Committee Report Checklist
Stage 1
Report checklist – responsibility of report owner
|
ITEM |
Yes / No |
Date |
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Councillor engagement / input from Chair prior to briefing |
yes |
27/10/25 & 28/10/25 |
|
Commissioner engagement (if report focused on issues of concern to Commissioners such as Finance, Assets etc) |
Yes |
03/12/25 |
|
Relevant Group Head review |
|
|
|
MAT+ review (to have been circulated at least 5 working days before Stage 2) |
|
|
|
This item is on the Forward Plan for the relevant committee |
|
|
|
Reviewed by |
|
|
|
Finance comments (circulate to Finance) |
OO |
21/10/25 |
|
Risk comments (circulate to Lee O’Neil) |
LO |
24/10/25 |
|
Legal comments (circulate to Legal team) |
LH |
24/10/25 |
|
HR comments (if applicable) |
N/A |
|
For reports with material financial or legal implications the author should engage with the respective teams at the outset and receive input to their reports prior to asking for MO or s151 comments.
Do not forward to stage 2 unless all the above have been completed.
Stage 2
Report checklist – responsibility of report owner
|
ITEM |
Completed by |
Date |
|
Monitoring Officer commentary – at least 5 working days before MAT |
L Heron |
24/10/25 |
|
S151 Officer commentary – at least 5 working days before MAT |
T. Collier |
22/10/25 & 3/12/25 |
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|
|
|
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Confirm final report cleared by MAT |
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|
Council
Addendum to original report, figures changed since original report highlighted yellow.
11th December 2025
|
Title |
Draft Medium-Term Financial Strategy 2026/27 and Flexible Capital Receipts Strategy |
|
Purpose of the report |
To make a decision |
|
Report Author |
Terry Collier Chief Finance Officer |
|
Ward(s) Affected |
All Wards |
|
Exempt |
No |
|
Exemption Reason |
N/A |
|
Corporate Priority |
Resilience |
|
Recommendations
|
Council is asked to approve: 1) Draft Medium Term Financial Strategy 2) Proposed Flexible Use of Capital Receipts Strategy as set out in Appendix B |
|
Reason for Recommendation |
Changes to the Medium-Term Financial Strategy are reserved to Council. |
1. Executive summary of the report
2. Background, what is a MTFS and what are the elements of a MTFS?
2.1 The MTFS provides a financial framework over a medium-term period within which financial stability can be achieved and sustained, setting out the financial strategies to support the delivery of the Council’s Vision, key strategic outcomes, priorities and sustainable services for both the Council and the successor unitary authority.
2.2 This report sets out a revised Medium Term Financial Strategy (MTFS) for the Council. It addresses the requirements of the Statutory Directions and actions in the Finance Improvement Plan.
2.3 The report is informed by the changes to the Minimum Revenue Provision (MRP) policy and Debt Rescheduling approved at 17.11.25 Full Council and Asset Rationalisation to further mitigate MRP charges and reduce risks. The MTFS draws together the implications to the Council of these changes together with changes to grants, business rates, cost pressures and other demands on the Council.
2.4 Surrey Local Government Reorganisation (LGR) will take effect from 01.04.27 which means Spelthorne will cease to exist as an independent sovereign body from that date. However, so that the estimates can be passed to a new shadow unitary authority to be considered as part of its budget setting process for 2027/28 onwards as a MTFS will still be produced.
2.5 The Strategy brings together key issues affecting the:
· Revenue Budget
· Capital Strategy
· Capital Programme
· A new Flexible Use of Capital Receipts Strategy (Appendix B)
· Debt Re-Scheduling
· Treasury Management Strategy, including Revised Minimum Revenue Provision (MRP) Policy- see separate reports on this Agenda
· Reserves Strategy – see separate report on this Agenda
· Assets Rationalisation Strategy as per the Best Value Direction, see separate report on this Agenda
2.6 Structure of this report - this report will:
· Show our starting point
· Set out how the MTFS needs to adapt to the current context including the statutory directions and external auditor recommendations and a range of pressures and changed circumstances; set out the actions we propose that we will take to mitigate those
· Summarise how the key components are designed to ensure a sustainable financial future for the remainder of Spelthorne’s time and to pass on a viable financial inheritance for the unitary authority.
Budget Starting Point
2.7 When the Council set its Revenue Budget for 2025/26 and the Outline Budget for period 2026/27 to 2028/29 in February 2025, the identified budget gaps were as set out in the table below.
|
|
2025/26 £m |
2026/27 £m |
2027/28 £m |
2028/29 £m |
|
Budget gap |
Balanced |
3.9 |
6.9 |
8.6 |
2.8 So, from the start of 2025/26 we have been aware that we were facing a significant budget gap for 2026/27, and this was before factoring in the additional costs of MRP.
Context for the MTFS
Impact of complying with Statutory Directions and External Auditor Recommendations
2.9 The Statutory Directions included a number of requirements in respect of financial management that are addressed in the MTFS:
· A plan to achieve financial sustainability and to identify and close any short and long-term budget gaps across the period of its medium-term financial strategy (MTFS), including a robust multi-year savings plan that reflects the costs and risks identified in the Best Value Inspection report and by external auditors.
· A plan to ensure the Authority’s capital, investment and treasury management strategies are sustainable and affordable, including an asset rationalisation programme for assets and commercial investments.
· A comprehensive and strict debt reduction plan, demonstrating how overall capital financing requirement and external borrowing will be reduced over a realistic but expedient timescale, reducing debt servicing costs.
