Issue details

This report provides an update to Cabinet on the county council's 2022/23 revenue and capital financial position, as at the end of June 2022 and an updated medium term financial strategy covering the period 2023/24 to 2025/26.

The effects of the COVID-19 pandemic are still evident in some services particularly relating to Adults and Children's Social Care. There are also significant inflationary pressures resulting from a number of factors including the pandemic and the war in Ukraine.

Consequently, significant assumptions are required to underpin our forecasts. While these can be made with a level of confidence in the current year, there is significant uncertainty over the medium term with regard to the scale and length of inflationary pressures and future funding levels. The forecast is therefore based on a set of reasonable assumptions applied from various sources including national and professional bodies and discussion with peers, given the forecast pressures are largely the result of factors outside the direct control of the council and are affecting local government as a whole.

Whilst a multi-year Spending Review was originally expected at the end of 2020, this has not yet happened. A one-year settlement for 2022/23 was announced in December 2021 and a two-year rollover settlement is currently anticipated for 2023/24 and 2024/25 based on the same principles as the 2022/23 settlement with no significant increases in funding levels aside from permissible increases in council tax.

Whilst the quarter 1 forecast presents an overspend of £17.740m for the current financial year, there remains a level of uncertainty about the longer-term effects of the pandemic and economic issues. The ultimate impact of latent demand on service levels also remains unclear.

The current medium term financial strategy indicates a forecast funding gap of £87.054m in 2023/24, an increase of £56.506m on the previously reported position, with the forecast gap rising to £159.678m by 2026/27.  The increase is the result of a number of factors including the impact of rising levels of inflation, a significantly higher than anticipated suggested national pay award and increasing demand for adult and children's services.

In summary:

(i)  The 2022/23 revenue forecast outturn is £965.847m, representing a projected overspend of £17.740m (1.87%) of the agreed budget.

(ii)  The medium-term financial strategy has been updated for current expectations of levels of funding, savings delivery, demand and inflation.

(iii)At Full Council in February 2022 the medium-term financial strategy showed a deficit of £41.349m in 2024/25. The forecast now indicates a financial deficit of £159.678m by 2026/27.

(iv)The council is forecast to hold a General Reserve against unforeseen issues of £23.437m representing circa 2.4% of net budget, which is unchanged from the previously reported position. 

(v)  The council is forecast to hold £191.093m of uncommitted transitional reserve at the end of the financial year. This is sufficient to meet the forecast gap for the medium-term financial strategy for the financial year 2023/24 and part of the financial year 2024/25.

(vi)The council is forecast to spend £196.951m of the £221.889m approved delivery programme. This represents a forecast variance underspend of £24.938m which represents 11.2% of the approved programme.