Agenda item

To consider the Medium-Term Financial Strategy update.

At the invitation of the Chair, Councillor Alam, Cabinet Member for Finance and Community Safety and the Service Director of Financial Services introduced the item, explaining that the presentation would provide members with an update since the last report to Cabinet on the Medium-Term Financial Strategy (MTFS) in November 2025.

The key financial pressures currently faced by the Council were as follows:

·      Placement pressures in social care, due to the complexity of care, market inflation and rising demand for services.

·      Numbers of SEND children were rising year on year, which added pressure to home to school transport services

These particular financial pressures reflected the national picture and were not unique to Rotherham and when looked at in comparison to neighbouring local authorities, Rotherham was performing well in these areas.

·      The waste management optimisation programme had proved challenging but was not forecast to create a pressure in the financial year 2026-27 as the savings linked to that programme should be delivered in full.

·      Pressures on income generation within Regeneration & Environment remained but were not considered a huge issue in the context of the wider £350m net council budget.

·       The impact of the local government pay awards, which were not funded by central government.

In taking members through the presentation, the Service Director of Financial Services explained that locally generated taxation (business rates and council tax) funded over 60% of the Council’s core activity, with much less funded by central government. Over 60% of the Council’s overall spend was taken up by social care for children and adults.

The Service Director of Financial Services commented that the Council had been getting more robust in its financial decision making and had demonstrated that savings could be agreed and delivered. The Council’s reserves were in a  stronger position than they had been historically, with a low level of reserve usage in the budget and MTFS profile.

The key dates for the budget setting process were highlighted as follows:

·      Announcement of the Consumer Price Index (CPI) in September was key because that was the measure the government used to dictate the funding increases on core government grants year on year. September 2025’s CPI was 3.8%, which was higher than the MTFS assumption of 2%, which was therefore positive, and would bring in more resource.

·      The provisional settlement was announced in late December 2025, which included the output of the Fair Funding Review. This provided the Council with clarity on what funding would be from the various central government funding pots.

·      February's cabinet meeting and the Full Council meeting in March would be where the Council’s budget for 2026-27 would be formally set.

When the November MTFS update was provided, there was a £0.9 million overspend. Due to challenges within adult social care caused by backdated care placements and additional demand pressures, this overspend had increased to £3.4 million. It was hoped that this could be reduced significantly before the financial year end and the use of reserves minimised.

The Fair Funding Review represented a significant change in how local authority funding would be distributed and marked a shift towards applying funding more clearly on a needs basis. It would combine all the local authority funding from central government and council tax into a huge national pot, with Rotherham’s share expected to be 0.49%. Initial calculations indicate that this could equate to over £20 million of funding over a three-year period.

Savings of around £10 million had been achieved in CYPS as a result of a comprehensive review of demand and market management and social care pathways, with the aim of driving down the numbers of looked after children and where they were placed. The MTFS made provision for 3% inflation to CYPS for their supplier market. However, as each individual package is agreed on a placement-by-placement basis, for an emergency or complex placement, a much higher inflationary rate than 3% would have to be agreed. An external review of CYPS confirmed that the right things were being done, but did highlight a potential under-inflation on market placements, which had now been accounted for in the CYPS budget within the MTFS.

The Service Director of Financial Services explained that there had been some concern around the Household Support Fund coming to an end but that it had been confirmed that there would be a new scheme named the Crisis Resilience Fund. The Council would work through the guidance for this. There had also been a positive update from SYMCA that a new local growth fund would fund around 90% of the activity that had been previously funded through the UK Shared Prosperity Fund.

Since the November MTFS update, the government had announced a 6.75% increase in the real living wage. This had a significant impact on the Council as a real living wage accredited employer and would lead to an uplift in the Council’s pay grade structure to ensure that, at the bottom end of the structure, the Council continued to pay the real living wage.