· A plan to ensure the Authority is complying with all relevant rules and guidelines relating to the financial management of the Authority, including updating the minimum revenue provision (MRP) policy.
· A plan to reconfigure the Authority’s services commensurate with the Authority’s available financial resources.
· The External Auditor recommendations set out in their 2023/24 Annual Audit report recommendations included:
· Robust plans are approved to address the medium-term budget gaps and reinstate it transformation programme as a matter of urgency
· Urgently review the options for the suspended housing projects
· Root causes of budget growth are identified and explained to Members to ensure the accuracy of financial plans
2.10 The External Auditor in their 2024/25 Annual Audit report recommendations included:
(a) The Medium-Term Financial Plan should be updated to reflect new costs and risks identified by the best value inspection; appointment of Commissioners; and adoption of an Improvement and Recovery Plan.
(b) To update the Medium-Term Financial Plan, the Council should include all relevant additional costs associated with changes to minimum revenue provision (MRP); with asset valuations, refurbishments and upgrades; with breaks in commercial income as tenancies come up for renewal; and with the recruitment of skilled resources to lead recovery and improvement.
2.11 Best value inspectors recommended a comprehensive debt reduction strategy. We agree with this recommendation. The Council should work with commissioners to agree a comprehensive debt reduction strategy that includes consideration of asset lives and length of time over which it is realistic to carry debt.
2.12 The External Auditor’s Audit Findings Report for 2023-24 included as recommendations
2.13 There is a risk that the Council’s MRP charge is not fairly stated.
2.14 The financial impact of the Directions is set out below. The additional cost of complying with statutory MRP guidelines are mitigated by debt rescheduling and an asset rationalisation strategy. The three areas when implemented will achieve a significant reduction in debt and risk to the Council.
Pressures on the Budget
Impact of complying with rules and guidelines on MRP
2.15 Our MRP policy and calculations have been updated using revised asset lives. The implication of compliance, as set out in the MRP Policy report to Full Council on 17.11.25, is approximately a £40m per annum increase in the MRP charge to Revenue. Without mitigating action would use all available revenue reserves and prompt a s114 notice and a request for Exceptional Financial Support from government. (Exceptional Financial Support merely allows the Council to borrow for revenue purposes which would in turn add additional MRP and interest charges.) Mitigating actions include debt rescheduling approved at Full Council on 17.11.25 and a managed investment and regeneration asset rationalisation programme. It is important to put in place measures to mitigate the impact of the increased MRP charge as otherwise the Council would not be able to set a balanced Budget.
2.16 In order to address the concerns of External Auditors and the Statutory Directions, significant changes have been made to the Council’s MRP policy. These will have a significant impact on the Revenue Budget. The first MRP change flows from the decision of Council in October 2023 to abort the housing delivery projects on sites owned by the Council. This meant that those assets in accounting terms are now treated as surplus assets which resulted in the need to charge MRP on the assets from the following year, 2024/25. Given the nature of the assets and the fact that the Council is intending to dispose of those assets in the medium term, the assets were determined as having a useful life of five years for calculating MRP. This has resulted in an additional MRP charge of approximately £6.6m per annum to be applied to the Revenue Budget see the breakdown in Table 1 below.
Table 1: Showing Additional MRP per surplus Asset
|
Surplus Asset |
£000 |
|
Oast House |
3,836 |
|
Thameside House |
1,712 |
|
Benwell House Phase 2 |
9 |
|
Whitehouse Residential |
9 |
|
Victory Place |
996 |
|
Total |
6,561 |
2.17 The MRP Policy report approved by Council on 17th November 2025 set out following discussions with Commissioners, external auditors and other experts that the Council will now be applying MRP on a straight-line basis on its investment assets over, in most cases, 20 years. This results in a significant increase in annual MRP of approximately £40m increasing from £13m per annum to approximately £58m per annum in 2025/26 and £51m in 2026/27 reducing going forward based on an estimated asset rationalisation programme. These estimates will be refined as the asset rationalisation programme is developed and agreed by Councillors. More detail is set out in the separate MRP Policy report which went to Council on 17th November 2025. See Table 2 below.
2.18 The medium-term Budget projections have been updated for a number of variables, pressures and impacts and the below summarise the key parameters and assumptions:
2.19 Council Tax – assumed Spelthorne will maximise its taxbase and increase council tax rate by maximum allowed which is currently which is 2.99%. For indicative purposes a similar rate of increase has been assumed for year 2 to 4 (although the unitary authority is also likely to have an additional 2% headroom for Adult Social Care precept, and there will be a one-off transitional alignment of council tax rates in 2027/28 across the component areas of the new unitary)
2.20 Pay – an increase of 4% (plus 0.2% retrospective adjustment for 2025/26) for 2026/27, 2.5 % per annum for years 2 to 3.
2.21 Pension - based on advice from the actuaries it is anticipated employer contribution rates for the period 2026/27 to 2028/29 will fall from 24.6% to 23.1%. This is a budget saving of approximately £0.5m.
2.22 As highlighted above Application of revised MRP policy changes relating to both surplus assets and investment assets.
2.23 Fees and charges a default 5% has been assumed (but see comments later in the report on fees and charges)
2.24 Savings – an indicative assumption of £1m deleted posts savings has been built into the projection for 2026/27. Additional targeted savings of £0.5m assumed as deliverable as part year savings in 2025/26 and a further £0.67m assumed as deliverable in 2026/27 as part/full year savings.
