To report the forecast position for 2025/26 at Quarter 3 (December 2025), including explanation and analysis of the drivers for the material budget variances, and to outline current and planned recovery activity to reduce the forecast overspend.

 

Councillor Stoddart cabinet member for finance and corporate services introduced the report

 

The cabinet member set out the Quarter 3 (December 2025) forecast revenue outturn for the 2025/26 financial year.

 

It was noted that the forecast outturn position showed an overall overspend of £6.3m (2.7% of the net revenue budget), which was expected to reduce to £4.4m because of planned management and recovery actions.

 

It was noted that the Council’s approved net revenue budget for 2025/26 was £231.5m, inclusive of £3.9m of planned savings, and that detailed explanations of variances by Directorate and Service area were set out in Appendix A to the report.

 

It was noted that continuing in?year cost pressures were being experienced, particularly in relation to social care, temporary accommodation, and Special Educational Needs (SEN) home?to?school transport.

 

It was reported that the Quarter 3 revenue position for 2025/26, prior to management action, showed a forecast variance of £6.3m.  This comprised of £4.7m of in?year net cost pressures and £1.6m of savings targets brought forward and assessed as at risk at Quarter 3.

 

It was noted that the 2025/26 approved budget included a £1.4m contribution from reserves to the Children & Young People Directorate to support the delivery of Year 2 savings within the extended Three?Year Financial Plan, with repayment originally planned for 2026/27 and 2027/28. The forecast Quarter 3 position showed an underspend of £2m within the Directorate, reflecting robust expenditure management and full delivery of planned savings.  As a result, it was reported that it was proposed to repay the £1.4m reserve contribution in the year ending 31 March 2026, one year earlier than planned.

 

It was noted that the combined effect of £3.3m management and recovery actions, together with the early repayment of £1.4m reserve contribution, resulted in a revised forecast overspend of £4.4m as detailed in Table 2 of the report. It was further noted that any overspend remaining at 31 March 2026 would be required to be funded from the Council’s available reserves.

 

It was noted that the forecast outturn position by Directorate, prior to recovery action, was summarised in Table 1 of the report.

 

It was reported that recovery actions expected to further reduce the forecast overspend during Quarter 4 included:

• the proposed £2.8m allocation from the Budget Resilience Reserve;
• continued review of the Council’s contract arrangements and shareholding in Hoople Ltd; and
• ongoing challenge of forecast and planned expenditure through Directorate expenditure control panels.

 

It was confirmed that expenditure controls were introduced in 2023/24, remained in place and would continue for the remainder of the financial year to support financial recovery and maintain robust control over spending.

 

It was noted that the Budget Resilience Reserve, established in 2024/25 to manage in?year cost pressures, had been reduced from £11m to £7m following a £4m allocation in 2024/25. The proposed £2.8m use in 2025/26 would reduce the balance to £4.2m at 31 March 2026.

 

It was further noted that, in accordance with the 2026/27 Revenue Budget and Medium?Term Financial Strategy and Treasury management strategy, the remaining £4.2m balance was to be transferred to the Contract Inflation Fund in 2026/27, resulting in a nil balance on the Budget Resilience Reserve by 31 March 2027, as confirmed by the Annual Review of Earmarked Reserves reported to Cabinet on 5 February 2026.

In relation to savings, it was noted that of the £3.9m savings approved for 2025/26, £1.6m (40%) had been delivered at Quarter 3, with the remaining £2.3m (60%) assessed as on target for delivery within the financial year. Therefore, no savings were currently assessed as at risk. A breakdown of savings were detailed in Table 3 of the report. 

 

The delivery of the revised savings which totalled £11.9m were reviewed and revised plans agreed. By Quarter 3, £8.6m (72%) had been delivered, £1.7m (15%) was forecast to be delivered in year, and £1.6m (13%) remained at risk, with mitigation actions ongoing. An external review of home-to-school and SEND transport was commissioned to address cost pressures, with savings of £0.5m expected across the 2025/26 academic year.

 

The Dedicated Schools Grant (DSG) cumulative deficit was reported at £20.0m at 1 April 2025 and forecast to rise to £38.2m by 31 March 2026 due to pressures in the High Needs block.

 

Government confirmed the High Needs Stability Grant would cover 90% of historic DSG deficits up to March 2026, subject to eligibility, with the remaining balance to be managed by the council. The 2025/26 capital programme budget was revised from £155.2m to £115.1m following reprofiling, carry-forwards, project removal and additional grants. Forecast spend at Quarter 3 was £94m, with the majority of variance relating to slippage into future years. Capital projects continued to be monitored, particularly those expected to mitigate revenue pressures.

 

The report highlighted key risks relating to demand pressures, SEND provision, delivery of savings and capital projects, and overall financial sustainability. The Cabinet was invited to endorse the report and its recommendations.

 

Comments from cabinet members:

 

Reassurance was requested regarding the variance of £2.3m for revenue outturn for economy and environment for residential services, SEND and Home to School Transport, as this was growing against a budget of £12.7m.  It was confirmed that actions being taken needed to be managed sensitively as it involved children and young people but the plans in place will make a significant impact on this area.  It was confirmed that this work was being conducted very carefully and in co production with parent carer voice. 

