To recommend to Council the proposed 2025/26 revenue budget, Medium Term Financial Strategy and the Treasury Management Strategy.

Appendix C is to follow 

The member for finance and corporate services introduced the report.  The cabinet member highlighted that since the draft budget report presented on 13 January 2025, the budget consultation took place.  However, engagement with the budget consultation was low.  It was highlighted that respondents who did participate confirmed support for key areas of the proposed additions to the capital programme.

It was confirmed that the provisional settlement announced by central government on 18^th of December 2024 confirmed the abolition of the Rural Services Delivery Grant, it confirmed that Herefordshire would receive zero funds under the New Recovery Grants and only £369k under the new Children's Social Care Prevention Grants.  This provided a net loss of £6.766m against the previous year’s income. It was noted that despite lobbying the Ministry of Housing Communities, local government had not provided any additional funding to rural counties including Herefordshire. However, final confirmation of final allocations in the final settlement was awaited later this month.

It was noted that the council expected to receive £29.2m from central government grant funding, representing a reduction of £3m from the previous year.

It was highlighted that despite challenges the council had achieved a balanced budget for financial year 2025/26.  The revenue budget for 25/26 totalled £231.5m.  It was noted that the draft budget totalled £232m and the movement was due to the additional homelessness and rough sleeping grant being presented within the community well-being budget, where the corresponding expenditure was included.

It was confirmed that there will be an increase to 4.99% in council tax for 2025/26 due to the impact of central governments reduction in funding.

Regarding each directorate it was highlighted that Community Well-Being base budget increased to £90.677m. Children and Young People’s base budget reduced to £59.063m due to the continuous savings in that directorate.  Economy and Environment base budget increased to £42.415m. Corporate services base budget increased to £22.852m and Central Services base budget reduced to £16.5m.

The proposed revenue budget of £231.508m would be funded by council tax at £146.451m, business rates at £47.567m, social care support grant at £20.336m, extended producer responsibility grant at £3.538m and the other smaller grants would make up the remaining £13.9m. 

It was confirmed that each directorate faced several unfunded pressures totalling £27.6m which had been factored into their base budgets for 2025/26.  Notably, the pay award, National Insurance, inflation and demand pressures for services.  It was highlighted that the final settlement from government was awaited and the budget assumed changes to employers’ national insurance of £1.5m would be funded by central government. 

It was confirmed that if the final settlement included funding above the revenue budget it would firstly be used to make additional provision to support development of the Local Plan and secondly, and secondly to make a transfer to the financial resilience reserve to mitigate the potential unfavourable outcome of the fair funding review which is planned in 2025. It was confirmed that this will be added as a further recommendation to the report.

The Medium-Term Financial Strategy (MTFS) showed a funding gap of £4.198m over the medium term financial planning period, with the figure of £5.08m in the financial year 28/29.  It was confirmed that the gap was manageable and would be resolved in future years through continued transformation.

It was confirmed that the treasury management structure (Appendix D) complied with the central government statute requirement on local government investments, governance on minimum revenue provision and the Chartered Institute of Public Finance and Accountancy code (CIPFA) for capital financing in local governments. It was highlighted that the borrowing strategy was the council borrows to fund the capital expenditure with borrowing driven by the requirements of the approved capital investment budget.

The current loan debt was noted at £118.116m (Annex A). On 31^st October 2024 the council had £64.1m of investments spread across banks, other local authorities and money market funds (Annex A).

It was highlighted that interest receivable had varied from 2020/21 to 2023/24.  It had been reported at the end of each quarter.  It was noted that in 2024/25 interest receivable income was £1.6m against a planned budget of £0.5m.  

It was confirmed that the reserves (Appendix E) showed the forecast reserves on 31^st March 2025 will be £75.1m. 

Cabinet members discussed the report and commented that the final settlement will be received late January, early February 2025. 

Consideration was welcomed regarding any additional funding being used towards the production of the Local Plan. It was raised that the government’s statement that rural places would receive a 5% increase in core spending did not correlate with what Herefordshire received.  It was highlighted that Herefordshire suffered a significant reduction of £3m in its funding.  It was also noted that rural communities generally paid more than 20% higher council tax than urban counties.  However urban communities received 41% more government spending. 