2.25 Grant funding changes- significant changes to the local government funding system are being phased in from 2026/27, the figures in the projection reflect modelling advice from sector experts- this will be subject to change when the Provisional Funding Settlement is announced in late December. Currently we are projecting a small net increase in grant funding of £0.245m (4.9%).
2.26 Business Rates Reset in 2026/27, assumptions around the impact of this has been built into the projection with an increase in net retained business rates assumed of £1.871m.
Local Government Funding Reform
2.27 Planning for 2026/27 and medium-term financial planning beyond that is made particularly challenging as there will be a significant revision to the distribution of central government revenue grants to local government commencing in 2026/27, this is referred to by the Government as “Fair Funding Review 2.0”, and which will be phased in over a three year period. The Government has consulted on indicative principles and based on those local government funding specialists have made projections. Council officers have reviewed the projections from the two leading sector funding specialist consultancies and has decided to base its projections using this information. These figures need to be treated with a very heavy caveat, as firstly they are based on an interpretation on the principles the Government has consulted on and secondly up until the Provisional Funding Settlement is announced (expected in late December just before Christmas) the underlying methodology is still subject to change. In particular there is a risk that in response to lobbying from certain parts of the local government community that the Government will be making further amendments to the funding formulae.
2.28 In late October/early November MHCLG has indicated that it will be publishing a statement of funding principles which will provide some clarification around some of the settlement principles, for example possibly confirming the council tax limits for different categories of council.
2.29 Whilst the provisional funding settlement is again relatively late this year, in part due to the lateness of the Chancellor’s Budget on 26th November, one longer term positive is that there will be a three-year settlement which once released will give councils some greater medium-term certainty. This will aid the financial planning for the new unitary authorities in Surrey (their funding allocations will be made up from combining their constituent district and boroughs’ allocations, and more challenging agreeing locally a split of the funding allocations of Surrey County Council).
Business Rates Reset and Business Rates Pooling
2.30 In 2026/27 the Government is undertaking a full reset of business rates. A business rates reset establishes new baseline funding levels and business rates baselines for local authorities. The next reset is planned for 2026/27 and will be reset on basis of gross rateable values on 31/3/26 and will involve an updated assessment of need to redistribute business rates income. This process is separate from the 2026 revaluation of properties, which adjusts the rateable value of individual properties to ensure fair redistribution of liabilities among ratepayers. The details of the Business Rates reset will be confirmed as part of the Provisional Local Government Funding Settlement expected just before Christmas.
2.31 The timing of the business rates reset means that it is expected that majority of councils would be at their business rates baseline in 2026/27 and therefore there would be limited potential for gains above baseline requiring protection through a business rates retention pool. At the same time if most councils are near their baseline there is greater risk that more may fall below baseline and require safety net support. So, there is little to gain from pooling and potentially risks from so doing. So, the Surrey districts and boroughs and County Council have agreed not to create a business rates pool for 2026/27.
Pay and Pensions
2.32 In 2024-25 and 2025/26 the Council agreed with the local Unison Branch under the Local Pay Agreement a two-year deal with a 2.8% increase in each of 2024-25 and 2025/26. In comparison the National Pay Agreement for 2024-25 was 2.5% and for 2025/26 was 3.2%. So, in recognition that over the two years the local agreement did not keep pace with the national agreement, it is proposed that a 0.2% retrospective uplift is applied from 1st April 2025. Looking ahead to 2026/27, the last pay settlement to be negotiated by the Council, the current assumption, subject to both approval by Councillors and acceptance by union members, is that a local settlement of 4% for 2026/27 will be agreed. This will add £0.9m to the Revenue Budget.
2.33 The triennial Pensions valuation revalued the Surrey Pension Fund and identified that the Fund overall is now in surplus. This is enabling the Fund for the years 2026/27 to 2028/29 to reduce employer contribution rates. In case of Spelthorne the contribution rate will fall from 24.6% to 23.1% resulting in an annual reduction of approximately £0.5m.
The Budget Gap Challenge
2.34 All of the above pressures, particularly the increased MRP exceeding the income contribution from the investment assets results in a significant set of potential budget gaps which need to be mitigated to ensure that a balanced and sustained Budget can be set.
Mitigations and solutions available to the Council
Debt reduction and debt rescheduling
2.35 As set out in previous reports on this agenda the first two key mitigation measures are to reschedule the debt in order to apply a significant early repayment discount.
2.36 The Council borrowed over £1bn to purchase its investment and regeneration asset portfolio, with the intention of delivering a sustainable income stream which would exceed financing costs. It borrowed these funds over varying periods up to fifty years using fixed, low interest loans from the Public Works Loan Board (PWLB) which is part of the Debt Management Office in HM Treasury.
2.37 The increase in MRP, if not mitigated would undermine the viability of the Council and require exceptional financial support and the Council would not be able to set a balanced budget for 2026/27. The two key elements for mitigating this impact are set out in separate reports (Debt Rescheduling and Asset Rationalisation) on this Agenda: a significant restructuring of debt taking advantage of the discounts (equivalent to approx. 35%) available to the Council on its PWLB debt to reduce outstanding debt from £1,057m to an estimated £696m (a reduction in debt outstanding of an estimated £360m based on gilt rates on 14/10/25). This report sets out the actual level of discount achievable will be dependent on the gilt rates prevailing at the time the redemption is implemented.
Managed Asset Rationalisation Strategy
2.38 The second key mitigation measure is to progress an Asset Rationalisation Strategy, as set out in the Asset Rationalisation report earlier on this Agenda.
