Agenda item

Cabinet Member Ben Callard and Jonathan Davies introduced the report and answered the members’ questions with Peter Davies:

 

What are the principal factors that have reduced the projected 2026-27 budget gap from £13.6 million to £11.5 million, and is that reduction sustainable? Are there further proposals to narrow the gap, and how is this reflected in the four-year planning range?

 

A major factor is the way demand pressures have been treated in the modelling. Demand pressures are additional costs arising from increased demand for services such as social care, Additional Learning Needs support and waste collections, beyond normal pay and price inflation. Instead of automatically building assumed demand growth into the 2027-28 forecast, services are now required to provide evidence of the pressures they expect to face. They must demonstrate activity levels, unit costs and how they plan to mitigate demand. This creates a stronger challenge process and avoids relying on broad assumptions. The intention is to understand and test pressures in detail before incorporating them into budget forecasts, rather than accepting them automatically. The same approach is being applied across the four-year planning period so that future assumptions are more evidence-based and sustainable.

 

Does the budget timetable provide sufficient opportunity for elected members to scrutinise and influence the budget-setting process?

 

The process has been brought forward by around two weeks compared with previous years. This gives officers more time to gather and test information while maintaining robust challenge through the finance team, senior leadership and scrutiny committees. The timetable is considered to contain all the necessary stages for scrutiny and challenge before draft budget proposals are developed. However, there remains uncertainty because the council depends on funding information from Welsh Government, which in turn depends on decisions taken by the UK Government. This means that much of the key information does not become clear until late November or December, creating pressure on the timetable. Greater certainty through multi-year settlements would improve longer-term planning, but within the current system the timetable is considered workable and should allow the budget to be agreed before the local elections in May.

 

The report identifies significant financial risks, but how will those risks actually be resolved? The council faces a four-year funding gap that could reach £31.4 million in the worst-case scenario. What will be done to address this?

 

The current report is intended to provide an updated financial planning framework rather than set out the solutions. Detailed responses to the budget challenge will come through the draft budget process. Compared with recent years, the position has improved significantly, with a potential budget gap of £6.5 million in the adverse scenario rather than the much larger gaps faced previously. The council intends to manage the challenge through robust scrutiny of service pressures, savings proposals, income opportunities, demand management measures, and the wider "For Purpose on Purpose" change programme. The financial outlook remains uncertain and will be refined as more information becomes available from UK and Welsh Government budgets.

 

School deficits are running ahead of the agreed recovery plans. The forecast cumulative deficit is £9.337 million compared with around £7.119 million on the recovery trajectory. What will be done to address this and improve confidence in school budget planning?

 

Around £1.4 million of the variance is linked to pressures within the pupil referral service, which is a highly demand-led area. Work is underway to address those pressures and the issue continues to receive significant attention through scrutiny and council discussions. The approach is to work with schools over time to reduce deficits in a managed way, recognising that the council does not have unlimited resources to provide additional funding. There are formal intervention powers available if necessary, including taking control of school budgets, but that would be regarded as a last resort. The position is not unique to Monmouthshire, with most Welsh local authorities also carrying cumulative school deficits.

 

Does the £4.5 million mid-range budget gap fully reflect service pressures in areas such as social care, homelessness, Additional Learning Needs and transport?

 

Demand pressures remain one of the greatest uncertainties within the financial model. Rather than automatically building assumed pressures into forecasts, services are now being required to provide evidence of actual demand, costs and mitigation measures. Any additional pressures will need to be justified through the budget process before being incorporated into future forecasts. The financial model will continue to be updated as evidence becomes available and as the assumptions are tested.

 

The ‘For Purpose on Purpose’programme is expected to be a key part of addressing the medium-term funding gap, but no financial benefits from it have yet been built into the forecasts. Any savings, cost avoidance or other benefits will only be included once there is evidence around delivery, ownership, timing and risks. Themes such as prevention and artificial intelligence may not generate substantial savings immediately, but are expected to become increasingly important in helping the council manage costs and demand over the longer term.

 

Is there a risk that increasing capital pressures and £5.564 million of unsupported borrowing will leave the council with deteriorating infrastructure, including roads, bridges, schools and council buildings?

 

Infrastructure pressures are recognised as a major challenge. In future years, investment in highways infrastructure, bridges, culverts and other assets is expected to become a greater priority within the capital programme. Any use of unsupported borrowing will need to remain affordable, prudent and sustainable under the Prudential Code. Decisions about future capital investment will need to balance financial constraints against the need to maintain and improve essential infrastructure.

 

As Wales moves towards removing profit from children's residential care over the next few years, do we have a clearer understanding of how care providers are responding? Are providers looking to convert to not-for-profit models, leave the market, or make other changes, and what could this mean for the council's future capacity and costs?

 

From a financial perspective, a key issue is ensuring that Welsh Government funding supporting the programme remains sustainable and secure over the long term. As the policy changes draw closer, certainty over both the amount and duration of funding will be essential to allow councils to develop the necessary services and provision with confidence.

 

What are the potential implications for the council's own residential care provision, foster care arrangements and future social care cost pressures as these changes are implemented?

 

The financial concern is that many social care services rely heavily on annually allocated Welsh Government grants. Greater certainty about future grant funding is needed so that councils can plan effectively, establish alternative provision where necessary, and manage future demand and cost pressures. This applies across the authority but is particularly significant for children's and adults' social care services.

 

– ACTION: to receive more detailed responses from the Director of Social Care

 

If inflation rises above current assumptions, or if Welsh Government funding is lower than forecast, what contingency plans are in place and how would services be protected?

