To review the Medium Term Financial Strategy (MTFS) and Budget Scene Setting 2023-26 in line with the Council’s Policy, Service Planning and Performance Management framework

Members are asked to refer to the report included in the Cabinet agenda 11^th  July 2022 as published on the Council’s website on Friday, 1st July 2022.

Tower Hamlets Council - Agenda for Cabinet on Monday, 11th July, 2022, 5.30 p.m.

8.1         Medium Term Financial Strategy (MTFS) and Budget Scene Setting 2023-26

The Committee noted that the Council’s Budget 2022-23 had been approved by Full Council in March 2022. The report before the Committee provided a summary of the review of the MTFS as part of the 2023-24 budget setting process. A summary of the discussions on the report outlined as follows:

The Committee:

v  Noted that despite the Chancellor announcing departmental spending limits for Government departments on 27 October 2021 for three years, 2022-23 to 2024-25, the Local Government Finance Settlement (LGFS) was only announced for a single year covering 2022-23. Therefore, the funding landscape for Local Government over the medium term remains highly uncertain. Core Grants such as the Revenue Support Grant, New Homes Bonus and the Improved Better Care Fund were rolled forward for 2022-23, with additional funding received via the Social Care Grant, with much of this expected to contribute to additional costs arising from Adult Social Care Reforms.

v  Was informed that there was also a one-year one-off Services Grant distributed to Local Authorities for 2022-23. One reason Councils were provided with a single year settlement was due to funding reforms that have been delayed, annually, for several years that the Government has signalled its intention to now take forward. The distribution formula used for allocating resources across Local Authorities dates to 2013-14 and the Government propose to take forward a ‘Fair Funding Review’ to ensure a more up to date assessment of need. Business Rate Baselines have not been reset since 2013-14 and, therefore, Councils that have experienced growth in their Business Rates have been able to retain a share of growth since that year.

v  Understood that the Government intends to reset the Baselines to coincide with a review of the funding formula. In early 2021 the Government consulted on ending New Homes Bonus (NHB), a targeted incentive providing funding based on housing growth within the Council area, and the Government has not yet announced the outcome of this consultation.

v  Noted that the impact of these funding reforms is particularly acute for Tower Hamlets. Funding retained from Business Rates Growth and the New Homes Bonus are significant and therefore the impact of resetting the Business Rates baseline or withdrawing New Homes Bonus would result in a substantial funding reduction for the Council. The Government has indicated that transitional relief would be provided to Councils who were impacted by the reforms. At this stage it is not clear when the reforms will be introduced nor what transitional relief would look like. For 2022-23 the Council benefitted from rolled forward funding and new grants provided.

v  Noted that the Council was therefore able to set a balanced budget and to propose a freeze in the Tower Hamlets element of Council Tax, only levying the 1% Adult Social Care precept to meet demographic pressures within that area.

v  Agreed that it was therefore important to continue work to balance the budget over the medium term, ensuring alignment with the refreshed strategic plan.

v  Agreed that the impact of inflation has significantly increased in recent months with high fuel and energy costs and food prices. As of April 2022, Retail Price Index (RPI) Inflation was at 11.1% and Consumer Prices Index (CPI) inflation at 9% and high inflation has a direct impact on the council’s contracts and fuel and energy costs. The societal impacts of rising prices will also mean more individuals will require council support going forward. The latest treasury forecasts show high inflation through 2022-23 but reducing back to a lower level over the medium term.

v  Noted as mentioned that the SARS-CoV-2 pandemic continues to have a residual impact on the Council’s cost of services and reductions in income, forecast to be met in the short term by one-off Covid grant.

v  Noted that the ongoing scale of the impact on society, the economy and public finances resulting from Covid-19, Brexit, and recent inflationary pressures in the medium to long term is at this point unknown. As previously, consultation with residents, businesses and other key stakeholders will be a feature of proposed changes and the results of the Council’s 2023-24 budget consultation will be considered at Cabinet in October.

v  Was advised that the MTFS will be updated throughout 2022 as the Chancellor’s Autumn Statement and the provisional Local Government Finance Settlement (LGFS) are announced. The report examined the key issues and pressures facing the Council in the medium term, with an updated position on funding, growth pressures and saving requirements.

v  Agreed that a continued focus on identifying and delivering efficiencies for future years will play a central role in ensuring financial sustainability going forward.

v  Noted that income estimates had been significantly lower than actual income and this led has to cuts in services which may not have been needed.  Similarly, in the report, it was noted that the projected funding requirement for the next three years is questionably high, leaving a funding gap which will need to be addressed.

v  Noted that the main drivers behind this are projected estimates for inflation and contributions to the local government pension scheme.

v  Agreed that careful consideration needs to be given to these assumptions to ensure that LBTH does not unnecessarily discourage much needed investment in services.

v  Requested further information on how the (i) Council estimates the funding required to cover the level of inflation and the assumptions within this; and (ii) funding required for the local government pension scheme. 

v  Agreed to continue to monitor the Council’s Budget and to hold further discussions with Councillor Saied Ahmed (Cabinet Member for Resources and the Cost of Living).

The Chair Moved and it was:- AGREED

1.    To note that the projected funding requirement for the next three years is questionably high, leaving a funding gap which will need to be addressed.

2.    That main drivers behind this are projected estimates for inflation and contributions to the local government pension scheme.

3.    To ask that careful consideration of this is given to these assumptions to ensure that LBTH does not unnecessarily discourage much needed investment in services.