Medium Term Financial Plan 2023 – 2028

Introduction from the Lead Member Governance, Finance & Corporate Services, Cllr Joanne Bell

Medium-Term financial planning is a key part of South Tyneside’s policy and budget framework. Driven by our new Strategic Plan and the ambitions within it, it sets out our strategic approach to the management of our finances, within which delivery of our priorities will be progressed.

Like all local authorities, South Tyneside Council operates within a framework of statutory obligations that are shaped by wider political and legislative powers.

Wider factors which influence what we can deliver

This document covers the period 2023-24 to 2027-28 and is subject to annual review. This helps to ensure our financial planning is responsive to changing national and local factors, taking into account emerging risks and to protect our financial health. This document also sets the Council’s budget for 2023-24.

Our key financial planning principles are:

• Financial sustainability over the long and short-term
• Planning over multi-year horizon
• Alignment of decisions with Strategic Priorities
• Availability of investment and savings choices which are clear and transparent
• Explicit linkages between capital budgets and revenue investment / costs
• Risk mitigation against existing and emerging macro cost pressures

Working with our partners, we have delivered a huge range of services and successful outcomes for both the residents and businesses of South Tyneside, including:

Financial Challenge

These are seriously challenging times for local people, businesses and for local councils. Across the country, councils are grappling with balancing budgets and keeping frontline services going. The cost of living crisis is clearly and understandably at the forefront of people’s minds and a key focus for the Council whilst also dealing with rises to inflation, energy and fuel costs.

This coupled with increases in demand for Adults and Children’s social care post Covid-19 and the increased costs of these services means that the Council needs to spend more money to continue to deliver our current services. Recent Central Government announcements indicate that future funding for councils beyond the lifetime of this parliament will be extremely tight.

In 2021 Central Government announced major changes to adult social care funding in respect of how we pay for care and how individuals pay towards the cost of their care. Whilst some aspects have been delayed, the financial impact of the reforms has the potential to be significant and there is a great deal of uncertainty associated with this going forward particularly if the costs of the reforms are not fully funded by Central Government. We are continuing to work with Government and in respect of the reforms and our care providers to further understand the impacts for the Council.

We continue to adapt to our evolving circumstances and explore new and different ways to deliver our services in the context of a reducing core Government grant. Our core Central Government funding has reduced by 52% since 2010. A series of one-year financial settlements from Central Government makes taking a long-term view of services and finances extremely difficult.

The Council receives 63% of its income from Council Tax payers, retained business rates and use of reserves. Previous cuts to Central Government funding and demand pressures have meant that councils now rely much more on local tax revenues for their overall funding. The budget has been calculated incorporating an increase of 4.95% in Council Tax for 2023/24. 2% of this increase relates to the adult social care levy contributing towards the funding gap within Adult Social Care services.

Assessing Potential Impacts

Councils have a duty under the requirements of the Equality Act 2010 to consider the impact of their decisions on people with ‘protected characteristics’. There are nine protected characteristics identified by the Act: age, disability, gender reassignment and identity, marriage and civil partnership, pregnancy and maternity, race, religion or belief, sex and sexual orientation.

We are committed to embracing the principles of equality, diversity and inclusion (EDI) in everything that we do. For example, we now have an elected member portfolio and lead and also an elected member champion to promote the principles of EDI. We have also taken steps to increase and positively acknowledge the diversity within our workforce through a number of collaborative forums. One of our new core ambitions is also to “target support to make things fairer” which will underpin our aim of reducing inequality. We are currently self- assessing our approach and performance against the Equality Framework for Local Government which will inform future actions.

As part of setting our budget we carry out Equality Impact Assessments (EIAs) of proposals that will result in a change to services or policies in the next financial year to understand the impact of these changes on our population and to make sure we do not discriminate against individuals or groups. This will support us in making fair, transparent and evidence – based decisions.

Sustainability

We are committed to supporting a sustainable borough which deals with the challenges of climate change. The Council agreed a strategic plan Sustainable South Tyneside 2020 - 25 to move towards a carbon neutral future. The Council continues to lead the Sustainable South Tyneside agenda, mobilising investment and delivering a range of projects to reduce greenhouse gas emissions from the Council’s operational activities.

