised Budget Gap 8,274 17,473 31,674 41,337 2026/27 Budget Process 4.14 Given the scale of the financial challenge facing the Council in 2026/27 and future years, it is important that early progress is made to identify saving options with momentum on this maintained between now and setting the budget in March 2026. The Senior Leadership Team will shortly commence this process and continue to meet periodically to develop saving options which will be presented to members for their consideration at an appropriate time. Other Issues 4.15 Health and Social Care Partnership Requisition The Council, at the budget meeting on 5 March 2025, agreed an HSCP requisition of £93.442m. There is a working assumption that the future allocation to the HSCP is on the basis of ‘flat cash’ plus the appropriate share of the Health & Social Care funding commitments made by the Scottish Government. However, this is only an assumption and the HSCP requisition will be a matter for Council to consider as part of the budget process. 4.16 Council Tax The estimated budget gap makes no assumption over future Council Tax increases as setting Council Tax is subject to a political decision when agreeing the budget in March 2026. However, by means of illustration Exhibit 3 sets out the impact that increases of between 5% and 15% would have on the budget gap and on the weekly bill for a Band D taxpayer (assuming they are liable for the full Council Tax charge). Exhibit 3: Impact of Council Tax Increases on Revenue and Band D Bill CT Increase 5% 10% 15% Band D Weekly Bill Increase (£) 1.50 3.00 4.50 Net Revenue Benefit (£000) 2,270 4,540 6,810 4.17 Fees and Charges In 2025/26 an increase of 5% was applied to fees and charges. The current assumption built into the estimated future budget gaps is an annual increase of 5% in all three scenarios (best case, mid-range and worst case). Every 1% increase beyond 5% would generate an estimated £0.089m in revenue. 5. PEOPLE IMPLICATIONS 5.1 None directly from this report but there is a strong link between HR and budgets.
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6. FINANCIAL AND PROCUREMENT IMPLICATIONS 6.1 Sets out the estimated revenue budget gaps in 2026/27 to 2029/30. There are no direct procurement implications arising from this report. 7. RISK ANALYSIS 7.1 None directly from this report but any proposals to address the estimated budget gap will need to consider risk. 8. EQUALITIES IMPACT ASSESSMENT (EIA) 8.1 None directly from this report but any proposals to address the estimated budget gap will need to consider equality issues. 9. CONSULTATION 9.1 The views of all Chief Officers have been requested on this report and feedback incorporated herein. 10. STRATEGIC ASSESSMENT 10.1 Proper budgetary control and sound financial practice are cornerstones of good governance and support Council and officers to pursue the strategic priorities of the Council’s Strategic Plan. 10.2 The General Services revenue budget contributes to all categories by providing funding in specific areas to help the Council achieve and develop these priorities. Laurence Slavin Chief Officer - Resources Date: 30 May 2025 Person to Contact: Laurence Slavin, Chief Officer - Resources E-mail: laurence.slavin@west-dunbarton.gov.uk Background Papers Budget Report to Council - 5 March 2025