Medium Term Financial Strategy (MTFS)

(General Fund and Housing Revenue Account)

The purpose of this Medium Term Financial Strategy (MTFS) is to set out the overall framework on which the Council draws together the strategic planning priorities, demand and resource forecasts and impact of the wider service delivery environment to produce a costed plan for the impact of proposed policies and plans on the longer-term financial sustainability of the Council. The MTFS pulls together in one place all known factors affecting the Council’s financial position and financial sustainability over the medium term (i.e. over a five-year period). The MTFS integrates revenue allocations, savings targets, reserves and capital investment, and provides a budget upon which the Council Tax level (General Fund) and rent levels (Housing Revenue Account(‘’HRA’’)) are determined, and sets out the forecasts for the period following years.

2023-24 to 2027-28

Forward

Welcome to this latest version of Wealden’s General Fund Medium Term Financial Strategy covering the period 2023-2028.

Wealden District Council (“The Council”, “Wealden”, “we”, “our”) is continuing to operate in an environment of uncertainty due increasing higher inflation, higher interest rates, uncertain government policy, and a deteriorating economic outlook. As a result financial planning is becoming increasingly complex, requiring multiple variables to be balanced in an environment of increasing uncertainty. Having a thorough understanding of the financial outlook and the associated impact on the organisation’s ability to achieve its strategic objectives is an essential starting position for future planning and ensuring sustainability. Resources are becoming scarcer, which coupled with increasing pressures and demands on services, makes it more challenging to ensure that resources are effectively targeted.

This Medium Term Financial Strategy (“MTFS”) sets out how the Council will use its financial resources to underpin the strategic priorities within the Corporate Plan, and builds on its track record of:

Managing growth to meet future needs;
Protecting and enhancing Wealden’s unique rural character and environment;
Supporting our local economy and local businesses;
Generating sustainable sources of income to invest in local priorities; and
Helping to improve connectivity and access to services for all our communities.

It is the Council’s commitment to use the financial resources it employs over the coming years to make a positive difference to the area and its residents, and achieve value for money.

Since 2010 the Council, alongside the majority of other local authorities, has experienced unprecedented financial uncertainties in various forms and has had to adapt to:

The impact of Central Government funding reductions;
The Coronavirus (‘’Covid-19’’) pandemic which has reshaped the Council’s services and changed the way Wealden’s residents live, work and socialise;
The local impacts of the economic crisis affecting jobs, housing and business growth, which has in turn created pressure on the generation of local income streams and incurring additional costs;
The local impacts of the economic crisis creating a rising demand, and increased cost pressures, for council services from customers who rely on the safety net provided by local government; and
The impact of the vote to leave the EU and the consequent impact on the economic and political landscapes.

During this same period, the basis on which local government is funded has undergone radical reform, heralding a new era where local government is funded from local taxes with limited reliance on Central Government. This new methodology for funding local government is inextricably linked to the performance of the local economy via business rates, council tax and local council tax reduction schemes, and Housing Revenue Account Self-Financing.

The 2023-24 local government finance settlement is for one year only. This followed a policy statement published on 12 December 2022, covering 2023-24 and 2024-25, which are the remaining years of the Spending Review 2021 period. This in turn was hard on the heels of the Autumn Statement 2022 on 17 November 2022, which set the overall level of available resources. Detailed numbers are only available however for 2023-24 and there remain significant uncertainties for 2024/25, particularly for district councils like Wealden.

In response to this environment the Council has delivered a track record of strong financial discipline. Planning ahead, undertaking a transformation programme which secures savings in advance, re-investing in more efficient ways of working, adopting a more commercial approach, whilst making careful use of reserves to meet funding gaps and mitigate risks, is an approach that has served the Council well.

The Council’s successful financial management to date has enabled the protection of core services for the people of Wealden while at the same time allowing the redirection of resources to the priority areas in the Corporate Plan, and the MTFS 2023-24 to 2027-28 builds on this approach. This MTFS will be kept under constant review and will need to adapt in response to new risks and opportunities during this unprecedented period of uncertainty and change.

Laurence Woolven

Head of Financial Services (S151 Officer)

Section 1. Introduction

Background

The purpose of this MTFS is to set out the overall framework on which the Council draws together the strategic planning priorities, demand and resource forecasts and impact of the wider service delivery environment to produce a costed plan for the impact of proposed policies and plans on the longer-term financial sustainability of the Council. The MTFS pulls together in one place all known factors affecting the Council’s financial position and financial sustainability over the medium term (i.e. over a five-year period).

In order to achieve its priorities the Council has a clear and robust financial strategy, which focuses on its long-term financial sustainability. The MTFS does this by balancing the financial implications of objectives and policies against constraints in resources and provides the basis for decisions to be made about its finances.

The MTFS integrates revenue allocations, savings targets, reserves and capital investment, and provides a budget for 2023-24 upon which the 2023-24 Council Tax level (General Fund) and rent levels (Housing Revenue Account(‘’HRA’’)) are determined, and sets out the forecasts for the period 2024-25 to 2027-28.

Whilst the purpose of this MTFS is to provide a costed plan over the period 2023-24 to 2027-28, it must be recognised that this plan becomes more uncertain the further out in time the forecast moves. However, uncertainty is more of a reason to produce a MTFS as the identification of potential longer-term revenues and expenses and the key risks associated with those forecasts and income and expense streams provide valuable insight for the Council and aids decision-making.

The MTFS is a living document that forms the basis of the Council’s fiscal strategy. Inevitably the Council’s plans will need to evolve and develop in response to new financial opportunities and risks and new policy directions during the period of the Strategy and the dynamic nature of local government funding. Therefore, the Strategy will be reviewed on a regular basis and at least annually.

The MTFS is underpinned by a sound finance system, coupled with a solid internal control framework, sufficiently flexible to allow the Council to respond to changing demands over time and opportunities that arise.

Objectives

This MTFS seeks to achieve a number of specific objectives:

Ensure the Council’s limited resources are directed to achieving the vision and strategic priorities within the Council’s Corporate Plan and HRA Business Plan;
Ensure the Council maintains a sound and sustainable financial base, delivering a balanced budget over the life of the MTFS;
Provide a range of good quality services that people expect, and offer excellent value for money;
Deliver key projects that enhance quality of life and wellbeing across Wealden, thoughtfully generating reasonable income streams in line with our Commercial Strategy to achieve a financially stable and self-sufficient council;
Maintain our measured, professional approach to managing the Council’s finance and investments, and continue to develop our enterprise culture for the benefit of the District as a whole;
Deliver more by working with partners, continue to extend our use of technology, minimise transaction costs and sustain customer satisfaction;
Growing the Council Tax and Business Rates tax base, whilst ensuring that Council Tax rate increases are kept an acceptable level;
Ensure the Council maintains robust, but not excessive, levels of reserve and balances to address any future risks and unforeseen events without jeopardising key services and the delivery of outcomes; and
Continue to manage down the Council’s recurrent cost base, in line with reductions in overall resources by ensuring the provision of efficient, effective and economic services which demonstrate value for money.