Major projects include investment in renewable energy schemes across the borough which will significantly cut carbon emissions whilst providing heating and electricity to a number of buildings. We are also delivering the Stronger Shores project as a nature-based solutions which will help protect against coastal erosion and flooding.

We are supporting awareness and behavioural change around climate change, promoting a shift towards sustainable and active modes of transport. This includes adoption of an agile working policy within the Council which has reduced emissions from fewer private car journeys. We are also investing in greater electrification of our own vehicle fleet and continuing the replacement of street lighting with energy efficient LED bulbs.

How we fund our Budget

The table below sets out the Council’s forecast level of funding for the period 2023-24 to 2027-28. The table indicates that the Council has four main sources of funding; government grants, council tax, business rates and council reserves.

Forecast level of funding for 2023/24 to 2027/28

	2023/24	2024/25	2025/26	2026/27	2027/28
Government Funding
Revenue Support Grant	17.312	17.658	18.011	18.372	18.739
Business Rates Top Up	36.748	37.483	38.233	38.997	39.777
Services Grant	2.000	2.000	2.000	2.000	2.000
Subtotal Government Funding	56.060	57.141	58.244	59.369	60.516
Collection Fund
Council tax	72.275	76.312	78.975	81.716	84.539
Retained business rates	13.409	13.677	13.951	14.230	14.514
Collection Fund Contribution	0.500	0.500	0.500	0.200	0.200
Sub total collection fund	86.184	90.489	93.426	96.146	99.253
Use of reserves
Rate relief	1.450	0	0	0	0
General use of reserves	8.630	2.354	-1.744	-0.344	1.054
Subtotal use of reserves	10.080	2.354	-1.744	-0.344	1.054
Total general fund budget	152.324	149.984	149.926	155.171	160.283

Government Funding

The Local Government Finance Settlement announced in December 2022 only provided confirmation of funding for 2023/24.

The provisional settlement was announced on 19 December 2022. Our core spending power will increase from £164.7m to £181.9m, an increase of 10.5%, which compares with an all-England average of 9.2%. This includes:

• Settlement Funding Assessment increase from £64.9m to £68.6m, an increase of 5.7%. The increase of £3.7m relates to:
  • The Revenue Support Grant (RSG), which will increase from £15.4m to £17.3m, an increase of 10.3%;
  • Rolling in of the following previously separate grants into RSG: Family Annex Council Tax Discount grant (£0m), Local Tax Support Admin subsidy grant (£0.3m) and food safety and standards enforcement (£0m);
  • Baseline Funding Level, which is the government’s notional measure of business rates income due to councils and incorporates the Business Rates Top-Up Grant has increased from £49.5m to £51.3m, an increase of 3.6%.
• Improved Better Care Fund will remain at £10.5m for 2023/24, the same as received in 2022/23.
• New Homes Bonus will decrease from £0.570m to £0.004m, a decrease of 99.4% compared to an all-England average reduction of 47.7%. This is due to a reduction in the number of annual payments to be received in 2023/24 from two (2021/22 and 2022/23) to one (2023/24).
• Social Care Grant will increase from £10.7m to £16.7m, an increase of 56.6% compared with an all-England average increase of 37.2%. This will result in our share of the total grant reducing slightly from 0.46% to 0.43%, which equates to £0.456m. The majority of the increase is the result of savings from delaying the rollout of adult social care charging reform, however the funding has still been made available to local authorities to help meet the current huge pressures in social care.
• Market Sustainability and Fair Cost of Care Grant will increase from £0.618m to £2.143m, an increase of 247%, compared to an all-England average increase of 247%. This funding, which totals £562m nationally, is the second instalment of the additional funding highlighted in the Spending Review 2021 for the reform of adult social care.
• Lower Tier Services Grant has been removed at all-England level (£111m in 2022/23) and repurposed to create a new one-off Funding Guarantee to ensure all authorities see at least a 3% increase in their Core Spending Power. As our Core Spending Power has increased by 10.3%, we have not received a share of this funding, of which we received £0.293m in 2022/23.
• Services Grant will reduce from £3.4m to £2.0m, a decrease of 41.2% compared to an all-England average reduction of 41.2%. This is in part because there is no longer an increase in National Insurance contributions which formed part of the basis of additional funding in 2022/23. In addition, some funding has been re-directed to increase the funding for the Supporting Families programme and to pay for other parts of the settlement such as increasing Revenue Support Grant.
• A new Discharge Funding Grant totalling £1.5m will be received in 2023/24. This funding, which totals £300m nationally is to ensure those people who need to draw on social care when they are discharged from hospital can leave as soon as possible, freeing up hospital beds for those who most need them. Local Authorities will be required to pool this funding as part of the Better Care Fund.
• Government assumption that Council Tax will increase by 4.99%.

