Resources Updates and Assumptions 2023/24
General Fund Budget
1.1 The government announced a 3-year Spending Review in November 2021 for the financial years 2022/23 to 2024/25 which followed a one-year Spending Review for 2021/22. An autumn budget is anticipated in November 2022 when any significant changes to the Spending Review will be announced.
1.2 Despite a three-year spending review, the LGFS was only a one-year settlement which reduces the council’s ability to provide robust medium term financial plans. The significant changes to the economy, inflation and cost of living, together with the war in Ukraine and widespread labour shortages has meant that any settlement for future years needs to be reassessed in this context to ensure local authorities remain sustainable and can deliver essential services.
1.3 The provisional LGFS for 2023/24 would normally be expected in December 2022, including confirmation of the council tax ‘excessive increase’ threshold above which a referendum would be required. It is unknown how the government will respond to increased financial pressures in local government and whether or not a change to the threshold would be considered, and therefore the following assumptions should continue to be treated with caution.
Government Grants and Precepts
Revenue Support Grant (RSG)
1.4 For the 2022/23 LGFS the government rolled forward the 2021/22 RSG allocation, inflated by CPI. It is assumed this grant will roll forward again and a 2% uplift has been included in the projection of £7.014m. This grant is now so small that even a high percentage uplift of RSG in line with current inflation would not contribute significantly to the council’s resources.
Additional Government Funding
1.5 The budget projections include a midpoint assumption that the government will support councils with an increase in grant funding of up to £4.000m. The Local Government Association (LGA) recently indicated that the shortfall across Local Government in 2023/24 could be £2.4 billion, rising to £3.6 billion in 2024/25. This assumption, alongside the assumptions concerning Retained Business Rates (see later), takes the view that a step increase in support will be required to maintain financial sustainability across local government. While government are unlikely to fund the full deficit set out by the LGA, some support will almost certainly be needed to avoid widespread applications from local authorities for capitalisation directions or other emergency support measures.
Adult Social Care precepts and Better Care Funding
1.6 The core assumption is that the additional grants announced as part of the 2022/23 settlement relating to Social Care will roll forward and continue in 2023/24 at the same level. In 2022/23 the council was able to levy a 1% Adult Social Care Precept to support the increased costs in this area and this flexibility was extended to allow a further 1% in each of 2023/24 and 2024/25.
1.7 Adult social care costs continue to increase significantly, and the council has worked with Health to secure increased contributions for cost sharing to help mitigate this. However, the increased demand and inflationary pressures create a significant additional burden.
1.8 The midpoint planning assumption is that the government will continue to provide additional ongoing support year on year but does not assume it is specifically for Social Care beyond the existing Adult Social Care precept flexibility.
|
Table : Social Care Resources |
2021/22 |
2022/23 |
2023/24 Planning Assumption |
|
ASC Precepts |
3% £4.450m |
1% £1.588m |
1% £1.650m |
|
Improved Better Care Fund (BCF) |
£9.181m |
£9.459m |
£9.459m* |
|
Adults & Children’s Social Care grant |
£7.759m |
£10.815m |
£10.815m* |
* Any grant uplift is assumed to be captured by the £4.000m general additional grant assumption for 2023/24 detailed above and in the body of the report.
New Homes Bonus (NHB)
1.9 The government provided a one-year extension to the NHB scheme for 2022/23 and intended to explore how to incentivise housing growth effectively going forward. The planned consultation on the future of this incentive is assumed to be on hold and there is currently no indication of how this funding will be awarded in future. The budget assumption is that only legacy grant from previous allocations will be awarded meaning the council would receive £0.049m in 2023/24, a reduction of £0.773m.
Other grant changes
1.10 There is no update on grant allocations beyond 2022/23 which are normally announced alongside the provisional local government finance settlement.
1.11 The budget estimates assume a continuation of the 10% reductions in the centrally held unringfenced grants budget for 2023/24 in line with previous government funding reductions. This includes grants such as Housing Benefit Admin grant. However, this does not include the major ring-fenced grants of Public Health Grant or Dedicated Schools Grant which have seen improved allocations in recent years.
Business Rates
Business Rates estimate for 2023/24
1.12 For 2023/24 the projections are based on 1.6% growth compared to 2022/23. This reflects the completion of a number of business space developments across the city net of further anticipated impacts on the retail sector. The range used in scenario planning within the body of the report is 1.1% growth to 1.7% growth.