Group Leaders were invited to offer their views:

 

The Group Leader for Independents for Herefordshire outlined their views and it was noted that:

Concern was expressed that, while actions were being taken to address financial pressures, progress remained slow and largely reactive. It was argued that repeated reprofiling and deferral within the capital programme amounted to under?delivery against commitments on infrastructure, including roads, schools and community facilities. Reference was made to the Quarter 3 position, with capital spend significantly below both the original and revised budgets, resulting in continued delays to projects affecting residents.

 

Concerns were also raised about the council’s treasury position, including rising borrowing costs, high interest rates and an increasing debt burden, which were said to reduce the proportion of council tax income available for services. It was noted that council tax had increased by nearly 5% in 2025/26, while residents were not seeing commensurate improvements in services. The presentation of the budget as “balanced” through use of reserves was questioned, and a call was made for greater transparency, realism in forecasting, improved delivery capacity, and a clearer assessment of what the council can afford. The council was urged to take responsibility for managing local pressures and to focus on accountability, discipline and delivery.

 

The Liberal Democrat Group outlined their views and noted that:
It was noted that significant cost pressures were arising in areas where they had been anticipated, suggesting potential weaknesses in forecasting growth and the need for more conservative assumptions. Given that Quarter 3 outturn pressures were emerging after the budget was set at Quarter 2, it was questioned whether assumptions for the forthcoming financial year should be revised accordingly.

 

 Concern was expressed that the focus on managing day?to?day spending risked limiting opportunities to invest in preventative and transformational activity that could reduce costs over the longer term. The example of home?to?school transport was cited as progress in alternative service delivery, though it was acknowledged that such changes take time to implement and would ideally have commenced earlier.

 

The Green Group outlined their views and noted that:
It was acknowledged that delivering savings against current pressures was challenging, particularly due to ongoing demand in adult social care and wider instability within the NHS. Concern was expressed regarding whether sufficient provision had been made for the forthcoming financial year to address these pressures.

 

Positive comments were made on the improvements within Children and Young People’s Services, noting that increased service stability had contributed to a stronger financial outturn, and officers were commended for this work.

 

The collaborative approach being taken on home?to?school transport was welcomed, including member involvement, exploration of alternative delivery models and engagement with parents and carers. It was noted that external factors, including geopolitical issues and rising travel costs, were likely to increase pressure in this area, making the council’s proactive approach particularly important.

 

Further clarification was requested on the causes of the Corporate Services overspend and how these pressures might be mitigated.

 

Concerns were raised about the council’s capacity to deliver the capital programme, including risks of under?delivery and potential grant clawback, and the longer?term impact of capital projects on the revenue budget.

 

Finally, concerns were expressed about the ongoing use of reserves, with a request for greater focus on how reserves would be protected given the likelihood of continued financial pressures.

 

In response to comments made the cabinet members noted that:

 

At Quarter 3 there was only £4.5m variance against a total budget of £231m and this was positively highlighted as demonstrating the scale of the budget and the level of control being sought. The importance of strong financial planning, disciplined budget management and tight control of expenditure throughout the year was emphasised as central to achieving this position.

 

The council’s financial position with neighbouring authorities was compared, noting that Shropshire and Worcestershire had applied for significant Emergency Financial Support, resulting in substantial annual interest costs, while this council had not sought such support. It was highlighted that Shropshire and Worcestershire had set council tax increases of 8.99%, compared with this council’s increase of 4.99%, which was stated to be in line with central government expectations under the Fair Funding and Funding Power Reviews.

 

It was acknowledged that all local authorities were operating in a highly challenging financial environment. The member outlined improvements in demand forecasting, including increased use of data analytics and modelling to better anticipate future demand beyond traditional forecasting methods. It was stated that demand planning would continue to improve ahead of the 2026/27 budget.

 

The budget approved by Full Council in February 2026 was informed by the available data, cost information and activity trends at that time. The council was said to be actively seeking efficiency opportunities while recognising the human impact of service delivery and the need to meet both statutory and moral duties sensitively.

 

In response to comments on the council tax increase, it was noted that criticism of the 4.99% increase was challenged, with reference made to higher precept increases made by Ledbury Council. 

 

Reference was made to the capital budget recently reviewed, highlighting actual expenditure across key areas. It was noted that £3.263m had been spent on highways infrastructure improvements, £3.5m on estates, and £11.186m on school improvement works. It was stated that these figures demonstrated delivery within the capital programme and were presented as evidence of investment in priority infrastructure.

 

The Leader of the Council concluded the discussions. Councillor Stoddart proposed the recommendations and the Leader seconded for the decision before them which is that Cabinet:

 

That Cabinet

 

a)    Reviews the financial forecast for 2025/26, as set out in the appendices A-D, and identifies any additional actions to be considered to achieve future improvements; and

 

b)    Notes the proposed early repayment of reserve contribution by the Children & Young People Directorate; and 

 

c)    c) Notes the management action identified to reduce the forecast outturn position for 2025/26; and

 

d)     Agrees the continuation of management actions to reduce the forecast overspend as identified in this report.

 

The recommendations were unanimously approved.