Section 2. Context

In order to set the framework for the Council’s approach to policy and financial planning it is important to understand the potential impact of economic conditions and overall national policy context, as well as the policy and delivery priorities for the Council over the MTFS period.

Local Priorities

This MTFS is central to identifying the Council’s capacity to deliver its local priority outcomes and it reflects:

The Council’s current financial position and outlook.
The Council’s overall financial strategy, including use of reserves.
Internal and external pressures which may influence the council’s financial position.

The following sub-sections set out the local context and priorities, that we have had regard to in producing a costed plan over the period 2023-24 to 2027-28.

Wealden as a Place

Wealden is the largest local government district in East Sussex covering 323 square miles and has a population of 160,100[1]. Half the population live in five main towns: Crowborough, Hailsham, Heathfield, Polegate and Uckfield. The rest live in villages and hamlets in some of the most attractive countryside in the South of England.

With two-thirds of the district covered by the High Weald Area of Outstanding Natural Beauty and the South Downs National Park, as well as 41 conservation areas (33 of which are administered by the Council) and 2,241 listed buildings, Wealden has to place a high value on protecting the environment.

Wealden has 8,585 businesses, with small and micro businesses forming a fundamental part of the Wealden economy. 92% of Wealden’s businesses employ fewer than 10 people[2].

The largest proportion of business enterprise in the District are the Professional, Administration & support services and Construction, both at 17%[3].

The most common age group within Wealden is those aged 50-64 years old (22%). Just under a quarter (23%) of the population is traditional retirement age or above (65+).

Three quarters (78%) of Wealden residents own their home; more (44%) own it outright than do through a mortgage (34%).

90% of Wealden residents are happy with where they live, and 76% happy with the way the Council is run – nationally the figures are 79% and 61% respectively.

Financially Stable and Self-sufficient Council

To avoid cuts to services, the Council continues to explore alternative options of service delivery to ensure that services remain fit for purpose in the context of smaller budgets. This may mean revisiting the expectations of residents in order to protect services for the most vulnerable. It is also an opportunity to work with partners and neighbouring authorities to maintain and improve outcomes against a backdrop of reducing public spending.

A key component of the Council being financially stable and self-sufficient, is the Council’s Commercial Strategy, which provides a framework for activities that:

Form an essential part of the solution to the funding gap, which has arisen due to public sector budget cuts, a restructuring of how local authorities are funded and increasing demographic pressures;
Potentially lead to the generation of disposable income, to provide additional resource to meet the Council’s ambitions and statutory duties for Wealden as set out in other strategies and plans; and
Deliver functions, services and outputs that bring benefits to local people and in doing so helps meet Corporate Plan objectives.

Partners and the Community

The Council continues to work with those partners, as well as service users and our communities, to protect and deliver services in new ways:

Parish and Town Councils – have been proactive in identifying services important to their local communities and working with the District Council and other bodies on local priorities. For example, Mayfield and Five Ashes Parish Council has agreed to commit funding towards a proposed community facility in conjunction with a new doctors’ surgery to be built with funding by Wealden District Council;
Wealden Strategic Partnership – is a non-statutory, multi-agency body, which matches Wealden District Council boundaries, and brings together the different parts of the public, private, community & voluntary, and special interest sectors to work to help improve the life of the residents of Wealden;
Safer Wealden Partnership – brings together a number of agencies from the public, private, education and voluntary sector to improve people’s lives in the area by working together to reduce the levels of crime and anti-social behaviour and to manage the fear of crime;
East Sussex Strategic Partnership – brings together different parts of our local community – public services, local businesses, community groups, voluntary sector organisations and local people. The Partnership helps organisations and individuals work together in a co-ordinated way to plan local services, tackle the issues that matter to local people and improve quality of life in East Sussex; and
Sussex Weald Homes Limited – An initiative to contribute towards the self-financing objective was the Council setting up Sussex Weald Homes Limited in December 2017, a 100% owned subsidiary to build properties that will be rented or sold to the Council and privately, and acquisition of commercial properties.

Corporate Plan

The Council’s Corporate Plan sets out our long-term vision for the district, our aim as an organisation, our strategic priorities and the long-term outcomes that we want to achieve. The Council’s strategic priorities are overarching in their application to prioritising spend. The strategic priorities are:

Engaged Communities
Sustainable Environment
Thriving Economy

These priorities are underpinned by the Council being an ‘Ambitious Council’ through being transparent, accountable, dynamic and forward thinking.

National Priorities

The following sub-sections set out the national priorities, that we have had regard to in producing a costed plan over the period 2023-24 to 2027-28.

Covid-19 Pandemic

The Coronavirus (‘’Covid-19’’) pandemic has had a significant impact through reshaping Council’s services and changing the way Wealden’s residents live, work and socialise. The pace and scale of the support that the Council, with our local partners and communities, have mobilised to help those in need and minimise the spread of infection has been a Herculean effort. Through its business continuity planning, the Council has long prepared for eventualities such as this and worked to maximise its resilience and the ability to continue delivering the key services it provides to Wealden residents and businesses.

The continuing priority for Central Government is providing businesses and individuals with financial support during the Covid-19 pandemic (and administered by Council’s), and protecting vulnerable people. In the Autumn Statement 2022 the Chancellor of the Exchequer announced that support for eligible retail, hospitality and leisure businesses would be extended and increased from 50% to 75% business rates relief to £110,000 per business in 2023-24. There will also be additional support for small businesses which means that small businesses that are losing some or all eligibility for relief will see a bill increase of no more than £50 per month in 2023-24.

The significant levels of public sector debt as a result of Central Government spending to support the economy during the Covid-19 pandemic, as well as lower tax receipts, will need to be repaid and could lead to significant reductions in grant funding over the medium term. However, the successful vaccine rollout has allowed the economy to reopen largely on schedule despite continuing high numbers of coronavirus cases, and the stronger economic recovery has also helped to reduce the fiscal cost of pandemic-related support.

Autumn Statement 2022

The Chancellor of the Exchequer presented the Autumn Statement in 17 November 2022 alongside the Office for Budget Responsibility’s (‘’OBR’s’’) new set of Economic and Fiscal Outlook forecasts. The Autumn Statement responds to the OBR forecasts and sets out the medium-term path for

public finances. This follows the previous Chancellor’s Growth Plan announcements in late September 2022, the majority of which have since been rolled back.

