Medium Term Financial Strategy - implications of potential changes in national rules
Briefing for members, staff and the general public
Implications for our Medium Term Financial Strategy of potential changes in national rules on council borrowing and investments.
There are some potential changes to national rules facing all local authorities that relate to how councils borrow and invest money. These would have a potentially substantial impact on our future finances in Uttlesford. We are fully engaged in the consultation process and are already planning on how we may adapt to any new rules if required.
There was a recent newspaper article about this general situation in the Sunday Times. You might have also seen elsewhere that Slough Council is in serious financial trouble. If you saw any of the coverage, you might be worried about our finances. That is why we are talking to you today, to give you some reassurance. To be absolutely clear, unlike some other councils, our current finances at Uttlesford are not in trouble at all. We are in a robust position and good financial health - but our future assumptions and plans are going to need to be different because of changes being brought in affecting all councils.
Here is what is going on, and it relates to how councils borrow and invest:
- CIPFA (the accountancy body for local government) is currently consulting on draft changes to the Prudential Code. This is the financial guidance under which all councils should operate. It is expected that they will make some changes after the consultation. Any changes would affect how much local authorities borrow and invest.
- The government is considering the formalisation of the requirement for Minimum Revenue Provision and the introduction of selective debt caps. These too relate to borrowing and investments.
Although quite complicated and technical, on the face of it the proposed changes might have a very sizeable impact on councils, including us locally. While the scale and nature of changes are not completely clear or finalised, it is important that I share the situation openly. I want to reassure you that we are fully engaged and properly planning for any possible financial impact to Uttlesford.
The reason for the changes is that the government wants to put more controls on councils to make sure they don't get into financial difficulty. This is the result of a few councils getting into trouble because they have borrowed to invest in a risky way, for example, with a high proportion of investment in a single asset.
It is possible we could be more affected by any changes than average councils, simply because (proportionate to our size) we do more borrowing and investing than average, even though we have an excellent, risk-balanced property portfolio that generates a healthy return for the taxpayer.
We are in discussion with both CIPFA and the Government about the details of the changes they are consulting on. These are good conversations from our perspective - I think we understand where they are coming from, and why they are considering these changes. In return I believe they understand that we are ready to adopt changes locally as required, and that flexibility is required in how they should implement any rule changes.
Depending on the final scope and nature of any changes, we will of course need to adjust our financial plans, which would include a different approach to our investments. In turn this would have a knock-on impact on our income, which is used to support our programmes and services. One thing we're proud of at Uttlesford is living within our means while continuing to deliver high quality public services that are valued and needed by our residents. Irrespective of any changes, we will continue to do that.
It is important to contextualise the size of our investment portfolio as a it may be affected by the potential changes. By 2023/24 (which is the first year of full rental income from the assets), we forecast some £7.1 million of income from our investments. This income is important because it allows us to be a low-tax, high service authority. The investment income is used to fund our core £16.2 million spending on public services - that is close to half of our budget next year. In addition it has allowed us to invest in other important discretionary programmes, including £1 million to tackle Climate Change, £1 million to aid post-pandemic economic recovery, and £450,000 for sporting facilities across the district.
We are an authority which takes its finances seriously and it is appropriate we plan. It is too early to tell you how much of a financial impact there will be, but we are undertaking financial modelling. That will allow us to make sure we continue to be prudent and have a financially sustainable new approach. Rest assured, councils have managed their way through many years of financial planning, management and even austerity, so this kind of challenge isn't new to us or other authorities.
We do not expect to hear the results of the consultation or final decisions before Christmas, but we are already planning for any changes and working openly with the government and CIPFA. Expect to see future updates over the coming months as things become clearer.
Peter Holt, Head of Paid Service and Chief Executive
8 November 2021