2.39 The refinanced debt, arising from the first mitigation measure above of re-financing, will be at higher interest rates (4.5 to 5%) and will therefore require to be aligned with a comprehensive investment and regeneration assets rationalisation programme as required by the Statutory Directions. This is set out in the Assets Rationalisation Strategy Report separately on this Agenda. This Strategy will be worked up into a more detailed plan to come back to CPRC in January. In turn any proposals to dispose of specific assets would in each instance be subject to Councillor approval at appropriate Committee and Council. The aim would be to achieve a long-term sustainable level of debt and Capital Financing Requirement. With these mitigations it is believed that the Council (and the successor West Surrey unitary authority with respect to the financial assets and liabilities it will inherit from Spelthorne) can avoid the need for Exceptional Financial Support from Government.
2.40 Complying with the Best Value Direction to rationalise assets will reduce debt levels, MRP and consequently the cost of interest. Table 2 below shows estimated impact of the proposed programme of assets rationalisations.
2.41 Changing the assumption of a £10m benefit from investment properties, albeit £4m in 2025/26, to a surplus of £1m in 2026/27.
Table 2 showing impact of further mitigating through Assets Rationalisation programme
2.42 Once other changes are fed into the budget, set out in the report below, results in a budget gap of £7.6m for 2026/27.
Medium Term Financial Strategy
2.43 The proposed MTFS incorporates the mitigation steps of debt refinancing and assets rationalisation.
2.44 The objectives of the MTFS are:
· To set a path to financial sustainability for the new unitary authority
· To reach comparable debt levels to other districts, ideally circa £100m
· A measured approach to property rationalisations, ensuring that best value is achieved
· Remove risks for the future unitary authority in respect of investment and regeneration property risks
· A compliant MRP Strategy addressing the recommendations of the Best Value Inspection report, the Statutory Directions and the recommendations of the external auditor
· To have a plan to reduce service costs to comparable levels of other district councils
· To have unqualified accounts in 2026/27
· To satisfy MHCLG that the Council has complied with all of the Statutory Directions by end of 2026/27.
2.45 Since 2019/20 Spelthorne has assumed a £10m contribution to its revenue budget from investment property surpluses. With increased costs and reducing returns, explained later in this report this benefit can no longer be assumed. The £10m contribution represents approximately 30% of the Council’s gross expenditure, excluding Housing Benefits. Spending is also on average 30% higher in comparison to statistically similar councils.
2.46 An element of this additional spending is in relation to the cost of homelessness in Spelthorne, due to the Council’s proximity to London. In other areas, similar to other Surrey boroughs, it provides preventative services to adults in the community (Independent Living Services including Community Centres, Meals on Wheels, and Community Alarms) that in other parts of the Country are provided by County Councils.
2.47 The only way the Council would be able to make such significant reductions in its expenditure is to consolidate its service provision with other district councils and with upper tier service provision which Local Government Reorganisation in West Surrey will help to achieve.
2.48 The Council’s overall MTFS will therefore help facilitate a smooth transition to Unitary Local Government in Surrey, working with other councils who will form the new council to consolidate and harmonise service provision within the overall budget envelope. The budget for 2026/27 is therefore a transitional one. Where possible the Council will identify efficiency savings and identify areas where it is charging less than others to smooth the transition for service users. In order to do this, it will use reserves, previously set aside for future spending on investment properties. It is also able to benefit in the short term from a loan discount, which in the medium term should be set aside for reducing debt levels and the impact of minimum revenue provision (MRP).
· Table 3 below summarises the current projected budget position across the MTFS period.
|
|
2025/26 |
|
2025/26 |
2026/27 |
2027/28 |
2028/29 |
|
|
original |
|
Revised |
|
|
|
|
|
£000 |
|
£000 |
£000 |
£000 |
£000 |
|
Gross Expenditure |
64,955 |
|
64,464 |
56,832 |
- |
- |
|
Less: Fees/Charges and Specific Grants |
(16,618) |
|
(16,679) |
(17,698) |
- |
- |
|
Less: Housing Benefits Grant |
(21,556) |
|
(21,556) |
(14,522) |
- |
- |
|
Net Expenditure |
26,781 |
|
26,229 |
24,613 |
25,897 |
26,606 |
|
Net Service Expenditure |
|
|
|
|
|
|
|
Assets Mgt. |
2,086 |
|
2,001 |
2,122 |
- |
- |
|
Commissioning & Transformation |
5,742 |
|
5,358 |
5,516 |
- |
- |
|
Community & Wellbeing |
3,994 |
|
3,837 |
3,951 |
- |
- |
|
Finance & Corporate Services |
5,269 |
|
5,752 |
3,819 |
- |
- |
|
Legal and Elections |
1,974 |
|
1,912 |
1,958 |
258 |
- |
|
Neighbourhood Services |
3,806 |
|
3,457 |
3,333 |
(90) |
(90) |
|
Place, Protection & Prosperity |
3,911 |
|
3,912 |
3,915 |
- |
- |
|
Net Expenditure |
26,781 |
|
26,229 |
24,613 |
26,065 |
26,516 |
|
Inflation and Pay |
- |
|
- |
1,012 |
541 |
777 |
|
Savings |
- |
|
- |
(276) |
- |
- |
|
Unavoidable Expenditure |
- |
|
- |
548 |
- |
- |
|
Total Expenditure at Service Level |
26,781 |
|
26,229 |
25,897 |
26,606 |
27,292 |
|
Investment & Regeneration property |
(45,581) |
(45,581) |
(41,381) |
(30,534) |
(24,088) |
|
|
Minimum Revenue Provision |
13,025 |
57,645 |
51,428 |
35,520 |
35,936 |
|
|
Loan Interest |
25,425 |
26,882 |
29,782 |
26,875 |
26,062 |
|
|
Loan Discount |
- |
(34,261) |
(34,261) |
(34,261) |
(34,261) |
|
|
Prior yr exp on Housing Schemes write-off |
8,710 |
- |
- |
- |
- |
|
|
Other Interest |
(2,112) |
(2,112) |
(2,056) |
(1,679) |
(1,568) |
|
|
Budget Requirement |
26,247 |
|
28,801 |
29,408 |
22,527 |
29,373 |
|
General Government Grants |
(2,053) |
|
(2,053) |
(5,970) |
(5,056) |
(3,953) |
|
Business Rates |
(4,910) |
|
(4,917) |
(3,800) |
(2,322) |
(2,358) |
|
Appropriation to/(from) Reserves: |
(9,111) |
|
(11,658) |
(2,342) |
(54) |
(54) |
|
Net Budget Requirement |
10,173 |
|
10,173 |
17,296 |
15,095 |
23,009 |
|
Collection Fund Surplus/(deficit) |
(877) |
|
(877) |
- |
180 |
180 |
|
Income from Council Tax |
(9,296) |
|
(9,296) |
(9,721) |
(10,153) |
(10,604) |
|
Net Position - Over/ (Under) budget |
(0) |
|
(0) |
7,575 |
5,122 |
12,585 |
Unavoidable expenditure of £548k is broken down in appendix A.
