Agenda item

To consider a report by Councillor Gwyneth Ellis, Lead Member for Finance, Performance and Strategic Assets (copy enclosed) updating Cabinet on the Welsh Government’s Provisional Funding Settlement for Local Government 2025/26 and its implications for setting a balanced budget for 2025/26.

RESOLVED that Cabinet –

(a)      notes the impact of the Welsh Government Provisional Settlement 2025/26 in section 4.1 of the report and updated budget pressures in section 4.2 of the report, and

(b)      accepts the feedback from the Governance and Audit Committee and approves their recommendations as set out in section 4.4 of the report.

Councillor Gwyneth Ellis presented the report updating Cabinet on the Welsh Government’s Provisional Funding Settlement for Local Government 2025/26 and its implications for setting a balanced budget for 2025/26.

Councillor Ellis paid tribute to the Head of Finance and Audit and the Finance Team on the work undertaken following the provisional settlement.  Whilst the impact of the settlement had been positive for Denbighshire deficiencies remained within the budgetary process which needed to be addressed by Welsh Government.  Prudent measures over recent years had left the Council in a good position and it was important to continue to be prudent going forward.  Councillor Ellis also welcomed the feedback from the Governance and Audit Committee following its review of the Medium Term Financial Strategy and Plan and advocated accepting all the recommendations in order to be as open a possible with members and residents.

The Head of Finance and Audit explained the detail of the provisional settlement received in December 2024 and its implications.  In brief, the Council’s provisional AEF (Aggregate External Finance) from the Welsh Government for 2025/26 equated to £215.222m compared with a restated 2024/25 AEF of £205.729m resulting in a headline increase of £9.493m or 4.6%, which compared favourably to the Welsh average of 4.3%.  The restated budget included additional in year funding from the Welsh Government (following the UK Government Budget in October 2024) totalling £4.487m relating to teachers pay, teachers pensions and non-teaching pay.  The additional funding had increased the funding above the 4.6% quoted and the true impact was an increase of £14.427m or 7%.  Whilst the increase in settlement was positive and welcomed, an increase of around 11% would have been required to fund the budget pressures which still required a combination of savings and increases in Council Tax.  Pressures amounting to £21.325m had been highlighted in the 2025/26 budget and the approach to setting balanced budgets over the next few years had been set out.  Work to deliver savings in 2025/26 had been detailed with further work ongoing which would be considered by Cabinet and Council in February 2025 and a Members Budget Workshop on 31 January to discuss the budget proposals.  Finally, Cabinet was reminded that the Medium Term Financial Strategy and Plan and been considered at various committees and Cabinet was asked to consider the latest feedback from the Governance and Audit Committee as set out in the report.

Cabinet welcomed the better than expected settlement but highlighted that the budget pressures which had been reported during the year remained and, whilst not as severe as expected, there remained a significant budget gap which needed to be addressed in order for the Council to deliver a balanced budget in 2025/26.  Cabinet thanked the Lead Member, Head of Finance and the Finance Team for their hard work following the announcement of the provisional settlement and for keeping members well informed of the changes and position to date.

The Lead Member and Head of Finance responded to questions as follows –

·       explained why the provisional settlement would be unlikely to differ significantly given that the data used to inform the funding formula would not change before the final settlement, and the Welsh Government had also committed to minimal changes being fully aware that local authorities would need to work to set their budgets prior to the final settlement being announced

·       gave an overview of the funding formula and subsequent range in the increases across local authorities with Denbighshire’s provisional settlement of 4.6% being slightly better than the Welsh average of 4.3%, and discussions around the possibility of the Welsh Government providing additional floor funding in the final settlement for those local authorities receiving lower settlements

·       detailed the benefits of multi-year settlements in order for the Council to plan with greater certainty and focus more on medium term changes instead of one year ahead, particularly given the scale of the pressures facing local authorities in recent years.  However, it must also be recognised that multi-year settlements were set at a point in time with no certain knowledge of future variables such as fluctuation/increases in inflation, interest rates, etc. which would impact budgets.

Cabinet also discussed the feedback from the Governance and Audit Committee.  Councillor Ellis believed that the Council was already working in line with two of the recommendations relating to a focus on delivering statutory services when budget setting, and to continue to keep residents informed of choices made and their implications, and she was happy to accept them.  Councillor Ellis was also in favour of the third recommendation relating to presenting, alongside other options, the level of Council Tax that would be required to cover the budget gap in its entirety which would result in greater transparency of options.  The Leader agreed, adding that including that option would further inform the discussion and highlight the difficulties and choices in financing service delivery.

Councillor Bobby Feeley, who was a member of the Governance and Audit Committee, raised further questions and concerns about a potential recommendation to use Council Tax as the sole lever to finance the budget gap.  Councillor Ellis clarified that there was no intention to put forward a recommendation in that regard but to include the option for information and greater transparency to show by how much Council Tax would need to be increased to cover the budget gap in its entirety. The Governance and Audit Committee had accepted that it would be an unpalatable option but should be considered nonetheless as it was one of the levers available to the Council given there was no cap on Council Tax.  The Head of Finance provided some further context to the Governance and Audit Committee’s discussions.  Prior to the settlement, the Welsh Local Government Association had reported pressures across Wales of £559m which would require Council Tax increases of over 20% to fully fund.  She added that the level of Council Tax required to fully fund Denbighshire’s budget pressures could be reported in the Members Budget Workshop and future reports if required.

RESOLVED that Cabinet –

(a)      notes the impact of the Welsh Government Provisional Settlement 2025/26 in section 4.1 of the report and updated budget pressures in section 4.2 of the report, and

(b)      accepts the feedback from the Governance and Audit Committee and approves their recommendations as set out in section 4.4 of the report.