The Autumn Statement included announcements on the following policies and programmes relating to the cost of living, pensions and benefits:

From April 2023, the government will adjust the Energy Price Guarantee (‘’EPG’’), which places a limit on the price households pay per unit of gas and electricity. This means that a typical household in Great Britain will pay £3,000 per annum (up from the current £2,500 per annum) from April 2023 to April 2024, saving £14 billion of government spending.
The government will provide households on means-tested benefits with an additional £900 Cost of Living payment in 2023/24. Pensioner households will receive an additional £300 Cost of Living payment, and individuals on disability benefits will receive an additional £150 Disability Cost of Living payment in 2023/24. These payments will be made on a UK-wide basis.
The government is increasing benefits in line with inflation, measured by September CPI, which is 10.1% this year. This includes increasing the State Pension by inflation, in line with the commitment to the Triple Lock. The standard minimum income guarantee in Pension Credit will also increase in line with inflation from April 2023 (rather than in line with average earnings growth).
The benefit cap will be raised by 10.1%, in line with September CPI, so that more households will see their payments increase as a result of uprating from April 2023. The cap will be raised from £20,000 to £22,020 for families nationally and from £23,000 to £25,323 in Greater London. For single adults, it will be raised from £13,400 to £14,753 nationally and from £15,410 to £16,967 in Greater London.

The following announcements in the Autumn Statement have a direct impact on local government:

Local Government Finance Settlement

Policy Commentary:

The settlement is once again a holding position, designed for stability and certainty for planning purposes and to promote financial sustainability within available resources – this time based on proposed allocations for 2023/24, and a fairly full set of policy principles for 2024/25 published on 12 December 2022, covering 2023-24 and 2024-25, which are the remaining years of the Spending Review 2021 period.

The broad approach is based on a uniform roll-over of the core elements of the settlement; additional resources for priority services; balancing service pressures with taxpayer concerns, through council tax referendum principles; and a fall-back, by way of a minimum funding guarantee, for outlying councils. Finance reform is deferred, once again, at least until 2025/26 and possibly later, as even this could be an ambitious timetable for designing and delivering reform. The period leading up to the General Election provides an opportunity to consider broader changes that are needed.

The 2023-24 local government finance settlement is for one year only, and there remain significant uncertainties for 2024/25, particularly for district councils like Wealden. These include the future of the New Homes Bonus scheme, which is now simply a one-year retrospective payment. There is also uncertainty around the distribution of resources from Extended Producer Responsibility for packaging and on the future position of areas with 100% business rates retention. All of these will inhibit detailed budget planning.

One of the clearest assumptions on which to base forward planning was the admission that the planned Review of Relative Needs and Resources (the ‘Fair Funding Review’) and the planned reset to business rates growth will not be implemented in the next two years.

The recent history of reform goes back quite far, in government terms. In 2012, before the introduction of business rates retention, the Government promised a reset of accumulated business rates growth in 2020. In 2016, they promised a review of the needs assessment formula which would be used in re-allocating the accumulated growth between councils. In 2018, they published major consultation documents on all this, for implementation in 2020/21. Since then, implementation has been successively delayed. At the earliest, implementation will now be until 2025/26 or realistically, depending on the timing of the General Election and the appetite of the new government for reform, until perhaps 2026/27.

The significant reduction on central grants (i.e. Revenue Support Grant) has required the Council to focus on more local self-sufficiency through other forms of local income generation, such as:

Council Tax rate increases, within prescribed referendum limits;
Increases to fees and charges;
Widening the scope of fees and charges by introducing charges for services not previously charged for;
Increasing trading activities to generate surpluses for reinvestment, including the establishment of trading companies; and
Look at ways of commercialising existing services and seeking opportunities to ‘sell’ goods and services externally.

Main Points – 2023-24 local government finance settlement

Business Rates Revaluation 1 April 2023

Business rates revaluation is due to take effect from 1 April 2023, changing business rates income retained locally. It is government policy that retained business rates income from the BRR system should, as far as practicable, be unaffected by either Business Rates Revaluations or the announced movement of ratepayers from local lists to the central rating list at the 2023 revaluation. This will be achieved through there are changes to authorities’ NNDR Baselines (and therefore Top Up/Tariff amounts).

Extended Producer Responsibility for packaging

The 2024/25 settlement will include a new funding stream, subject to successful delivery of the Extended Producer Responsibility for packaging (pEPR) scheme, as soon as is feasible within this financial year. Local authorities can expect to receive additional income from the scheme, whilst being asked to submit data relevant to their waste collection services.

Alongside HM Treasury and the Department for Environment, Food and Rural Affairs, the Department for Levelling Up, Housing and Communities will be assessing the impact of additional pEPR income on the relative needs and resources of individual local authorities in the coming year.

The government will review the 2024/25 position of funding for lower tier authorities, particularly given the possible interactions with the pEPR scheme.

Economic and Fiscal Climate

It is important to note up front that the next few years are particularly uncertain economically and fiscally. There are a number of questions where definitive answers cannot be provided. How high will unemployment rise, how quickly and fully will the economy recover, and what will this mean for councils’ revenues? To what extent will changes in service provision made in an effort to control the Covid-19 pandemic continue, and what will this imply for service delivery costs?

The public sector finances are increasingly coming under pressure, due to the high levels of government debt due to the economic impacts of the Covid-19 pandemic, higher energy prices as a result of the war in Ukraine which is driving higher inflation, and the Bank of England increasing interest rates to reduce inflation. The Office for Budget Responsibility’s (“OBR’s”) Economic and fiscal outlook, published on 17 November 2022 (alongside the Autumn Statement 2022) paints a challenging picture with the following forecasts/expectations:

In the UK, CPI inflation is set to peak at a 40-year high of 11 per cent in the current quarter, and the peak would have been a further 2½ percentage points higher without the energy price guarantee (EPG) limiting a typical household’s annualised energy bill to £2,500 this winter and £3,000 next winter.
Rising prices erode real wages and reduce living standards by 7 per cent in total over the two financial years to 2023-24 (wiping out the previous eight years’ growth), despite over £100 billion of additional government support.
The squeeze on real incomes, rise in interest rates, and fall in house prices all weigh on consumption and investment, tipping the economy into a recession lasting just over a year from the third quarter of 2022.
Unemployment rises by 505,000 from 3.5 per cent to peak at 4.9 per cent in the third quarter of 2024.
The medium-term fiscal outlook has materially worsened since OBR March forecast due to a weaker economy, higher interest rates, and higher inflation (the latter largely due to global factors, so raising public spending much more than it boosts tax bases). Based on policy as it stood in March, government borrowing would have been £108 billion (3.7 per cent of GDP) in 2027-28 and underlying debt would have been rising in every year. Of the £75 billion increase in the pre-measures deficit in 2026-27 relative to March, almost two-thirds is due to higher debt interest costs from higher interest rates, with the energy-shock-driven loss of receipts and the inflation-driven rise in welfare spending the other major factors.