1.13 Business rates are planned to increase by CPI based on September 2022 which is predicted to reach 10% and this is the revised planning assumption, potentially providing substantial additional resources. This would clearly be a high increase in Business Rates and in recent years the government has either frozen or capped the increase in Business Rates to protect businesses, with local government being compensated for any loss in resources through Section 31 grant.
1.14 Business rates are currently being revalued with a new 2023 rating list to replace the 2017 list from April 2023. Revaluation can cause fluctuations in the level of resources retained by the council. The government has stated it is committed to ensure, as far as practicable, that retained income is unaffected from this change and will consult on how this will be achieved ahead of the 2023/24 settlement.
1.15 Business Rates forecasts continue to be an area of financial risk which is heightened by the unknown impacts of global financial events and the legacy of the pandemic on businesses and therefore these estimates could change significantly.
Council Tax
Council Tax Reduction Scheme
1.16 The council’s local Council Tax Reduction Scheme (CTRS) was amended at full Council in February 2022, introducing a revised scheme based on earnings brackets for working age Universal Credit claimants. The pension age CTR Scheme remained unchanged.
1.17 The assumption in the projections is that the number of working age claimants will continue to reduce to pre-pandemic levels and this is reflected in the net council tax base growth assumption. Over the last few months the numbers of claimants has remained virtually unchanged but this could partly be a consequence of introducing the revised scheme. The claimant numbers will continue to be closely monitored and if overall numbers do not start to reduce, the projections may need to be revisited.
Council Tax Estimate 2023/24
Corporate Inflation Provisions
Pay
1.20 The last triennial review of the East Sussex Pension Scheme covered the period 2020/21 to 2022/23 and showed year-on-year reductions in the employer contribution rates and in 2022/23 the employer rate reduced to 19.8%. The financial health of the East Sussex Pension Fund has been affected by volatile world financial markets during the pandemic which could give rise to changes in the employer rates to ensure financial stability. However, it should be noted that the fund had very minimal exposure to Russian or Belarussian investments. In addition, the current inflation crisis has increased CPI substantially and therefore pension fund pensioners are likely to see significant increases for 2023/24 which may not be matched by investment performance. The next Triennial Review for the period 2023/24 to 2025/26 is due in December 2022 when the employer contribution rate can be updated; the fund projections are based on a 20-year horizon and therefore the current planning assumption is that the 2022/23 employer contribution rate will not change.
Prices
1.21 The provision for general price inflation ranges between 0.75% and 2.00% as a base position depending on the type of expenditure. The impact of the current, very high inflation levels is separately identified within the updated service pressure assumptions rather than applying generic increases to all service areas.
1.22 Fees and charges budgets for 2022/23 are assumed to increase by a standard inflation rate of 3.0%. Penalty Charge Notices (parking fines) are excluded from this increase as the levels of fines are set by government and cannot be changed independently. Temporary accommodation income is also excluded as this is determined by LHA rates.
Commitments and Corporate Priorities
1.23 The budget projections for 2023/24 include year 2 of the Corporate Plan Investments set out in the Budget Report approved at Budget Council in February 2022. These included significant planned capital investment such as the Carbon Neutral 2030 and the Warmer Homes programmes where the financing costs of these investments are reflected in the projected financing costs budget. Other substantial commitments include a further step increase in IT&D resources to support digital modernisation (as funding is switched from the Modernisation Fund) and an increase in the recurrent revenue for the Housing First programme.
1.24 There is no recurrent risk provision funding included within the financial projections. For planning purposes, any risk provision would need to be managed by redirecting reserves in the short term.
Census 2021
1.25 The first data from the Census 2021 was released on 28 June and appears to give a significant reduction in the population of the City compared to the latest Mid-Year Estimate, showing a 5% reduction from 292,000 to 277,000 people. This is only 3,800 more people than the 2011 Census.
1.26 Officers will analyse the data in detail once received to understand all of the movements. Initially, it appears that there may be an issue with not accounting for students, many of whom may not have been in the city on census day due to extensive remote learning across higher education during the pandemic. This concern was raised widely at the time and ONS advised that this would be accounted for in the methodology.
1.27 Given the weight placed on Census data in determining funding allocations, these results need to be fully explored and formally challenged if the methodology appears to be flawed as the City Council could stand to lose significant resources.
Schools Funding
Housing Revenue Account (HRA)