The final settlement was announced on 6 February 2023 and contained only minor changes to the provisional settlement.

Council Tax

Section 30 of the Local Government Act 1992 requires the Council to set an amount of Council Tax for each financial year for each category of dwellings in its area.

A council tax bill is made up of several different charges. Alongside the charge to fund council services, which is inclusive of levies from external bodies to support functions such as transport and flood defence, the overall council tax level set for the borough includes precepts for the Tyne & Wear Fire and Civil Defence Authority and Northumbria Police and Crime Commissioner. From 2017/18 councils with responsibility for adult social care have been given the ability to raise council tax by an additional levy to cover a funding shortfall in this area. The figures below include a 2% increase in respect of Adult Social Care and a 2.95% annual increase. Due to the pressures within Adult Social Care, there will still remain a significant funding gap.

The amount payable for dwellings in different valuation bands is calculated using the following proportions for each valuation banding:

Thus giving the following council tax amounts for the South Tyneside area (including a 2% precept to fund adult social care but excluding other precepts).

To these must be added the precepts of Tyne & Wear Fire and Civil Defence Authority and the Northumbria Police and Crime Commissioner. Tyne & Wear Fire and Civil Defence Authority have confirmed a precept increase of 5.72% and the Northumbria Police and Crime Commissioner an increase of 9.75%.

These result in the following council tax amounts (including precepts):

Retained Business Rates

The Council collects Business Rates in the borough and keeps 50% of the collected rates income. The other 50% is passed to Central Government which is then distributed back to councils as a top-up grant to reflect individual spending requirements.

Council Reserves

The Council aims to establish reserves based on financial risk and limit the use of reserves to support on-going spending. More detail on our risks and reserves held is shown in Chapter 3.

Priority Investment

Our investment choices are guided by our strategic risks. For example, we are investing in a hosted disaster recovery system, recognising the significant risk around a cyber-attack on the Council. Other strategic risks include insufficient funding and increased demand in Adult Social Care as well as financial risks around inflation, energy prices etc.

Work continues to further align our resources to achieve our priorities and to generate future savings through our five-year budget planning process.

A list of the priority investment for 2023/24 is shown in the table below:

The priority investment is also shown by ambition in the chart below:

Inflationary and Standstill Pressures

Price inflation is currently running at a recent historical high of 11%. Many of our contracts (especially our adult social care contracts) are linked to various inflation factors in the Consumer Price Index, including the national living wage. There are also unprecedented increases in utility costs as well as unexpected increases in pay awards. Demands upon adults and children’s social care continue to increase as an after effect of the Covid-19 pandemic This all means that the Council has to spend considerably more just to continue providing the same services. A list of the standstill pressures for 2023/24 and estimates for 2024/25 to 2027/28 is shown in the table below:

Summary Medium-Term Financial Position

Taking into consideration our funding, priority investment and standstill pressures, the table below gives a summary of our medium-term financial position for 2023/24 to 2027/28.

The diagram below shows our revenue budget for 2023/24 by Directorate. Appendix 1 provides more detail on the 2023/24 budgets for each service.

Budget Savings

The funding we estimate to receive from Central Government and from Council Tax payers over the next five years is not sufficient to cover our current level of spend plus our new budget pressures. Therefore, to make sure we can continue to focus spending on our priorities and ambitions, we have identified proposals for reducing spending, generating income and increasing efficiency across all of the Council’s services for 2023/24. This will mean that our spending plans are affordable and match the money we expect to receive. Further work will be required to address funding gaps from 2024/25 onwards.