Against this more challenging backdrop, global and domestic risks, the main positive risk would stem from a rapid end to Russia’s invasion of Ukraine that stabilised energy markets and lowered prices. That could relatively quickly feed through to reduced inflationary pressure, smaller rises in interest rates, and a stronger economic recovery

The economic and interest forecast[4] by the Council’s Treasury Management Advisors, Arlingclose, highlights the follows:

Inflation rose consistently in the Euro Zone since the start of the year, hitting a peak annual rate of 10.6% in October 2022, before declining to 10.1% in November. Economic growth has been weakening with an upwardly revised expansion of 0.3% (from 0.2%) in the three months to September 2022. As with the UK and US, the European Central Bank has been on an interest rate tightening cycle, pushing up its three key interest rates by 0.50% in December, following two consecutive 0.75% rises, taking its main refinancing rate to 2.5% and deposit facility rate to 2.0%.

[1] 2021 Census

[2] ONS/Inter Departmental Business Register (IDBR) 2022

[3] ONS/Inter Departmental Business Register (IDBR) 2019

[4] Source: Economic and Interest Rate Forecast, January 2023, Arlingclose

Section 3. General Fund Revenue

Spending Plans

This MTFS is central to identifying the Council’s financial capacity to deliver its vision and strategic priorities within the Corporate Plan, and requires a balance to be struck between the need to support the delivery of the vision with the need to maintain a sustainable financial position. Striking the correct balance between these two requirements becomes ever more difficult in the challenging financial context in which the Council operates. This is compounded by the impact of the cost of living crisis, high inflation and borrowing costs, and the localised business rates funding which is subject to uncertainty and volatility.

The Council’s Corporate Plan is supported by a programme of work containing a range of projects that will meet each of the strategic themes. In the absence of any new Government funding, general cost pressures, and savings underpinning the MTFS, the resources to finance these projects have been made possible by allowing the redirection of resources to the priority areas as well as seeking external financial support in the form of grants and contributions.

It should be noted that the full financial implications of a number of major projects have not been reflected in the costed General Fund Revenue Summary and Capital Programme 2023-24 to 2027-28, because these projects are still being developed These projects are:

Hailsham Aspires Combined Medical and Leisure Hub (Phase 1);
Crowborough Leisure Centre;
Wealden Community Sports Hub; and
Knights Farm West Employment Park.

At the point when a full business case has been assessed and finalised to demonstrate that the capital investment is affordable and sustainable, the full revenue and capital implications will be built into future iterations of the MTFS.

Climate Change

As the Council has declared a Climate Emergency, there will be costs associated with addressing this, where these are known they are built into the MTFS.

It is anticipated that there will be further impact on the General Fund and therefore the Council has set aside earmarked reserves to finance climate change initiatives, which demonstrates the Council’s commitment to reducing the impact of climate change. Thus reserve has been used to allocated funding for solar PV on the roof of the Wealden Crematorium, Electric Vehicle Charging in Council owned and managed car parks and to provide Electric Vehicle charging for new Council electric fleet vehicles.

The UK Environment Bill 2021 received royal assent on 9 November 2021. This Bill covers a wide range of changes including expanding the responsibility for recyclable waste. This could have a significant impact on the Council’s General Fund Revenue and Capital Programme. However, the detail of the Bill and how this affects local authorities is not know at this time to say what this impact would be. Once the detail is known the financial implications will need to be assessed and appropriate funding identified.

The 2024/25 finance settlement will include a new funding stream, subject to successful delivery of the Extended Producer Responsibility for packaging (pEPR) scheme, as soon as is feasible within this financial year. Wealden can expect to receive additional income from the scheme, whilst being asked to submit data relevant to their waste collection services. However, it is unclear at this time if this income will fully cover the costs of the scheme.

Spending Pressures

A review of the financial pressures facing the Council over the period of the MTFS has been undertaken. This information has been drawn from a Star Chamber budget challenge process involving members of the Council’s corporate management team, heads of service and budget holders. This challenge process had regard to the experience of previous years, the current economic climate and local and national issues that are likely to influence the financial outcomes.

Inflation – Pay and Prices

The General Fund MTFS includes a pay award for officers of 3% for 2023/24, and 2% pay award in 2024-25 to 2027-28, plus an estimate of staff increments. The impact of the pay review has been built into the MTFS.

Automatic inflationary increases of budgets are not provided for all goods and services, instead individual inflation rates have been applied for specific items of expenditure (i.e. contracts), all remaining areas of expenditure are maintained at the previous year’s levels, which is in effect a real terms reduction in spending power.

Revenue implications of the General Fund Capital Programme

In section 4. ‘General Fund Capital Programme’, the full expenditure for major projects (where known) i.e. Farningham Road and Mayfield Community Hall and Health Centre, and the loan to Sussex Weald Homes Ltd, has been built into general fund capital programme. This has the following implications for the General Fund – revenue.

Interest Payable on External Loans

New capital expenditure totalling £2.150 million [plus previous expenditure of £18 million] is anticipated to be funded from borrowing and the interest payable associated with this additional borrowing has been built into the MTFS.

Minimum Revenue Provision (“MRP”)

As detailed in the Council’s Capital Strategy, the method of charging MRP[1] will reflect the repayment profile of how the benefits of assets financed by borrowing are consumed over their useful life. MRP however, is only charged once an asset becomes operational, and for the Council’s major projects this is expected to be towards the end of the MTFS period or beyond.

Capital Expenditure Charged to Revenue

Increases in the amount of revenue being used to fund the capital programme are partly negated on the General Fund through the contribution from CIL and earmarked reserves i.e. Capital Investment Fund.

Resources

Business Rates

The MTFS has assumed that Wealden will continue being part of the existing East Sussex Business Rates Pool based on a 50% rate retention, over the period 2023-24 and 2024-25, the agreement to pool is one that is reviewed on an annual basis.

At budget setting in February 2022, business rates for 2023-24 and 2024-25 were estimated to be £3.1 million and 3.3 million respectively. This has improved significantly since then to an estimated £6.4 million [excluding pool gain] for 2023-24 and £6.5 million [excluding pool gain] for 2024-25. This increase is due to the anticipated reset of business rates from 2025-26 as opposed to 2023-24 (delayed from 2020-21). This delay is consistent with announcements by DLUHC and was confirmed in the 2023-24 finance settlement. As part of the reset, the Council will lose any growth it has built up since the last baseline reset in 2013-14. In effect, the Council has benefitted from keeping its growth since 2013, and this reset redistributes the growth. This is a result of how the current redistribution system was designed and implemented in 2013.

Business rates revaluation is due to take effect from 1 April 2023, changing business rates income retained locally. It is government policy that retained business rates income from the BRR system should, as far as practicable, be unaffected by either Business Rates Revaluations or the announced movement of ratepayers from local lists to the central rating list at the 2023 revaluation. The MTFS has therefore assumed there will be no financial impact of the 1 April 2023 business rate revaluation.

The MTFS currently reflects our predicted worst case scenario, as there a number of unknowns that may occur including:

The reset being delayed further (post 2025-26);
The government giving some form of transitional relief to those who lose out and also the impact of the fair funding review;
Any impact this may have on the reform of the business rates system; and
Whether service grant and minimum funding guarantee grant will continue and at what levels.