The total expenditure at service level is broken down into more detail in appendix C
2.49 The estimated remaining budget gap for 2026/27 of £7.6m, if not addressed by savings would rise to £12.6m by 2028/29 which would not be a sustainable position for the successor unitary Council. If the Council sought to solely close the Budget gap by use of reserves this would consume £25.3m of reserves over the MTFS period (exceeding the balance of available reserves by £4.9m- see Reserves Strategy 3.1). So, it will be important to seek to identify savings in 2026/27 and beyond to assist in closing this. By 2028/29, the post vesting day transformation savings should be beginning to be benefitted by the new Council.
2.50 The budget deficit is after assuming the use of a PWLB loan discount for early repayment of loans which is then spread equally over the next 10 years. The expiry of this will need to be factored into future financial planning.
2.51 Paragraph 2.22 above sets out the key assumptions feeding into the above projections.
2.53 As highlighted above, under Surrey Local Government Reorganisation, Spelthorne is due to cease to exist on 1st April 2027. This complicates the medium-term financial modelling and also creates both constraints on savings and opportunities. A key constraint is the tight timescale for the lead into “Vesting Day” on 1/4/27 as this rules out the ability of the Council acting alone to implement savings initiatives such, reducing its office footprint or outsourcing services, which take a significant amount of time to implement. The opportunities are that in the medium term the process of unitarisation will be a major efficiency and savings driver, but these will be reaped by the successor unitary.
2.54 The contents of this strategy are the Council’s response to the significant financial and service challenges that it faces, taking on board the critical feedback received from the Best Value Inspection process and external auditors, and the need to plan ahead for the future with fewer resources.
2.55 Table 4 summarising changes between 2025/26 revised budget and 2026/27 budget at net service expenditure level:
Table 4: Summary of Changes from 2025/26 to Draft 2026/27 Budget
|
|
2025/26 |
2026/27 |
Differences |
||
|
|
Revised |
|
|||
|
|
£000 |
£000 |
£000 |
||
|
Gross Expenditure |
64,464 |
56,832 |
(7,632) |
-12% |
|
|
Less: Fees/Charges and Specific Grants |
(16,679) |
(17,698) |
(1,019) |
6% |
|
|
Less: Housing Benefits Grant |
(21,556) |
(14,522) |
7,034 |
-33% |
|
|
Net Expenditure |
26,229 |
24,613 |
(1,616) |
(0.1) |
|
|
Net Service Expenditure |
|||||
|
Assets Mgt. |
2,001 |
2,122 |
121 |
6% |
|
|
Commissioning & Transformation |
5,358 |
5,516 |
158 |
3% |
|
|
Community & Wellbeing |
3,837 |
3,951 |
113 |
3% |
|
|
Finance & Corporate Services |
5,752 |
3,819 |
(1,934) |
-34% |
|
|
Legal and Elections |
1,912 |
1,958 |
46 |
2% |
|
|
Neighbourhood Services |
3,457 |
3,333 |
(124) |
-4% |
|
|
Place, Protection & Prosperity |
3,912 |
3,915 |
3 |
0% |
|
|
Net Expenditure |
26,229 |
24,613 |
(1,616) |
(0.1) |
|
|
Inflation and Pay |
- |
1,012 |
1,012 |
|
|
|
Savings |
- |
(276) |
(276) |
|
|
|
Unavoidable Expenditure |
- |
548 |
548 |
|
|
|
Total Expenditure at Service Level |
26,229 |
25,897 |
(333) |
(0.0) |
|
|
Investment & Regeneration property |
(45,581) |
(41,381) |
4,200 |
-9% |
|
|
Minimum Revenue Provision |
57,645 |
51,428 |
(6,217) |
-11% |
|
|
Loan Interest |
26,882 |
29,782 |
2,900 |
11% |
|
|
Loan Discount |
(34,261) |
(34,261) |
- |
0% |
|
|
Other Interest |
(2,112) |
(2,056) |
56 |
-3% |
|
|
Budget Requirement |
28,801 |
29,408 |
607 |
0.0 |
|
|
General Government Grants |
(2,053) |
(5,970) |
(3,917) |
191% |
|
|
Business Rates |
(4,917) |
(3,800) |
1,117 |
-23% |
|
|
Appropriation to/(from) Reserves: |
(11,658) |
(2,342) |
9,315 |
-80% |
|
|
Net Budget Requirement |
10,173 |
17,296 |
7,123 |
0.7 |
|
|
Collection Fund Surplus/(deficit) |
(877) |
- |
877 |
-100% |
|
|
Income from Council Tax |
(9,296) |
(9,721) |
(425) |
5% |
|
|
Net Position - Over/ (Under) budget |
(0) |
7,575 |
7,575 |
|
Reserves
2.56 A key strand of the MTFS will be to use the reserves the Council has available to help smooth the impacts of the financial challenges across the MTFS period.