Plans for reducing spending, delivering new models of service, additional income and increasing efficiency in 2023/24 are shown in the following table.

Dedicated Schools Grant (DSG)

The Council will receive £156.584m Dedicated Schools Grant (DSG) in 2023/24 which is ringfenced for the education of children. From this amount the Department for Education (DfE) will recoup the funding for academies in South Tyneside and external commissioned High Needs places, which is estimated to be £48.67m.

DSG is allocated over four blocks of funding. Local authorities can only switch resources between blocks with the permission of the Schools Forum and / or Secretary of State. The four blocks through which DSG is allocated consists of:

• Schools block (covering provision in mainstream schools from Reception to Year 11. The 2023/24 notified allocation is £115.640m before recoupment.
• Central Services Schools block which covers commitments such as Admissions and certain prescribed statutory and regulatory duties. The 2023/24 notified allocation is £1.919m.
• Early Years block covering nursery schools, nursery classes and Private Voluntary and Independent sector providers of early years provision (PVIs). The 2023/24 notified allocation is £10.720m
• High Needs block covering pupils with high needs – defined by the DfE as those requiring provision costing in excess of a given threshold. The 2023/24 notified allocation is £28.305m before recoupment.

Risk Assessment

Over the medium-term the Council faces continuing financial pressures as well as investment needs and has refocused its priorities and built budget redirections and savings targets into the spending plans for 2023 to 2028. The Council carefully identifies the things that could go wrong and might undermine the MTFP.

To do this an assessment is made of what the impact would be if these things happen and how likely they are to happen. The Council ensures that it has plans in place in case things do not turn out as expected. This is part of our risk management strategy, which underpins all that we do, not just our financial plans.

The significant financial risks are identified on the Council’s strategic risk register. They have all been assessed as part of the strategic planning process. These risks are being actively managed and the estimated financial implications have been built into this MTFP.

Some of our strategic risks have been assessed as particularly uncertain with a potentially significant financial impact. Reserves have been established for these risks.

The following table identifies the key risks to the delivery of the MTFP, the actions taken (within this financial plan) and the actions proposed to reduce the impact of these risks on the Council’s future financial position.

Strategic Financial Risk and Risk Management

Planned Use of Reserves

The level of Council reserves is reviewed annually in line with CIPFA guidance. Our Reserves Policy is shown at Appendix 2.

Our forecast Use of Council reserves is shown in the table below.

The Housing Revenue Account (HRA) is required to be maintained by councils who provide housing accommodation. It records the income and expenditure in relation to the management and maintenance of homes and keeps this separate from other council activity.

All rents collected are retained in this separate account; they support the management, day-to-day repairs and maintenance, and a capital investment programme which includes planned renewals, improvements to homes and major repairs.

South Tyneside Homes Limited have been delegated management of the housing service under the terms of a management agreement with the Council, approved by the Secretary of State under section 27 of the Housing Act 1985.

The Council retains a legal duty to set a budget, which avoids an unplanned deficit on the Housing Revenue Account, a duty which cannot be delegated. The Council also retains ownership of the homes, sets the level of rents and charges and is the landlord under the tenancy agreements.

The following table shows provisional HRA expenditure and income plans for the following 5 years.

Housing Revenue Plans for 2023/24

Rent levels are proposed to increase on average by 7% in line with government guidelines. Reserves are planned to be prudently applied in the next few years to support the Housing Capital Programme.

Service Charges for 2023/24

Most service charges for 2023/24 are proposed to be increased by 7% as set out in Appendix 3.

The Council administers the Local Government Pension Scheme for the Tyne and Wear and Northumberland County areas and is responsible for agreeing the Pension Fund budget each year. The cost of the Pension Fund does not fall directly on the Council Taxpayer.

The table below summarises the spending plans for the Fund for 2023/24 and provisional spending plans for 2024/25 and 2025/26. This is due to be presented to the Pensions Committee for consideration on 31^st January 2023.

The budget for 2023/24 shows an increase of £21.666m over the revised 2022/23 budget. Further increases are projected of £19.903m in 2024/25 and £5.912m in 2025/26.