The estimates will be reviewed throughout the remainder of this year and through next year ahead of setting the budget for 2024-25.

As part of the measures put in place to help councils during the Covid-19 pandemic the Government announced additional legislation in early November, the Local Authorities (Collection Fund: Surplus and Deficit) (Coronavirus) (England) Regulations 2020, which allows councils to spread the estimated 2021-22 collection fund surplus/deficit equally across the next three years. The business rates estimate within the MTFS takes this into account.

Council Tax

The Council’s main income stream is from Council Tax. The 2023/24 finance settlement confirmed that districts [such as Wealden] will be allowed to apply the higher of the referendum limit of 2.99% or £5.

In light of the financial position of the Council and mindful of the potential referendum thresholds the MTFS assumes the following indicative council tax increases and subsequent overall yields:

	2023-24 Budget	2024-25 Estimate	2025-26 Estimate	2026-27 Estimate	2027-28 Estimate
Band D Council Tax (£)	208.49	214.72	221.14	227.75	234.56
Band D Increase (£)	£6.05	£6.23	£6.42	£6.61	£6.81
Band D Increase (%)	2.99%	2.99%	2.99%	2.99%	2.99%
Council Tax Base (Number of Properties) for Tax Setting Purposes	67,793.20	68,293.20	68,793.20	69,293.20	69,793.20
Council Tax Income Estimate – Demand on the Collection Fund	£14.134 m	£14.664 m	£15.213 m	£15.782 m	£16.371 m

The 2023-24 tax base estimate has been calculated in accordance with legislation in December 2022.

Actual council tax increases will be decided on an annual basis taking into account financial circumstances of the Council at the time and the level of resources available. Annual increases remain subject to the decision of both Cabinet and Council.

Revenue Support Grant (“RSG”)

The core grant funding from Government is known as RSG. This MTFS assumes RSG in line with 2023-24 finance settlement [£0.150 million] and forecasts for 2024-25 to 2027-28 [£0.159 million pa].

Central and Specific Grants

Over recent years the number of grants received by the Council from Government has been very limited. Within the revenue budget we receive a small amount of Rural Services Delivery Grant. As part of the 2023/24 final finance settlement, the Council received the following grants, with forecast included for 2024-25 to 2027-28:

Grant	2023-24 Budget £(000)	2024-25 Estimate £(000)	2025-26 Estimate £(000)	2026-27 Estimate £(000)	2027-28 Estimate £(000)
Rural Services Delivery Grant	217	(217	217	217	217
NEW CSP Minimum Funding Guarantee of 3%	1,805	2,203	1,000	1,000	1,000
Services Grant	115	115	115	115	115
New Homes Bonus Grant	753	0	0	0	0

The 2023-24 and 2024/25 amounts in the table above a reasonably certain given the 2023-24 finance settlement and the policy statement published on 12 December 2022, covering 2023/24 and 2024/25. However, it is uncertain this level of funding will be maintained in following years. As set out in the National Priorities section above, there are a number of Government reviews that will change how central grants are distributed between councils i.e. reforming the NHB to reward delivery and the fair funding review which aims to provide updated formulas for assessing councils’ spending needs. When the outcome of these reviews are known the implications for Wealden and the MTFS will be determined. Therefore the forecasts in the table above for 2025-26 to 2027-28 included in the MTFS remain uncertain.

Within some services there are specific grants such as the Homelessness Grant and Housing Benefit & Council Tax Benefit Administration, which are ring-fenced grants and can only be used for clearly defined purposes.

Fees and Charges

The fees and charges levied by the Council are an important source of income. The fees and charges levied include planning fees, garden waste collection and building control.

Cabinet at the meeting held on 13 July 2022 approved a fees and charges policy that provides a consistent approach in setting, monitoring and reviewing fees and charges across the Council. It is normal practice for the Council to review fees and charges annually and propose revised and new charges from 1 April each year. This will include the development of any policies in respect of discounts and concessions. As part of the annual review, all fees and charges are considered.

The fees and charges are approved separately from this MTFS as part of the February round of budget setting for the forth-coming year. Any impact on income budgets arising from these fees and charges are reflected in the income budgets included in this MTFS.

Bridging the gap

The General Fund MTFS includes additional income/ savings targets as set out in the table below:

2023-24

Budget

£(000)

2024-25

Estimate

£(000)

2025-26

Estimate

£(000)

2026-27

Estimate

£(000)

2027-28

Estimate

£(000)

Income/Savings to be identified

(250)

(750)

(1,250)

The Council has had a successful track record in the past of delivering additional income/savings. The Council’s approach to achieving this target will be centred on planning ahead, securing additional income and savings in advance, re-investing in more efficient ways of working and digital services, and adopting a more commercial approach whilst making careful use of reserves to meet funding gaps, and has sought to protect its core services that matter most.

General Fund Revenue Budget and Forecast

Based on the preceding financial objectives, underlying principles, national and local priorities, income/ savings targets, spending pressures and resources assumptions, Appendix 1 provides a five-year (2023-24 to 2027-28) General Fund revenue budget and estimates for the Council.

Hailsham Aspires Combined Medical and Leisure Hub (Phase 1);
Crowborough Leisure Centre;
Wealden Community Sports Hub; and
Knights Farm West Employment Park.

The affordability of these schemes are being assessed in the context of the MTFS and if the business cases are approved, the financial implications will be built into the MTFS.

Risks to the General Fund Revenue Budget and Forecast

The Council has adopted a corporate approach to risk management, and financial risk management is integrated into the Council’s overall management and decision-making processes.

A number of key high-level risks have been identified which could have a positive impact that could yield additional resources, but conversely some risks may have a negative impact and result in a reduction of resources. These key risks are action planned and continually reviewed as the MTFS develops.

The main areas the key risks cover are:

Future [but diminishing] impact of the Covid-19 pandemic;
Fluctuations in the Business Rates tax base;
Future changes to the retained Business Rates system;
Future levels of Central Government funding;
Impact of current economic climate on both demand for services and income streams;
Changes to other key external funding sources;
Changes to other key assumptions within the MTFS; and
Financial and budget management issues.

These risks form part of our financial risk assessment, Officers will continually monitor and appraise these risks as part of the on-going financial management.

[1] MRP is statutory requirement for a Council to make a charge to its General Fund to make provision for the repayment of the Council’s capital borrowing

Section 4. General Fund Capital Programme

The Council’s approach to determining and funding its investment programmes is set out in the Council’s Capital Strategy, which explains the Council’s financial framework for capital investment in support of its strategic priorities. The General Fund Capital Programme covers all aspects of capital expenditure within the Council, with the exception of the Council’s housing stock, and includes external capital investment that assists in achievement of the Council’s Strategic Priorities.