The government had been looking to change business rates and the business rates process. However, in recognition of the fact that the Fair Funding Review is already a seismic shift in funding for local authorities, it had decided to delay this. However, the government had paid out in advance, the top-up grant as part of the business rates review that would be allocated to the Council in 2026-27 and 2027-28, in order to mitigate some of the financial challenges that councils would face as part of this process.

The Chair invited members of OSMB to raise questions and queries on the points raised.

Councillor A Carter asked a question relating to the pressure caused by the higher than forecast local government pay award. How confident was the Council that its assumptions for increases in pay in the medium-term, would align with government outcome and could assurance be provided that this wouldn’t have an unexpected impact on the Council’s financial position in-year?

The Service Director of Financial Services responded that the level of pay award could not be predicted as it was always announced by the government after the budget had been set. Initial proposals could come forward from the unions prior to the budget being set but central government did not approve the level of the pay award until 6-7 months into the new financial year. The Council maintained a working assumption based at 2% but  recognised that the award may be higher than this assumption, due to inflation. The Council’s Treasury Management savings should mitigate any in-year pressure, and any budget gap would be addressed moving forward. If the working assumption on the pay award was to be increased, this could lead to a potential reduction in posts to make savings, which would be harder to reverse than to address a gap moving forward.

Cllr Yasseen commented that the Fair Funding Review and the three-year allocation of it represented a welcome positive shift in central funding for Rotherham. Was this funding expected to be available to the Council from April 2026? The Service Director of Financial Services confirmed that there was a specific settlement allocation over the three years and the Council was due to receive an additional £8 million of funding for the financial year 2026-27.

Additionally, Councillor Yasseen asked a question around the reported savings in CYPS placements via the use of Special Guardianship Orders. Could more be done in this area to support and encourage the wider family members of relevant children to provide support in this way? The Service Director of Financial Services agreed that this was an area that CYPS were keen to drive forward as a more appropriate and cost-effective choice of placement for certain children. Increased use of Special Guardianship Orders was also being looked at nationally in reforms to CYPS social care.

Councillor Blackham asked whether the reserves position presented included recent changes regarding the write-down in social housing values. The Service Director of Financial Services explained that the social value housing write-down, which had been recently picked up on in an external audit with Grant Thornton, would impact on capital financing reserves rather than corporate reserves.

Councillor Baggaley commented that the financial year 2028-29 was looking potentially very challenging and asked how service hoped to maintain a balanced position going into that year? The Service Director of Financial Services responded that that they were confident that the Council would be able to get to a balanced position in the next two financial years but acknowledged that it would be difficult to balance the budget for the financial year 2028-29 given the current predicted position of an almost £10.5 million deficit. It was expected that this position would improve over the course of the next two financial years due to continued progress in making savings in CYPS and Adult Social Care. Completion of the Business Rates review process in summer 2026 would hopefully leads to an improved business rates position moving forward which would assist with the pressures anticipated in 2028-29.The Service Director of Financial Services also commented that it was likely that the position regarding the Fair Funding Review would change moving forward, so in many respects, the projection for that third year remained uncertain.

Councillor Steele asked whether the Council was sure that the predicted £22 million would come to the borough under the Fair Funding Review?  The Service Director of Financial Services confirmed that they were confident that this would come to the borough as it had been announced by the government in the provisional settlement. However, the figure was provisional, and the final financial settlement would be announced after the setting of the 2026-27 budget and could be subject to further minor refinements after this date. There was the small possibility of challenge from those local authorities who felt they had lost out under the Fair Funding Review.

In a supplemental question, Councillor Steele asked at what point inflation could cause problems for the budget? The Service Director of Financial Services responded that this was tricky to predict as inflation is only one part of the budget. High inflation – e.g climbing to double figures - would cause the Council huge problems and could require the need to make massive savings. However, the Council had experienced high inflation in recent years and had been able to work through this and come up with some mitigations. The crux of the matter was how inflation could interact with pay and impact on service delivery

The Chair thanked officers for their input and responses to members’ questions.

Resolved: - That the Overview and Scrutiny Management Board:

1.    Noted the Medium-Term Financial Strategy Update.