Investment management expenses dominate the budget. This budget has been formulated in line with industry best practice and is a full estimate of the fees, expenses and costs associated with the investment management of the Fund.

The table below analyses the budget proposal for the next three years.

The increase in investment management expenses is attributed to increased costs related to private market investments which typically attract higher fees and expenses than quoted assets, but also have produced greater investment returns net of fees and expenses. The Fund is increasing its use of these type of investments over the next few years which is leading to a material increase in fees and expenses for the first two years.

The Investment Management expenses line also includes the costs and expenses incurred in transacting the Fund’s assets. For the next two years, significant costs are expected to be incurred in moving assets to an investment management company, part owned by the Fund, called Border to Coast Pensions Partnership. This stems from a Central Government directive whereby Local Government pension funds have been asked to combine their assets to create larger investment pools. As assets transfer to Border to Coast, costs are incurred. This however, is being offset by longer term savings and improved investment outcomes. By 2025/26, it is expected that most of the Fund’s assets will have transferred to Border to Coast and these costs will then fall out of the budget.

As in previous years the standstill pressure increases relate mainly to staffing costs and other inflationary increases included within contracts. Most of the changes in the budget relate to regulatory changes, essential development or contractual inflation and as such they are included as standstill pressures. In 2025/26, there is a small reduction in standstill pressures, this is because increased costs are offset by some temporary contracts established to help deliver some specific regulatory changes which are due to come to an end.

The growth in the budget relates to new external ICT modules to improve productivity and in 2024/25 there is £0.100m for an ICT refresh programme.

There have been a number of savings identified. The largest is in relation to the ongoing operating charges from Border to Coast, which are falling by £0.438m in 2023/24 and £0.181m in 2024/25. This is because Border to Coast is moving into a business as usual phase, with reduced development work. Further savings have been achieved over the three-year period within the ICT budget line relating to modules purchased in the previous years dropping out. The same is true for Actuarial costs which have fallen as 2023/24 is not a valuation year. The budget for progressing with overseas tax claims falls in 2023/24 and drops out of the budget in 2024/25, on the basis that the claims should all be settled in 2023/24.

Capital Investment Programme

The Capital Investment Programme sets out our investment plans over the next 5 years to support regeneration and help achieve our Ambitions as set out in the refreshed vision and newly adopted Council Strategy which is very much centred around people. We want South Tyneside to be a place where people live healthy, happy, and fulfilled lives. This will be underpinned by our ambitions, which use our resources as efficiently and effectively as possible to ensure services are provided in areas where they are needed.

As national and global uncertainty continues, we know that delivering our plans will be challenging. However, as we have done over the last decade, we will stay true to our ambitions and continue forward in partnership with the passion, determination, and resilience that have become the solid hallmark of the residents and institutions of South Tyneside.

The capital programme is financed by a mixture of external funding, Government grants, borrowing and capital receipts from sales of our assets. These receipts are generated through the disposal of Council land and buildings that are surplus to Council requirements. The target level of borrowing is affordable and consistent with our revenue budget forecasts.

External funding streams have been secured to support the funding of the programme. These include regional funds applied locally to support the overarching economic objectives of the wider region.

Building on strong foundations

Over the last decade, despite the huge challenges posed by national austerity we delivered significant investment, transformational physical regeneration and a range of service improvements some of which are detailed below:

• £100m invested in South Shields regeneration, transforming the borough’s largest town.
• Over £30m invested in leisure and community facilities including Hebburn Central, Jarrow Focus and Haven Point.
• £35m invested in local roads and footpaths.
• £200m invested in new or improved School buildings.
• Improved connectivity, including £8.1m Arches Improvements, £21m South Shields Transport Interchange, £7.5m Lindisfarne/John Reid Road improvements and £120m Testo’s Roundabout works.
• ‘Nationally significant’ International Advanced Manufacturing Park established, which will attract £400m private investment and create thousands of jobs (we have already attracted a new Electric Vehicle battery factory to IAMP).
• Ongoing investment in our award-winning beaches and parks, including £3m North Marine Park improvements and £5m Littlehaven Promenade and Seawall.