2.57 Reserves should be maintained above a minimum level as assessed by the S151 officer as part of their Section 25 Statement on the Budget. This is the minimum level that, if there is a risk that reserves are projected to fall below, immediate corrective actions will need to be taken to bring the level of reserves back to that level.
2.58 As set out in the proposals for Local Government re-organisation in Surrey, the new unitary authorities are likely to face significant costs to implement the re-organisation and significant budget pressures going forward, as such, it is important for the future sustainability of the new unitary authorities and the services that they need to deliver that reserves in existing councils are maintained at current levels as far as possible and are not reduced unnecessarily before the implementation of local government re-organisation in Surrey.
2.59 As at 31 March 2025, the Council held £52m in revenue reserves. Of this total, £7.6m relates to developer contributions (CIL), £4m forms part of the Business Rates Equalisation Reserve set aside to fund future deficits, and £0.065m and £0.149m have been earmarked in the Bronzefield and Building Control reserves respectively to meet future commitments.
2.60 This leaves £40.4m available at the start of 2025/26 that the Council could use to support its budget.
2.61 The separate Reserves Strategy report on this agenda proposes repurposing the Sinking Funds and other uncommitted earmarked reserves, reflecting the fact that the Council is no longer planning to hold its investment assets long term in line with the Statutory Directions. As a result, these reserves can be released to support the transition period and help close the MTFS budget gaps.
2.62 The budget gap of £7.6m for 2026/27 already assumes £1m of savings (£0.5m from vacancies and £0.5m from efficiency measures). As shown in Table 5 below, using £20m of reserves in 2025/26 to cover the originally planned £5.5m use of reserves plus the projected overspend of £14.6m (based on Q2 monitoring) would leave an estimated balance of £20.4m in available earmarked reserves as at 31 March 2026.
2.63 The budget gap of £7.6m for 2026/27 already assumes £1m of savings (£0.5m from vacancies and £0.5m from efficiency measures). As shown in Table 5 below, using £20m of reserves in 2025/26 to cover the originally planned £5.5m use of reserves plus the projected overspend of £14.6m (based on Q2 monitoring) would leave an estimated balance of £20.4m in available earmarked reserves as at 31 March 2026.
Total Estimated Balances in Earmarked Revenue Reserves as at 31st March
|
Table 5 - Movement in Earmarked Reserves Summary |
||
|
|
£’000 |
£’000 |
|
Total Earmarked Revenue Reserves as at 1st April 2025 (adjusted)* |
|
52,008 |
|
Ringfenced Reserves |
|
|
|
Developer Contributions (CIL) Reserves |
(7,606) |
|
|
Ring fenced Reserves:
Business Rates (element to cover future deficits, Bronzefield and Building Control Reserves |
(4,000) |
11,606 |
|
Available Earmarked Reserves as at 1st April 2025 (adjusted) |
|
40,403 |
|
2025/26 Approved Usage |
(5,452) |
|
|
Q2 Projected Outturn at 30 September 2025 |
(14,555) |
|
|
Projected use of reserves – 2025/26 |
|
(20,007) |
|
Earmarked Reserves at 31st March 2026 (Projected) |
20,395 |
|
|
General Fund Reserve |
|
3,895 |
|
Total Available Reserves |
|
24,290 |
*the draft published accounts show a reserve as £50,106k, which has now been adjusted by £1,902k to £52,008k.
2.64 In order to manage anticipated financial pressures in 2026/27, £320k has been identified by the Strategic Planning Service as a specific allocation from reserves and grants. This funding will be utilised to meet unavoidable expenditure pressures that cannot be absorbed within the existing base budget. Further details of this allocation and its application are outlined within
Table 6 below.
|
Table 6 - Use of Specific Reserve/Grants |
|
|
Strategic Planning |
£000 |
|
Environmental Impact Reserve |
154 |
|
MHCLG – Custom Build Grant Local Authority |
90 |
|
MHCLG – New Burdens funding for the Brownfield Register |
26 |
|
Funding for Masterplan from Assets |
50 |
|
Total |
320 |
Savings
2.65 A key strand of the MTFS will be progressing over the remaining year and half of the Council’s existence a programme to deliver savings which are achievable in that timescale, and in the context of Local Government Reorganisation process. The Finance team will be working with Group Heads and Budget heads, with some external expertise to scrutinise and drill down into unit cost benchmarking against the other councils that will form West Surrey and relevant “nearest neighbours” to better understand the Council’s cost base and to identify opportunities for reducing net cost i.e. through reducing cost or increasing income. The focus will be measures which can be implemented and generated benefits within the time remaining before vesting day of the new council. This rules out significant IT systems changes, changing office footprint etc. The MTFS builds in a target assumption of additional £0.67m part year savings to be delivered in 2026/27.