 

The report uses a range of planning assumptions, including an adverse scenario which already assumes higher inflation than current levels. The purpose is not to predict exactly what will happen but to illustrate the possible implications of different circumstances. If funding or inflation differs from the assumptions, the outcome will also differ. Any further financial pressure would create additional challenges for service delivery, but it is too early to identify specific service impacts because the council is not yet at the stage of developing detailed budget proposals. The current exercise is testing whether the assumptions being used are reasonable before moving into the budget-building phase.

 

What plans are in place to replenish council reserves?

 

The medium-term forecasts for reserves are set out in the report's reserve projections. The council's reserve position can change depending on financial performance during the year. For example, the position improved last year because the council ended the year with a budget surplus. The forecasts provide the current expected trajectory for both general and earmarked reserves, but these will continue to evolve as financial circumstances change.

 

When will more certainty become available about funding and other key assumptions so that there is more confidence in the budget position?

 

Greater clarity is expected later in the budget process, but much depends on decisions made by UK and Welsh Governments. Significant information about settlements, grants and funding allocations often does not become available until November and December, and in some years uncertainty has continued even after the draft budget has been published. The council therefore has to plan and make assumptions before all the information is known, adjusting its position as more certainty emerges. This uncertainty has become a normal feature of the budget-setting process.

 

Although the report shows overall reserves remaining at around 5% of revenue expenditure, does that mask the true position once school deficits are taken into account? If school deficits are approaching £9.5 million and the Council Fund is around £12 million, does that mean the genuinely available non-earmarked reserves are closer to £2.5 million, or less than 1% of expenditure? How significant is that risk as the council enters what has been described as a particularly challenging financial period?

 

The quality and composition of reserves is just as important as the overall headline figure, which is why the report separates out the different reserve categories. The projected school deficit is already built into the forward projections, including the forecast increase to around £9.3 million. The recovery of school balances over time will therefore be critical to maintaining the council's overall financial resilience. The school deficit effectively has to be managed through the council's wider reserve position, which increases the importance of restoring those balances. The council also has around £8.7 million of reserves available for strategic use, and those reserves will need to be used carefully to achieve the greatest benefit over the next three to four years, particularly in supporting the change programme and providing the upfront investment needed for transformation initiatives. While the projected reserve levels remain within the council's target range, recovery of school balances remains a key factor in maintaining that position and managing financial risk.

 

What support is being provided to help directorates identify and deliver savings? Are there people driving change and helping services review their processes, and how confident are we that the planned savings will actually be achieved?

 

There is evidence that service changes are already improving financial performance. The council is forecasting and controlling spending more effectively than in previous years, despite continuing demand pressures. Services have undertaken significant work to improve efficiency and manage growing demand, particularly in social care and education. Although forecasting remains difficult in demand-led services, there is greater confidence in the financial information coming from services than in previous years. Detailed questions about changes within individual services would be best directed to the relevant Cabinet Members or chief officers.

 

How much progress has been made on the For Purpose on Purpose (FPOP) programme, and can it realistically deliver the benefits needed to help address the 2027-28 financial challenge?

 

The programme's themes and ambitions must be separated from specific, costed projects that can demonstrate measurable benefits. Savings or other financial benefits will only be included in the budget once there is robust evidence that they can be delivered. Some initiatives may generate direct cash savings, while others may prevent future costs from arising. Cost avoidance is regarded as just as important as cash savings, particularly in areas such as prevention, social care, Additional Learning Needs and homelessness. The council is therefore maintaining a disciplined approach and will only incorporate benefits into the financial model when they are supported by evidence.

 

Can you provide an example of how FPOP is influencing service planning and future savings?

 

One example relates to waste services. The council is examining how digital technology, data and artificial intelligence can help respond to future changes such as the Deposit Return Scheme and the introduction of kerbside collection of soft plastics and films. The aim is to ensure decisions made now do not limit future options. These changes may not necessarily reduce costs in cash terms, but they could help prevent costs from increasing as much as they otherwise would. This type of long-term planning is a key part of the programme.

 

How is the council improving consultation and engagement with residents, given concerns that communication is not always reaching local communities?

 

Consultation remains a challenge. The council recognises its importance and is continually looking for better ways to engage residents. Participation levels in consultations are often low unless particularly controversial issues are involved. Traditional communication methods have become less effective, while some people are also moving away from social media, which creates further challenges. The council continues to explore different ways of reaching residents and regards improving engagement as an ongoing priority.

 

How far has the FPOP programme been disseminated beyond Cabinet and the Senior Leadership Team, and how confident are you that its benefits will be realised in time to assist with future budget pressures?

 

The programme's themes are being translated into specific pieces of work, but it is important to maintain discipline by only counting benefits when there is clear evidence, ownership and delivery plans. Some benefits will take time to emerge, particularly those linked to prevention and transformation. The challenge programme should be viewed as a long-term process rather than an immediate source of large savings. Scrutiny of the programme's progress is both expected and welcome as it develops. – ACTION: to obtain more a detailed response from the Deputy Chief Executive

 

Chair’s Summary:

 

The Chair suggested that the graph showing school balance projections in section 6.3 of the report should be updated before the report goes to Cabinet. He noted that the graph was already out of date, as it showed a projected cumulative school deficit of around £7.1 million whereas the latest forecast discussed during the meeting was £9.337 million. He argued that, given the speed at which the position had changed, retaining the older figure presented a misleading picture and that the graph should be revised to reflect the current forecast.

 

He thanked the Cabinet Member and officers for the report and their responses to the committee’s questions. The report was moved.