Capital Programme supporting Council Vision

We have five ‘Ambitions’ – the things we want to achieve over the next 20 years to help deliver our Vision. These five Ambitions will guide everything we do. The capital programme will help support revenue investment to achieve each ambition through some of the major projects detailed below. The complete spending plan can be found with the Capital and Investment Strategy in Appendix 4.

We want all people in South Tyneside to be:

Residents will be financially secure. They will have what they need for a good standard of living.

Residents will enjoy good mental and physical health throughout their lives. They will have the best start in life and be able to age well.

South Tyneside Council manage 43 traditional playgrounds, 20 multi use games areas and 10 outdoor fitness areas as of the end of 2021. Much of the current play equipment is now over 10 years old and is beginning to fail and is putting a drain on revenue budgets. Planned investment over the next 5 years will Improve and replace some of the children’s play equipment and make some more accessible for users with disabilities to make playgrounds inclusive for all.

Other programmes include:

• Works to improve road safety for school children outside the front of schools.
• An additional classroom at Seaview to provide a more specialist environment for SEND children to be taught and supported.
• Additional classroom, science laboratories and food technology areas to accommodate increase in pupil numbers at Mortimer School.
• Delivering Strategic Cycling / Walking improvements to provide increased connectivity to jobs, education, neighbourhoods and to our attractions.

Residents will have access to jobs, skills, and learning. They will have the skills and confidence to apply for a wide range of quality local jobs. These jobs will be in key and growing areas of employment and benefit all our borough.

Work has already started to relocate South Tyneside College into South Shields Town Centre and we will work with the College to equip local people with the skills and qualifications needed for future opportunities in the low carbon, digital and advanced manufacturing sectors as well as much needed capacity within our health and care workforce including the development of our care academy.

As well as new College buildings, the project includes plans for new campus accommodation, public realm improvements and the restoration of a Grade II listed building in Barrington Street.

Other programmes include:

• Continued investment through the flags to flexible programme which is substantially improving the conditions of our footpaths, reducing long term maintenance issues and improving accessibility for disabled highways users.
• External funding from the Department for Transport utilised for carriageway resurfacing and various road safety initiatives to support the highways asset management plan.
• In partnership with Sunderland City Council we are continuing to develop a joint strategic employment site, the International Advanced Manufacturing Park (IAMP), north of Nissan and west of the A19. The development is well underway with over 550,000 sqft of bespoke industrial space delivered over 3 units and a further 1 million sqft development under construction that will become the base for the region’s first gigafactory.

Residents will live in clean, green, and connected communities where they feel safe.

The Council continues its transformation of Holborn Riverside into a vibrant mix of new dwellings and office space. This project will see the development of sustainable businesses and residential communities which broaden the South Tyneside offer and builds upon previous investment in South Shields Town Centre.

Holborn civil engineering works delivering major ground improvements, removing redundant structures and alleviating flood risks to help support future development.

The Council is also committed towards a sustainable future, striving towards carbon neutrality across Council buildings and operations by 2030.

Other programmes that contribute towards this agenda and ambition include:

• Continued investment in renewable energy schemes at Hebburn, Holborn Renewable energy centre and Viking energy network Jarrow to utilise a combination of renewable technologies to create an innovative energy network, to provide heating and electricity to a number of buildings. These schemes have the potential to cut carbon emissions by 22% whilst saving the Council more than £800k per year.
• Using externally sourced funds to deliver the Stronger Shores project which will deliver a number of innovative resilience actions, including restoration of sub tidal habitats to protect against coastal erosion and flooding.
• Demolition of the former caretaker bungalow at South Shields crematorium to extend the current car parking facilities due to increased demand for available parking spaces.
• A fleet replacement programme, projected over the next 8 years, intended to renew and replace vehicle assets at the optimum time to drive maximum value and usage whilst at the same time minimising the exposure to increased maintenance, repair, running and hire costs.
• The Housing capital programme will ensure that homes we maintain are safe for the tenants within them and that they are compliant with all regulations whilst ensuring sustainability across the borough.
• The development of specialist accommodation including for adults with learning disabilities and or autism and the exciting plans for our new extra care schemes all support our commitment for people to remain a part of their communities.

