Agenda item

To consider a report  by the Head of Finance and Audit (copy enclosed) updating the Committee on the Welsh Government’s provisional funding settlement for local government for 2025/26, its implications for setting a balanced budget, and which seeks members’ observations on the matters outlined in the report.

11am – 11.30am

The Lead Member for Finance, Performance and Strategic Assets introduced the report (previously circulated) explaining that the Council was legally obliged to set a balanced budget. Work was continuing on improving budget monitoring indicators, but caution was being exercised to ensure accuracy and reliability. It was also noted that sufficiently financing Council services was an ongoing challenge. The Section 151 Officer emphasised the importance of reviewing the budget for the periods 2025/2026 and 2027/2028 on a regular basis and confirmed that regular updates would be presented to the Cabinet. She highlighted that the Council was highly dependent on settlements from the Welsh Government (WG). The impact of pensions and pay increases and the allocation of in-year grant funding awards just before the announcement of the Revenue Support Grant (RSG) settlement was also acknowledged.  This had resulted in the actual position showing a cash increase of 7% for 2024/25. The WG was working towards taking a more sustainable approach in addressing financial settlement matters going forward.  Whilst the position going forward was far more positive than originally anticipated, the Authority was still facing budgetary pressures due to an increase in demands for services, particularly complex intensive social care services.

Members queried the Council’s ambitious pledge to address the Climate Change Emergency, asking whether it should be considered a budget pressure. Officers advised that this was an overall ambition and therefore not handled in the same way as other pressures e.g. homelessness which could be quantified clearer with respect of funding needs.  Although the net carbon zero target may not be reached by 2030, it was still kept as an ambition.  Officers drew members attention to Appendix 1 of the report which included a £250,000 investment in priorities specifically related to climate change. It was important to remember that an allocation towards realising this ambition was also included within the Council’s capital budget. It was advised that the revenue-to-capital ratio needed to be checked, as rates were changing continuously, and further consideration was needed across all budgets to addressing climate change. It was explained that this approach was different from the usual method, as it was a choice being made to instigate intervention measures now, rather than addressing problems at a later date which would be more costly. It was important to have funding factored into the medium-term financial plan (MTFP) for this purpose.

Members requested clarification on costs related to National Insurance (NI), having regard to concerns raised by the Scottish Government regarding the rising costs. It was noted that these additional costs had not been fully funded with the RSG settlement. Officers agreed that it was important to be aware of these issues but emphasised that no assumptions had been made regarding what would be received in terms of income or funding to cover the in-direct costs of the employers’ NI contributions on services which the Council commissioned from external service providers.  It was proposed that the Committee write to both the UK Government and the Welsh Government to seek clarification on the situation regarding the provision of sufficient funding to cover the costs of the increase in employers’ National Insurance contributions.

Members emphasised the need for a sensitive and careful approach when addressing future transformational projects. It was asked whether the budget was sufficient to address all identified pressures. Officers responded by highlighting the democratic aspect, noting that members had been given a lot of information throughout the year, and it was important to make assumptions based on the predictions. All budgetary assumptions and predictions were based on the Wales Fiscal Analysis, a tool which was widely used by public authorities as the basis for their budget setting work.  It was confirmed that more work had been done in identifying pressures, with ongoing discussions that would continue in the Members Workshop the following day.

Members suggested that it might be wise for the Council to either hold back some of the additional funds (the “windfall”) that had been received rather than spend all of it, or consider a higher increase in Council Tax, in order to create a cushion for potential future budget shortfalls. It was noted that efforts had been made to adopt a more preventive and careful approach but acknowledged that concerns needed to be addressed. The Head of Finance and Audit concluded by stating that the settlement was better than initially expected, and that the Lead Member and officers were looking at the budget from a medium-term perspective.

Resolved:  subject to the observations provided to recommend to Cabinet that -

(i)           based on the information currently available on Denbighshire’s provisional local government funding settlement for 2025/26 along with the budget pressures identified, to support the proposed measures taken to date in a bid to set a balanced budget for the 2025/26 financial year;

(ii)          the Lead Member for Finance, Performance and Strategic Assets be requested to write to the UK Government’s Chancellor of the Exchequer seeking urgent clarity on whether local authorities will be provided with sufficient revenue funding to cover the additional costs incurred as a result of the increase in employers’ national insurance contributions, and that future budget announcements be more explicit in relation to similar in-direct costs.  A copy of the letter also to be sent to the Welsh Government’s Cabinet Secretaries for Finance & Welsh Language and Housing & Local Government; and

(iii)        consideration be given to identifying in future budget strategies/medium term financial plans the anticipated cost/pressures of delivering the Council’s ambition of becoming a Net Carbon Zero and Ecologically Positive Council by 2030.