General Fund Capital Priorities

The Capital Programme is made up of a number of rolling programmes which include repairs, maintenance and improvement programmes to car parks, leisure centres and open spaces, as well as continuing investment in IT and Digital services, climate change initiatives and waste containers/ vehicles.

In addition to this, the programme includes a number of major projects that the Council is embarking on:

Hailsham Aspires Combined Medical and Leisure Hub (Phase 1)*;
Crowborough Leisure Centre*;
Wealden Community Sports Hub*;
Knights Farm West Employment Park*;
Farningham Road; and
Mayfield Community Hall and Health Centre.

* As highlighted earlier the full costings of these projects have not been reflected in the Capital Programme 2023-24 to 2027-28, because these projects are still being developed. The affordability of these schemes are being assessed in the context of the MTFS and if the business cases are approved, the financial implications will be built into the MTFS.

Indicative allowances have been included within the capital programme to support an additional £2.150 million of borrowing in excess of the allocations within the existing approved programme over the period bringing the total borrowing up to £20.15 million, and this position will be reviewed as the capital programme is developed.

Any capital investment decision will have implications for the revenue budget. The revenue costs over the lifetime of each proposed capital project are considered when the project is being developed to ensure that the impact can be incorporated within the Council’s financial plans and to demonstrate that the capital investment is affordable. Revenue implications may include the costs associated with supporting additional borrowing as well as any changes to the running costs associated with the asset or wider benefits to the Council such as the delivery of on-going revenue budget savings or additional income through the generation of business rates, lease income and council tax.

Resources

The resources necessary to fund the Council’s General Fund Capital Programme are fully identified in Appendix 2, and are summarised below.

Capital receipts

The Council holds a balance of capital receipts from the disposal of land and buildings. These can only be used to fund capital expenditure unless permission is sought from the Secretary of State to use them for a set of specific revenue purposes such as transformation purposes.

The generation of capital receipts can help to provide resources to support additional capital investment or can help to reduce the borrowing requirement and therefore the cost to the revenue budget. Capital receipts totalling £3.731 million have been included as funding over the period of the capital programme. This will leave a £nil balance of unused capital receipts, (this balance assumes £0.117 million additional sales of general fund assets). If additional capital receipts are generated over and above this balance, this would provide the Council with the flexibility to consider the introduction of additional projects to the capital programme or the ability to reduce the current estimated borrowing requirement built into the capital programme.

Grants and Contributions

The Council continues to explore external funding possibilities when developing capital projects to minimise the borrowing requirement as far as possible. Within the MTFS, assumptions have been made around the level of external funding in the future but detailed work programmes will not be committed to until the allocations have been confirmed. Projects and investment plans may therefore be re-prioritised depending on the availability of external funding.

In the capital programme we are anticipating to secure external contributions to support a number of project (i.e. Mayfield Community Hall and Health Centre), details of which can be seen in Appendix 2.

Grants incorporated in the capital programme include the Disabled Facilities Grant (“DFG”) (£5 million). The continuation of the DFG and the amount has not yet been confirmed, and there is a risk that this funding will reduce, however, even without this grant we have a legal obligation to deliver a number of adaptations to some of our residents and would therefore have to look at other sources of funding to support this.

A number of capital schemes are being funded by CIL (£9 million in total) i.e. Wealden Community Sports Hub and Crowborough Leisure Centre.

Council Resources

The Council uses revenue (referred to as ‘Capital Expenditure Charged to Revenue’) to fund some projects in the capital programme. However, the impact of this is partly negated on the General Fund through a contribution from earmarked reserves i.e. Capital Investment Fund, and income i.e. CIL.

Borrowing

The basic principle of the Prudential System is that local authorities are free to borrow so long as their capital spending plans are affordable, prudent and sustainable. The Council will need to meet the whole of the capital financing costs associated with any level of extra borrowing through its revenue account. These financing costs cover MRP and interest. The use of prudential borrowing will be as a funding mechanism for some key projects i.e. Hailsham Aspires Combined Medical and Leisure Hub (Phase 1) (following a full financial assessment), and may be used as a short-term measure to fund capital expenditure prior to a capital receipt being received i.e. for the loans to Sussex Weald Homes. The MTFS includes a prudential borrowing requirement of £20.15 million over the period 2023-24 to 2027-28.

PWLB loans are no longer available to local authorities planning to buy investment assets primarily for yield. The Council intends to avoid this activity in order to retain its access to PWLB loans.

The Council’s General Fund Capital Programme does not include capital expenditure to buy or construct capital assets primarily for income, nor does the Council have commercial investments which it would need to use instead of borrowing.

Further details about the Council’s borrowing requirements (and impact of the changes to the Prudential Code) and the Prudential Indicators can be found in the Council’s Capital Strategy and Treasury Management Strategy.

General Fund Capital Programme

The capital spending plans for the next five years include the delivery of key capital schemes identified to support the delivery of the Council’s Corporate Plan. Appendix 2 provides a five-year (2023-24 to 2027-28) General Fund Capital Programme for the Council.

Risks to the General Fund Capital Programme

The Council has adopted a corporate approach to risk management and financial risk management is integrated into the Council’s overall management and decision-making processes.

A number of key high-level risks have been identified which could have a positive impact but conversely some risks may have a negative impact and result in a reduction of resources. These key risks are action planned and continually reviewed as the MTFS develops. The main areas they cover are:

Loss of anticipated external resources;
Increased project costs as a result of inflationary pressures;
Raising borrowing interest rates; and
Unplanned emergency maintenance to Council’s corporate properties.

Section 5. Housing Revenue Account

The Housing Revenue Account (‘’HRA’’) shows all expenditure and income relating to the Council’s responsibilities as landlord of dwellings and associated property. It is a ‘ring-fenced’ account within the Council’s General Fund.

Housing Revenue Account Business Planning

HRA Self-financing was implemented from 1 April 2012 following a one-off settlement to the Treasury, in order to ‘buy out’ of the old subsidy system. The new system incentivised landlords to manage their assets well and yield efficiency savings. It was anticipated that there would be greater certainty about future income as councils were no longer subject to annual funding decisions by Central Government, enabling them to develop long-term plans, and to retain income for reinvestment. Council landlords were to have greater flexibility to manage their stock in the way that best suits local need with more opportunity for tenants to have a real say in setting priorities looking to the longer term.

Self-financing, however, also significantly increased risks from Central Government to local authorities, meaning that the Council:

Now bears the responsibility for the long term security and viability of council housing in Wealden;
Has to fund all activity related to council housing, from the income generated from rents, through to long term business planning;
Is more exposed to changes in interest rates, high inflation and the financial impact of falling stock numbers;
Needs to factor in the impact of changes in government policy e.g. the impacts of the welfare reform on income recovery, and rent setting; and

This places a greater emphasis on the need for long-term planning for the management, maintenance and investment in the housing service and housing stock.