And we want these things for every resident, so we are committed to:

We will target support at the residents and parts of our borough that need it the most, reducing inequalities and making things fairer.

We have submitted plans to develop a purpose built children’s assessment centre at Seton Avenue, South Shields and two new children’s homes, one in Jarrow and one in Hebburn to provide additional residential capacity to ensure more children from South Tyneside are able to be supported within the borough.

The new homes would cater for children who for whatever reason cannot live with their birth families.

Currently there is only one Children’s residential home in the borough accommodating a maximum of up to four young people at once, this means that young people cannot always be accommodated in the borough close to friends and family.

Other programmes include:

• Continued investment in its 5 Community Area Forums (CAFs), each covering a particular area of the borough. The role of the CAFs is to discuss matters important to local people to provide a proactive service within local areas such as clean streets, fly tipping, anti-social behaviour and tenancy related issues.
• Community improvements - This project will manage the current condition or manage improvements to sites to increase the site sustainability, safety and provide future development opportunities.

2023-28 Capital Programme

The provisional five-year Capital Programme for 2023-28 linked to the Councils Vision and ambitions is shown below. A breakdown of the individual projects within each year is detailed within the Capital and Investment Strategy at Appendix 4.

The estimated funding of the five year capital programme is shown below. A breakdown of each year is detailed in the Capital and Investment Strategy at Appendix 4.

The Treasury Management and Annual Investment Strategy is a requirement of the Local Government Finance Act 1992, the Local Government Act 2003, the Local Authorities (Capital Finance and Accounting) (England) Regulations 2003, the Chartered Institute of Public Finance and Accountancy (CIPFA) Code of Practice on Treasury Management, the CIPFA Prudential Code for Capital Finance in Local Authorities and guidance on Investment Practice from the Department for Levelling Up, Housing and Communities.

It is a statutory requirement of the Local Government Finance Act 1992 that the Council produces a balanced budget. Section 31(a) of the Act requires a local authority to calculate its budget requirement for each financial year to include the revenue costs that flow from capital financing decisions. This means that increases in capital expenditure must be limited to a level whereby increases in charges to revenue from:

• increases in all debt charges to include Minimum Revenue Provision caused by increased borrowing to finance additional capital expenditure, and
• any increases in running costs from new capital projects are limited to a level, which is affordable within the projected income of the Council for the foreseeable future.

The Local Government Act 2003 requires the Council to set out its Treasury Strategy for borrowing and to prepare an Annual Investment Strategy.

The Council has adopted the CIPFA Code of Practice on Treasury Management in the Public Service. Within this document Treasury management is defined as:

The management of the local authority’s borrowing, investments and cash flows, its banking, money market and capital market transactions; the effective control of the risks associated with those activities: and the pursuit of optimum performance consistent with those risks.

The Treasury Management Strategy included at Appendix 6 to this report comply with the CIPFA Code, which requires the Treasury Management Strategy to be approved by the Council prior to the start of the financial year.

The Local Government Act 2003 also requires the Council to “have regard to” a further CIPFA Code called “The Prudential Code for Capital Finance in Local Authorities”.

The key objectives of the Treasury Management Code and the Prudential Code are to ensure, within a clear framework, that the capital investment plans of local authorities are affordable, prudent and sustainable and that Treasury Management decisions are taken in accordance with good professional practice.

To demonstrate that local authorities have fulfilled these objectives, the Treasury Management Code and the Prudential Code set out indicators that must be used and factors to be taken into account. The indicators and factors that apply to Treasury Management are contained in the Strategy attached at Appendix 6 to this report.

The Treasury Management Strategy and the Annual Investment Strategy have both been discussed and agreed with the Council’s Treasury Management Adviser, Link.

The Council’s Treasury Management covers two areas:

Part 1 – South Tyneside Consolidated Loans Fund

This covers the Council’s borrowings and contains the Treasury and Prudential Indicators required by the Treasury Management Code and the Prudential Code.

Part 2 - Annual Investment Strategy

This concerns the investment of the cash balances of the Council. Priority is given to the security of the capital sum and the liquidity of investments.