2.66 Significant work has been undertaken to find upfront savings which can be built into the 2026/27. These are listed in Table 9 below and total £0.276m. This is before taking into account £1m savings relating to the deletion of vacant posts.
|
Table 7 - Savings Identified - 2026/27 |
£000 |
|
Supported Housing Team |
|
|
Increase In income |
(12) |
|
Increase In income |
(24) |
|
Staffing provision mainly covers White House |
(76) |
|
Out of hours call is done on a rota at a set weekly cost |
(107) |
|
Assets |
|
|
Increase in income from municipal portfolio, old library letting |
(20) |
|
Increase in income from municipal portfolio, uplifts in rent from rent reviews/lease expiries etc. |
(3) |
|
Increase in income from Knowle Green Nursery |
(34) |
|
Total Savings |
(276) |
Fees and Charges
2.67 As highlighted earlier in the report the default assumption is that for those fees and charges over which the Council has discretion to set the fee level, the fees and charges will rise by at least 5% in 2026/27. As part of the LGR transition process the Council, as part of its benchmarking analysis will be comparing its fees with the other component districts and boroughs in the new unitary authority. Where fees in the other councils for specific services differ, the Council will look to align our fees to move towards those of the other councils. This is in the expectation that when the new unitary authority sets its fees and charges it will level up rather than down the fees which will apply across its area. The Council by taking steps to align will be helping residents to adjust to the higher rates which are likely to be applicable as a result of LGR. One option which could be considered is having an additional mid-year review and have an additional revision to the Fees and Charges schedule to further move towards alignment with the likely fees and charges structure of the new unitary.
|
Table 8 - Services |
Fees & Charges Inflation @ 5% |
|
|
£'000 |
|
Community & Wellbeing |
22 |
|
Legal and Elections |
1 |
|
Neighbourhood Services |
84 |
|
Place, Protection & Prosperity |
85 |
|
Total |
192 |
Flexible Use of Capital Receipts
2.68 It is proposed that the Council puts in place a Flexible Use of Capital Receipts Policy (see Appendix B), In accordance with Section 15(1) of the Local Government Finance Act 2003, the Secretary of State is empowered to issue Directions allowing revenue expenditure incurred by local authorities to be treated as capital expenditure. Where such a direction is made, the specified expenditure can then be funded from capital receipts under the Regulations. This will then allow the Council to capitalise as eligible expenditure, transformation expenditure relating to IRP and LGR.
2.69 It is proposed that transitional costs incurred as part of the process of moving towards the unitary authority can be treated as qualifying expenditure. The Council’s share of the estimated £35m pre-vesting Surrey LGR costs is £550k. It is proposed that this is capitalised and funded from receipt. Equally elements of the Improvement and Recovery Plan which are driving transformation are potentially qualifying expenditure.
Capital Strategy
2.70 A full Capital Strategy for 2026/27 will come to Council in February 2026. In the context of local government reorganisation and Best Value Intervention, the strategy will reflect the following.
· A minimal Capital Programme will be maintained with no major multi-year capital projects being commenced which would extend beyond March 2027.
· Capital Programme to be financed mainly from grants and capital receipts; the Council is not looking to incur additional borrowing.
· Some transformation costs will be capitalised and funded from receipts.
Summary of Key strands of the Medium-Term Financial Strategy
2.71 To summarise the key strands of the revised Medium Term Financial Strategy are:
· Revised MRP policy
· Debt Restructuring and application of the significant discount available to the Council on early repayment of its PWLB loans
2.72 A medium term and comprehensive Investment Assets and Housing and Regeneration assets rationalisation programme
· Aligning the refinanced loans maturities with the assets rationalisations expected timescales
· A robust and comprehensive review of operation costs across the organisation, including targeted use of benchmarked unit costs, with managers being supported by external expertise. Target to deliver £0.67m of savings
· Deletion of vacant posts (£1m)
· Capitalisation of transformation and LGR costs and applying the new Flexible Receipts Strategy to finance these capitalised costs from an element of the capital receipts being realised
· Balance of the Budget gap for 2026/27 to be funded from repurposed Sinking Funds Reserves as Transformation Equalisation Reserves
2.73 A minimal and sustainable Capital Programme for 2026/27 largely to be financed from grants and receipts. Once a Shadow Authority is set up and the Structural Change Order enacted it would normally have powers, under “Section 24” to potentially be able to veto revenue expenditure on new items in excess of £100k, however in case of Spelthorne and Woking because they are under statutory intervention the Government has clarified the Section 24 rules will not apply to these two councils.
3. Options appraisal and proposal
3.1 Option 1: Accept the proposed MTFS, approve the proposed flexible use of Capital Receipts Strategy. The recommended option is to accept the proposed MTFS, in so doing the Council would be complying with the Best Value statutory directions and implementing one of the Finance IRP theme workstreams. The MTFS in turn provides the parameters for then working up a balanced Budget for 2026/27.
3.2 Option 2: Make modifications to the proposed MTFS, or to the proposed flexible use of capital receipts, or do not approve the appointment of consultants
3.3 Option 3: Reject the proposed MTFS. This is not recommended as would not be good financial and budget planning, would be contrary to CIPFA guidance and would be non-compliant with external audit and Best Value recommendations.
3.4 With respect to the savings strand within the proposed MTFS proposals will be reported back to Councillors on options for consideration, setting out impacts on services.