The HRA Business Plan

A key element of the self-financing regime is for the Council to construct a 30-year Business Plan for the HRA. The HRA Business plan is a key contributor to the Council’s overall aims and the Council’s Housing Strategy. The Council has also fully embraced the Government priority of “fixing our broken housing market” by delivering new build Council Housing to contribute to diversification of the local housing market.

The Council’s Housing Revenue Account Business Plan 2021-2051, updated during the summer of 2021, was approved by Cabinet in October 2021. The plan reflected national and housing policy, legislation and best practice at that time and included the need for further improvements to the energy efficiency of our homes to reduce carbon emissions, additional fire safety measures in anticipation of changes to the Building Regulations and ongoing investment in building new homes. The Business plan sets out:

The long term plans for the Council’s housing stock, including the decarbonisation of our homes;
The finances to deliver plans;
How the Council will manage the income from its stock, demand for housing and stock condition; and
Identifies resources for building new council dwellings.

Although the HRA budget estimates included in the MTFS broadly reflect the Business Plan strategies, the MTFS has been updated to reflect:

The Governments temporary amendment to it’s policy on rents for Social Housing, by limiting rent increases for 2023/24 to 7%, reverting to CPI plus 1% from 2024/25;
Significant increases in inflation impacting on our contracts costs and cost of services;
One for one replacement of Right to Buy sales and continuation of the Council’s New Build programme;
Appropriate capital investment in maintaining the quality of the housing stock through planned maintenance and replacement works; and
Servicing and repaying debt so that new borrowing is available for future maintenance works or investment in further new build schemes.

The Business Plan is a living document which sets out our short, medium and long-term strategies for the management, maintenance, improvement and addition to the Council’s housing stock. It is continually reviewed on a regular basis to ensure that the priorities reflect local need and political aspirations, to ensure the investment proposals remain fundable and the assumptions on which the plan are based remain correct and that the HRA remains a sustainable and viable entity over the 30-year period. The 30-year Business Plan assumptions will be further reviewed during 2023/24.

Spending Plans

Spending plans included within the HRA support the delivery of the Council’s strategic priorities within the Corporate Plan and Housing Strategy. The revenue expenditure has been forecast to manage and maintain the Council’s housing stock.

Climate Change

Within the HRA, £5 million has been built into the Capital Programme for decarbonisation works. It has been necessary to drawdown £3.9 million out of the HRA earmarked reserve set aside for climate change initiatives to fund these works, leaving balance of £0.050 million in the reserve.

The HRA have applied for Social Housing Grant Funding £2.334 million, if this bid is successful the budget and funding will be added to the HRA Capital programme 2023-24 and 2024/25.

Spending Pressures

A high level review of the financial pressures facing the Council over the period of the MTFS has been undertaken. This information has been drawn from experience in previous years, the advice of Corporate Directors, Heads of Service and Budget holders. This process had regard to the experience of previous years, the current economic climate and local and national issues that are likely to influence the financial outcomes.

Inflation – Pay and Prices

The HRA MTFS includes a pay award for officers of 3% for 2023/24, and 2% pay award in 2024-25 to 2027-28, plus an estimate of staff increments. The impact of the pay review has been built into the MTFS.

Repairs and Maintenance

The level of expenditure for revenue repairs proposed for 2023/24 is £4.203 million. This covers costs such as responsive repairs, cyclical works, void repairs and redecoration.

High contract inflation and increased demand on the repairs service has put significant pressure in this budget area. The recent outcome of the coroner’s report and media interest on the issues of dampness, mould and condensation, have led to the Secretary of State, the Regulator of Social Housing and the Housing Ombudsman to write formally to all local authorities and social housing Registered Providers. It is considered likely there will be specific additional requirements placed on all landlords to ensure their properties have measures in place to prevent such problems from occurring.

Revenue implications of the HRA Capital Programme

Depreciation – must be charged to the HRA in accordance with proper accounting practices, it reflects the decline in the value of the HRA council’s stock over time due to wear and tear. The calculation is based on the social housing valuation of the councils stock. The Councils stock is revalued each year and the depreciation value will fluctuate depending on the annual valuations of the Council’s housing stock. Depreciation is transferred to a major repairs reserve to fund the HRA capital programme. This amounts to £4.250 million for 2023-24 and increases in future years to reflect the increases in housing stock from new builds and inflation.

Interest Payable – is associated with additional borrowing for capital expenditure on the Housing investment programme, including interest payable on the balance of £44.3 million for the self- financing transaction from 2011-12.

Provision for Loan Repayments – planned loan repayments have been updated in the MTFS which is key to self-financing and creating opportunities for new borrowing for investment in new builds and major repairs.

Capital Expenditure Charged to Revenue – the amount of revenue that is being used to fund the capital programme between 2023-24 to 2027-28 is £8.06 million. £3.9 million of this revenue funding is being transferred from HRA earmarked reserves to fund the decarbonisation programme. £2.86 million is being funded through a reduction in the general HRA reserves towards for the development of the former Streatfield House site into 20 new homes. The balance of revenue funding of £1.3 million supports the planned maintenance programme over the MTFS period.

Debt write off and impairment

Income collection became more challenging due to the impact of the Covid-19 pandemic, although the position did improve following the rollout of the vaccine and ending of lockdown restrictions.

The transition to universal credit means that some rents that would have been received automatically are now recoverable from the tenant. Tenants are also facing challenges over rises in the cost of living and increases in energy bills. Where tenants suffer a financial impact from the current economic climate, arrears are likely to increase, with a potential for further write offs/debt provision, which represents a cost to the council.

Taking the above into account the budget provision for debt write offs and impairment has been reviewed and the current annual provision of £0.180 million is adequate for this purpose.

Resources

Rents and Service Charges

The governments Autumn Statement announced the outcome of its consultation on setting a lower ceiling on social housing rent increases in 2023-24, with a cap being set at 7% for rent increases (the background to this cap is detailed the paragraphs below).

As a result of high inflation already placing pressure on many households, including social housing, on 31st August 2021 the government launched a six-week consultation on setting a lower ceiling on social housing rent increases in 2023-24. The consultation set out several options where this ceiling could be set, being 3%, 5% or 7%. It also recognised that imposing a ceiling on rent increases would leave social housing providers with less money to invest in providing new social housing, improving the quality and energy performance of their existing homes and providing services to tenants. The existing government rent policy for social housing allows for rent increases of CPI+1% based on the CPI rate in the previous September. When the rent policy was set in 2019, the inflation was forecast to be around 2% in 2022 and 2023. In September 2022 CPI was 10.1% which could have meant increases rent increases from April 2023 to 31 March 2024 of up to 11.1%.

Having reviewed the responses to the consultation, the Government has decided that a 7% cap strikes an appropriate balance between protecting social tenants from high rent increases, and ensuring that providers of social housing are able to continue to invest in new and existing social housing and provide decent homes and services to tenants. The government will implement this decision by issuing a statutory Direction to the Regulator of Social Housing.