The requirement for financial reserves is recognised in statute by sections 32 and 43 of the Local Government Finance Act 1992. Councils must have regard to the level of reserves needed for meeting estimated future expenditure when calculating the budget requirement.

Reserves can be held for a variety of purposes such as to cushion the impact of unexpected events and emergencies or as a means of building up funds to meet known or predicted liabilities.

The principles used by the Chief Financial Officer (CFO) to assess and advise on the adequacy of reserves when setting the budget ensure that account is taken of the strategic, operational and financial risks facing the Council. This includes for example the Council’s record in budget and financial management, its capacity to manage in-year budget pressures and the current and projected external financial environment. Under the Local Government Act 2003, the CFO must report to Council on the adequacy of reserves. As an ultimate backstop, the CFO is required to report to all councillors under section 114 of the Local Government Finance Act 1988 in the event that reserves are seriously depleted and has the impact of suspending spending except to meet statutory obligations.

In accordance with good financial practice, the Council holds a number of reserves as below:

Unearmarked General Fund Reserve

This reserve is held to manage the impact of any unplanned overspends within the Council’s General Fund budget. The policy objective is to hold a minimum balance in this reserve of £10m.

Future Funding Reserve

This reserve is held to support medium-term requirements to balance the budget taking account of changes to grant funding, inflationary and demand pressures, financial shocks as well as investment needs. The policy objective is to hold a minimum balance of £10m within this reserve.

Various Earmarked Reserves

These are held to meet expected and potential liabilities or specific investment requirements. Examples include emergency events such as unforeseen financial costs or dealing with a natural disaster, claims against our self-insurance fund, future payments due under PFI contracts, ongoing commitments following the Covid-19 pandemic, monies to support economic development, volatility within the Collection Fund which deals with the income and expenditure relating to council tax and business rates etc. It also includes reserves ringfenced by statute such as the Housing Revenue Account and reserves held on behalf of schools.

Please see Capital and Investment Strategy: 2023-2028

1. The Minimum Revenue Provision (MRP) is the charge made to the revenue account to reflect repayment of borrowing over the useful life of the assets that have been funded from that borrowing. The Council has regard to the guidance issued by the Secretary of State under section 21(1A) of the Local Government Act 2003 and any subsequent updates.
2. MRP is charged in the year following that in which an asset is brought into use.
3. MRP will be spread over a period which reflects the life/beneficial use of the asset and is normally no more than 50 years. A longer life may be given if it is deemed by a professional that the asset life will exceed 50 years.
4. These periods are determined for MRP purposes only, and the Council may account for depreciation of assets differently under the Code of Practice on Local Authority Accounting, after having had regard to the different conditions that apply for such accounting purposes.
5. The Council has in place a loan finance facility with South Tyneside Housing Venture Trust Limited. MRP will be charged to match the annuity loan repayment profile from the Company over the life of any loans issued as part of this agreement. Should the Council wish to switch the type of loan repayment profile to Equal Instalments of Principal then the Council reserve the right to do this. The Council also has a finance agreement with Centaurea Homes Limited. MRP will be charged in the year the loans are repaid and will match the value of the principal repayment. For any future finance agreements that the Council enters into, the MRP charged will be matched to the loan repayment profile, including for PFI and finance lease arrangements.
6. The Council also determines that available resources for financing capital expenditure, such as capital receipts and external funding, will be applied to new expenditures in a manner that is considered appropriate in any financial year. For example, it will be considered financially efficient to apply such resources in the first instance to expenditures that have a shorter estimated lifespan. Capital receipts may also be utilised to partially offset some or all of the MRP charge due for the year.
7. It is the Council’s intention to either apply housing receipts to appropriate capital schemes or to use them as a means of repaying debt, whichever is deemed more appropriate.
8. In cases where expenditure is incurred on only part of a scheme which is not completed by the year end, any grant or similar financing resources will be either allocated to other new expenditures or carried forward as appropriate. Final decisions regarding the manner in which such resources are to be allocated to schemes will be taken under delegated powers.

Please see Treasury Management Strategy 2023/24

Please see Pay Policy Statement

Please see Rent Setting Policy 2023