The report of the Section 151 Officer is attached.

Contact: Duncan Whitfield (01743) 254928

The Committee received the Financial Outturn report for the year 2025-26, presented by the Section 151 Officer. The report outlined an overspend of approximately £50 million for the financial year, primarily due to significant pressures in both adult and children's social care, as well as in corporate areas where savings projections had been overly optimistic and ultimately unachievable. The overspend was supported by exceptional financial support (EFS) from the government, totalling £60 million. It was indicated that EFS would also be required for 2026-27 and subsequent years.

The situation was described as disappointing, with reserves having been drawn down over several years, resulting in critically low levels. The general fund balance at the end of March 2026 stood at £5 million, significantly below the target of £35 million, which represents 7.5% of the net budget. The Medium Term Financial Plan (MTFP) sets out a plan to recover the general fund balance to £35 million over a period of three to four years, but this would necessitate borrowing, incurring debt financing costs of approximately 10% for every pound borrowed. Earmarked reserves for financial risks, such as economic downturns and demand pressures in social care, were equally low. Rebuilding these reserves would depend on windfall budget benefits, which are currently unlikely given the Council’s financial position.

A member raised concerns about the Council’s low reserves and the difficulty of rebuilding them given ongoing financial pressures, asking whether there was a plan to build up reserves and whether this would be prioritised amid competing financial demands. The Section 151 Officer responded by outlining the government’s encouragement for councils to reduce reserves in recent years, which was described as unwise for less well-funded authorities. The plan to recover the general fund balance to £35 million over three to four years was reiterated, acknowledging that this would require borrowing and associated debt financing costs. It was also explained that earmarked reserves would need to be reinforced, but there was no specific plan for achieving this due to the reliance on windfall benefits and the impact of EFS.

The Chair then asked about the unpredictability of care and wellbeing costs, specifically whether there was assurance regarding future forecasting and whether demographic modelling was being undertaken to mitigate shortfalls in future years. The Section 151 Officer explained that the £50 million variation was not strictly an overspend but rather an adverse variation based on unrealistic budgets. Structural deficits in adult social care were cited, where growth in demand had not been reflected in the budget, resulting in the service starting the year with a deficit.

It was stated that the 2026-27 budget would be a year of stabilisation, with growth, inflation, and pay now factored in, providing greater confidence in managing the budget. The importance of forecasting for future growth and managing price pressures was emphasised, particularly in sectors with limited supply such as residential care for children, where prices are driven up by market conditions. Confidence was expressed that starting from a more realistic base would enable better budget management, but it was noted that the effectiveness of this approach would be evident in the quarter one forecast to be presented to Cabinet in September.

RESOLVED:

to note the contents of the report.