4. Risk implications
4.1 Key financial risks are included on Corporate Risk Register: The following risks should be considered when agreeing the recommendations of this report:
|
Risk Description |
Mitigations |
RAG status
|
|
The final MTFS is based on the informed sector experts modelling of the impacts of Fair Funding Review and Business Rates. Provisional Finance Settlement expected late December could have unanticipated impacts |
There will still be three months from the Provisional Funding Settlement and setting of the Budget in February to refine the Council’s Budget and if necessary, make additional savings.
With estimated uncommitted usable reserve balances of £20.4m at 31.03.26 the Council could use a greater level of reserves if necessary |
Amber |
|
The impact of Devolution and Local Government Reorganisation |
Currently the Council has a £0.5m budget for LGR costs.
As the MTFS sets out the Council will seek to capitalise transformation costs related to LGR and fund from capital receipts |
Amber |
|
External factors, outside of the control of the Council, will be subject to volatility with upward volatility creating a financial risk on the final budget and MTFS. |
Demand and inflationary growth evidence based on the most up today date information at the time of budget setting
Robust monthly in year monitoring to capture volatility / potential volatility to ensure mitigating actions can be implemented
Monitoring reported through the governance channels including Corporate Risk Register/scrutiny to ensure areas of risk are transparent and addressed
Significant reserve balances which could be applied
|
Amber |
|
The assets rationalisations programme led by the Commercial Theme of the IRP, on which financial modelling underpinning the MTFS, proceeds more slowly and or rationalisation values prove less than anticipated |
The Council is appointing through a framework a specialist that has the skills to assist with an asset rationalisation programme. |
Amber |
5. Financial implications
5.1 Financial implications are set out in the report above.
6. Legal comments
6.1 Section 31A of the Local Government Finance Act 1992 (“the 1992 Act”) requires billing authorities to calculate their Council Tax requirements in accordance with the prescribed requirements of that section. The function of setting the Council Tax is the responsibility of Full Council. The Council is required by the 1992 Act to make estimates of gross revenue expenditure and anticipated income, leading to a calculation of a budget requirement and the setting of an overall budget to ensure proper discharge of the Council’s statutory duties and to lead to a balanced budget. The budget should include sufficient allowances for contingencies and financial reserves.
6.2 Local authorities owe a fiduciary duty to Council tax payers, which means it must consider the prudent use of resources, including control of expenditure, financial prudence in the short and long term, the need to strike a fair balance between the interests of Council tax payers and ratepayers and the community’s interest in adequate and efficient services and the need to act in good faith in relation to compliance with statutory duties and exercising statutory powers.
6.3 Section 25 of the Local Government Act 2003 require that, when the Council is making the calculation of its budget requirement, it must have regard to the report of the Chief Finance (section 151) Officer as to the robustness of the estimates made for the purposes of the calculations and the adequacy of the proposed financial reserves. It is essential, as a matter of prudence that the financial position continues to be closely monitored.
6.4 Full Council is responsible for setting the overall budget framework. However, some of the proposed savings will be subject to further analysis and decision making and as such the savings are an estimate. Individual service decisions will be subject to Committee approval, taking account of the statutory framework, any requirement to consult and consideration of overarching duties, such as the public sector equality duty.
6.5 The Local Government Act 2003 and associated regulations set out rules in relation to use of capital reserves. S.15 requires local authorities to have regard to relevant statutory guidance. The statutory guidance on flexible use of capital receipts confirms that local authorities cannot borrow to finance service delivery, however they can use capital receipts from sale of assets to finance the revenue costs of reforming services. The guidance states that qualifying expenditure is expenditure on a project that is designed to generate ongoing revenue savings in the delivery of public services or transform service delivery in a way that reduces costs or demand for services in future years. The Council is expected to publish an annual Flexible Use of Capital Receipts Strategy, although this can be included in wider strategy documents.
Corporate implications
7. S151 Officer comments
7.1 The focus of this report is to pull together the pressures and uncertainties the Council is facing in setting a MTFS and to set out a set of strategies and parameters which will help ensure an ongoing sustainable future both for the Council and the successor unitary. The report sets out the parameters within which the detailed Budget for 2026/27 will need to be balanced.
8. Monitoring Officer comments
8.1 The Monitoring Officer confirms that the relevant legal implications have been taken into account.
9. Procurement comments
9.1 There are no procurement implications arising directly from this report.
10. Equality and Diversity
10.1 There are no direct diversity implications identified in this report. Moving forwards where savings are being evaluated have the potential to impact on equality and diversity, equality impact assessments will be undertaken.
11. Sustainability/Climate Change Implications
11.1 Addressing climate change priorities continues to be a priority of the Council and is likely to be priority for the new unitary. Potentially there are significant overlaps between reducing running costs and reducing use of resources such as heating, energy, materials and reducing emissions and moving towards the Council’s goal of reaching net-zero. In reviewing savings opportunities, it therefore it will be important to look at alignment with climate change objectives.
12. Other considerations
12.1 There are none.
13. Timetable for implementation
13.1 Council’s Budget to be set for 2026/27 on 26th February 2026.
14. Contact
Terry Collier, Chief Finance Officer
Please submit any material questions to the Committee Chair and Officer Contact by two days in advance of the meeting.
Background papers: There are none.
Appendices:
Appendix A- Unavoidable Expenditure Pressures 2026/27
Appendix B- Flexible Use of Capital Receipts Strategy
Appendix C - Net Expenditure Budget 2025/26 – 2026/27 by Group Head's Remit