This report sets out the 2025/26 General Fund and Housing Revenue Account Budgets, Capital Programme and Medium Term Financial Strategy for recommendation to Full Council.

Further to Minute 45 of the meeting held on 18 December 2024, the Committee considered a report setting out for recommendation to Council the 2025/2026 Budget and the 2025/26- 2027/28 Medium Term Financial Strategy, and updating the Committee on the results of the budget consultation exercise, changes arising from the publication of the Local Government Finance Settlement (LGFS) as well as other changes that had arisen.  The following documents were attached to the report:

·         Appendix 1 - The Medium Term Financial Strategy 2025/26 - 2027/28

·         Appendix 2 - Summary of the Proposed General Fund Budget 2025/26 - 2027/28

·         Appendix 3 - General Fund Revenue Budget by Service 2025/26 - 2027/28

·         Appendix 4 - Detailed General Fund Budget Changes 2025/26 - 2027/28

·         Appendix 5 - The Housing Revenue Account Proposed Budget 2025/26 - 2027/28

·         Appendix 6 - The Dedicated Schools Grant Budget Proposals 2025/26

·         Appendix 7 - The General Fund and HRA Capital Programmes 2025/26 - 2027/28

·         Appendix 8 - The Flexible Use of Capital Receipts Strategy 2025/26

·         Appendix 9 - Fees and Charges Proposals from April 2025

·         Appendix 10 - Equality Impact Assessment of the Budget Proposals

·         Appendix 11 - Summary of the Response to the Budget Engagement

·         Appendix 12 - Summary of the Residents’ Survey 2024

The report explained that the underpinning rationale of the Medium-Term Financial Strategy was to deliver a balanced and affordable 2025/26 budget, to ensure that the Council’s finances were robust and sustainable over the medium term and that, in the longer term, the Council’s finances were not reliant on the unsustainable use of one-off reserves or funding. The Strategy was informed by the Council’s Vision: “to help Reading realise its potential and to ensure that everyone who lives and works here can share the benefits of its success”, as well as its Corporate Plan priorities.

The report set out the budget assumptions which included: Council Tax increases of 2.99% plus an Adult Social Care precept of 2.0% for each year 2025/26 to 2027/28; delivery of £16.135m of efficiencies and increased income across 2025/26 to 2027/28; a net draw from earmarked reserves totalling £3.945m in 2025/26, a housing rent increase for 2025/26 of 2.7% in line with approved government policy of CPI + 1%; General Fund capital investment of £155.487m and Housing Revenue Account (HRA) capital investment of £178.261m over the 5 year period 2025/26 to 2029/30; and an initial allocation of £1.500m of transformation funding for each year from 2025/26 to 2029/30 to support delivery of efficiency savings assumed within the MTFS, taking the total transformation funding to £29.229m across the whole life of the Delivery Fund.

The deficit on the Dedicated Schools Grant (DSG) High Needs Block was anticipated to be £26.503m by 31st March 2025. High needs block funding had been increasing significantly in recent years, but those increases had not kept pace with increasing costs. As a result, a significant number of local authorities were accumulating deficits on the high needs block. In some cases, those deficits were so significant that they would potentially trigger a section 114 notice. As a temporary measure, the Government had issued a statutory override for the Dedicated Schools Grant that excluded DSG deficits from the calculation of General Fund reserves.  This override would continue until 31 March 2026.  The Government had not announced whether the override would be extended beyond this point.  The deficit for the Council was forecast to reach £40.373m by the time the statutory override would currently be due to end in March 2026 and was forecast to reach £53.165m by 31st March 2027. Council reserves would not be sufficient to fund this deficit, potentially triggering the need to issue a section 114 notice. The report noted that it was therefore critical that action was taken to address the deficit.

The report noted that Local Government finance was in crisis. Since 2018, local authorities had issued thirteen ‘section 114s’ notices, which notified of severe financial distress, compared to two in the preceding 18 years. Moreover, local authorities were increasingly reporting concerns about their financial positions and their ability to maintain delivery of their services. The financial crisis that local authorities were encountering came after significant reductions in local authorities’ spending power which has itself coincided with increasing demand for their services and inflationary pressures driving up costs. Ultimately, the levels of funding available to local authorities, through council tax, retained business rates, and government grants have not kept pace with these pressures, leading to a funding gap which the Local Government Association (LGA) had estimated at £6.2 billion over the next two years.

The proposed 2025/26 budget was based on current information available, but the Council was aware of the significant risks faced in a number of key areas such as: Funding Reform, Adult Social Care, Children’s Social Care, Special Education Needs and Disabilities, Homelessness, Housing Benefit, Inflation and Demand Risk, Savings, consideration of the Council’s wholly owned companies and cost of living.

The report had been prepared with reference to the following documents: Medium Term Financial Strategy 2025/26-2027/28 Update Report agreed by Policy Committee (18th December 2024); Autumn Budget 2024 – HM Treasury (30th October 2024); and the Final Local Government Finance Settlement 2025/26 – MHCLG (3rd February 2025).

Items 61-63 were considered together for recommendation to the Council meeting on 25 February 2025.

Resolved –

That, taking due regard of the results of the budget engagement exercise and Resident’s Survey (as outlined in Appendices 11 and 12 to the report), that Council be recommended to approve the 2025/26 General Fund and Housing Revenue Account budgets, Capital Programme and Medium Term Financial Strategy as set out in Appendices 1-10, noting the following:

a)            the Council’s General Fund Budget Requirement of £178.109m for 2025/26 and an increase in the band D Council Tax for the Council of 2.99% plus an additional 2.00% Adult Social Care Precept, representing a band D Council Tax of £2,117.52 per annum, an increase of £100.64 per annum excluding precepts from Police and Fire, as set out in paragraph 2.4 of the report;

b)           the proposed efficiency and invest to save savings of £7.065m together with additional income of £7.277m in 2025/26 required to achieve a balanced budget for that year as set out in Appendices 2 and 3;

c)            the overall savings proposed within the MTFS of £16.135m (£11.559m savings and efficiencies and £4.576m additional income) and three-year growth changes to service budgets of £50.190m as set out in Appendices 3 and 4;

d)           the budgeted net drawdown from earmarked reserves in 2025/26 totalling £3.945m, as set out in paragraph 10.2;

e)            the Housing Revenue Account budget for 2025/26 of £57.304m as set out in Appendix 5 and the average increase of 2.7% in social dwelling rents from April 2025;

f)             the allocation of £117.432m Dedicated Schools Grant (DSG) as set out in Appendix 6;

g)           the General Fund and Housing Revenue Account Capital Programmes totalling £155.487m and £178.261m respectively over the next five years, as set out in Appendices 7a and 7b;

h)           the Strategy for the use of flexible capital receipts to deliver future transformation and ongoing savings as set out in Appendix 8;

i)             the Fees and Charges set out in Appendix 9 of the report; and

j)             the Equalities Impact Assessment as set out in Appendix 10.