It was confirmed that if extra funding was received from the government, the council would ensure that the £1.5m of National Insurance costs were covered.  Then use any additional funding to support the Local Plan being completed and secondly any funding above that would be added to the financial resilience reserve.  It was confirmed this will be added as a recommendation to the 8 recommendations already in the report.  Cabinet members confirmed agreement to the additional recommendation.  

It was highlighted last year that the council received £953k in Rural Services Grant, £250k was spent on the Lengthsman scheme, £250k on PROW and £453k on rural drainage scheme.  It was confirmed that the £953k had already been built into this revenue budget and Economy and Environment will have that additional funding. 

Group leaders gave the views of their groups.  Frustration was expressed that no final settlement from the government had been confirmed.  It was queried if the extended producer responsibility was considered in the total funding.  It was also expressed that as the funding was a product of the Environment Act, its spending should reflect protecting the environment.  It was queried where the previous year’s Medium-Term Financial Strategy (MTFS) referred to an increase of council tax of 3.99%. It was commented on that clarification should be provided in the future around the term ‘maximising the use of assets’ to confirm this did not mean selling commonly owned assets. 

Concerns were raised that no additional targeted support has been made available given the maximum uplift in Council Tax.  Also, that no provision for funding officer time to work on new investment projects was made.  It was raised that the expectation of income earned from interest could have been increased rather than the forecast of £600k based on previous years over delivery of interest recoverable. 

Support was raised for the budget preparation and consultation process with parties.  It was also considered that the budget was more realistic than in previous years. 

In response to the points and queries raised cabinet members confirmed that the Medium-Term Financial Strategy did refer to 3.99% last year and this was a matter of public record.  However, due to the financial situation 3.99% could not be achieved for this year. 

Regarding the point on maximising the council’s assets, it was clarified that this wasn’t framed to mean selling council assets but intended to mean acquiring assets to reduce the spend and revenue pressures. It was highlighted that the council were looking to generate projects that were cost neutral or generate a positive impact in the revenue budget. 

It was confirmed that the extended producer responsibility grant was received outside of core funding. When the grant was received Cabinet made the hard decision to bring it in due to the underspend (from the loss of the Rural Services Grant).  This was to ensure the council could continue to deliver the services to the people of Herefordshire. It was highlighted the council’s aim to improve the environment was already being delivered through its environmental program and waste contracts.

In response to the query on increased council tax 4.99%% and the impact on households, it was confirmed that 11,000 households benefited from the council tax reduction scheme last year.  The discretionary hardship fund was highlighted, as a further fund to assist with individual cases. 

In respect of interest, it was confirmed that the council adopted a prudent approach. It was highlighted that the previous 4-5 years showed a variability in the levels of income from interest received.  In 2021, under the previous administration, £200k was budgeted and only £165k was received.  In the current financial year £500k was budgeted for and £1.6m will be received. 

Councillor Stoddart proposed the recommendations, and it was unanimously resolved that the following be recommended to Council including the additional recommendation (i).

That Cabinet recommends to Council for approval:

a)    the council tax base of 72,816.74 Band D equivalents in 2025/26;

b)    an increase in core council tax for 2025/26 of 2.99%;

c)    an additional precept in respect of adult social care costs of 2% applied to council tax in 2025/26 resulting in a total council tax increase of 4.99%, increasing the band D charge from £1,875.76 to £1,969.36 for Herefordshire Council in 2025/26;

d)    the balanced 2025/26 revenue budget proposal totalling £231.5 million, subject to any amendments approved at the meeting, specifically the net spending limits for each directorate as at appendix C;

e)    delegates to the section 151 officer the power to make necessary changes to the budget arising from any variations in central government funding allocations via general reserves;

f)      the Medium Term Financial Strategy (MTFS) 2025/26 to 2028/29 at appendix A be approved;

g)    the Treasury Management Strategy at appendix D be approved; and

h)     the responses to scrutiny committee recommendations to follow in a supplementary paper to be approved.

The additional recommendation was included:

i)               the allocation of additional funding, above that assumed in this revenue budget and as confirmed in the Final Local Government Finance Settlement, firstly to make provision to support the development of the Local Plan and secondly, to be transferred to the Financial Resilience Reserve to mitigate the potential unfavourable outcome of the Fair Funding Review planned in 2025.