In line with the Government’s temporary amendment to the policy on rents for social housing, rents will be increasing by 7% in 2023-24. The average rents are shown in the table below:

When properties become vacant, they will continue to be re-let at Formula Rent, in line with the social rent policy.

The rent for shared ownership properties are not covered by the social policy rent cap of 7% and would normally increase in accordance with their lease, which is RPI + 0.5% for our Affordable General Needs Housing (currently 11 units). This could mean high increases of around 14% (depending on RPI indices in 2023) and would come at a time when shared owners will also be facing other pressures on their household finances, including rising interest rate. The government wrote to housing authorities in December 2022, to ask for a voluntary commitment to limiting rent increases for shared owners to be no more than 7%, noting that 90% of housing associations had already made this commitment. The recommended increase for shared ownership rents is therefore 7%.

It should be noted that the retirement living shared ownership properties (approximately 77 units) lease terms have the same rental increases as our retirement living social rents and will be increase 7%.

The additional income generated by the rent increase of 7% will be utilised on a number of HRA items including; maintenance of the stock, supervision and management resources, paying for the cost of investment and running costs where appropriate for the stock.

The MTFS assumes rent increases in line with social rent policy of CPI + 1% per annum from 2024-25. The dwellings rent budget also allows for increased rental income from new build properties and reductions in rental income from RTB sales and voids.

Service Charges

Tenants – in addition to the rent some tenants may also pay service charges. Rents are generally taken to include all charges associated with the occupation of the property, such as maintenance and general housing management services. Service charges reflect additional services which may not be provided to every tenant, or which may be connected with communal facilities. These service charges are reviewed annually and calculated on a per property basis to recover the actual cost of the service. Tenants will be notified in writing of any changes in their rent and service charges for the coming year April to March. The rent notification letter will set out a schedule of services that will be provided and how much we will charge for them. We will only increase service charges within the legal requirement that they will not exceed the cost of the services and will always be reasonable

Leaseholders (Retirement Living, Shared Ownership and Right-to-Buy) – service charges to leaseholder are charged in accordance with their lease. Service charges are calculated to recover the costs of providing communal services, such as cleaning, repairs, grounds maintenance and electricity. Not all leaseholders receive additional services and the amount that is charged will depend on the type of property a leaseholder lives in, and what services are provided.

Shared ownership Retirement Living leaseholders will be notified in writing how much service charges they will have to pay for the year, April to March. The notification will also tell them of any changes in their rent, where payable, for the coming year.

Right-to-Buy leaseholders are usually notified in April with an annual estimated charge and again within six months of the year end with the Final account figures.

Interest Receivable

Interest is received on HRA cash balances during the year. This has significantly increased during 2022/23 and forecast to continue in 2023/24 due to increased interest rates, then starts to reduce over the remaining four years of the MTFS period as general reserve balances are reducing.

Other Income

Other income includes income received from feed in tariffs on solar panels on council dwellings of approximately £0.065 million per annum.

Housing Revenue Account Budget and Forecast

Appendix 3 provides a summary HRA revenue budget and estimates for the period 2023-24 to 2027-28.

Risks to the HRA Budget and Forecast

The Council has adopted a corporate approach to risk management, and financial risk management is integrated into the Council’s overall management and decision-making processes.

The main areas the key risks cover are:

Risk of government announcements limiting the flexibilities and freedoms offered by the HRA Self -Financing regime;
Government changes to legislations such as the Decent Homes review, Building Safety regulations and uncertainty of rent policy from 2025-26;
Economic shocks such as shortage of labour, building costs;
Changes to key assumptions within the MTFS e.g. inflation, interest rates etc;
Efficient delivery of housing repairs;
Impact on the rental income estimates included in the MTFS from any delays in the delivery of the New Build Programme;
Ability to release further revenue resources for investment and improvements;
Changes to other key external funding sources;
The impacts of the Welfare Reform Act; and
Financial and budget management issues.

These risks form part of our financial risk assessment, Officers will continually monitor and appraise these risks as part of the on-going financial management

Section 6. Housing Revenue Account Capital Programme

HRA Capital Priorities

The Housing Revenue Account Capital Programme covers all aspects of capital expenditure relating to the Council’s landlord function. The Council’s approach to determining and funding its investment programmes is set out in the Council’s Capital Strategy, which explains the Council’s financial framework for capital investment in support of its strategic priorities. The Capital Strategy for the Housing Revenue Account capital programme reflects the self-financing housing regime.

The five-year Housing Revenue Account Capital Programme has been drawn up to ensure that the Council meets its legal obligations as a landlord. The Council has already invested significant resources over recent years to achieve the Decent Homes Standard.

The five-year housing programme comprises the following main areas of work:

Maintenance of the Decent Homes;

Health & Safety Requirements – covers the work to meet statutory requirements, and includes fire safety, communal lighting and asbestos removal;

Decarbonisation works;

New Build and acquisition programme to deliver approximately 116 new council dwellings within the HRA;

LA Social Housing Fund Programme to deliver 12 council dwellings for Ukrainian and Afghan refugees; and

ICT investment for a new Housing Management system to be procured over the next few years and for the installation of Wi-Fi in retirement living communal areas.

Investment in our existing stock reflects the stock condition survey requirements and deliverability of these requirements through our contractors. The Fire Safety Act and Building Safety Bill requires significant and continued capital investment into the existing stock to ensure compliance with the regulations. The cost implications of the government’s Decent Homes Standard review are not yet known and are therefore not included in the current HRA investment plan. A review of the programmed works will be required once the new standard is announced.

Wealden has the ambition to become carbon neutral by 2050. This will require changes in the way that we manage our existing stock, cost and policy implications and our plans for investing in new council homes. The investment programme currently includes £1 million per annum for decarbonisation works. This was based an approximate benchmark cost of £20,000 per property. This will only go half way to meeting the 2050 target. External Grant funding has started to become available and the Council has recently bid for £2.3 million of government grant through the Social Housing Decarbonisation Fund. This has not been included in the current capital programme budget estimates, as the outcome of this bid will not be known until February/March 2023. If successful, the capital programme will be updated accordingly.

In late December 2022, the Government wrote to local authorities regarding the £500 million LA Housing Fund to support local authorities to provide ‘move on and settled accommodation’ for Ukrainian and Afghan refugees. Wealden had been provisionally identified as eligible for capital grant to provide new homes for these refugees. The delivery timescale is November 2023. The grant would cover approximately 40%-50% of the expenditure with the Council being required to match fund the remaining 60%/50%. The Council had to respond to DHULC by the 25^th January with basic details of our delivery proposals including the number of units that could be delivered and match funding, the validation response required the support of the Council’s s151 Officer. In line with the Council’s response, the HRA capital programme includes the delivery of 12 homes with the supporting grant of approximately £1.936 million.

Resources

The resources necessary to fund the Council’s HRA Capital Programme are fully identified in Appendix 4.

Major Repairs Reserve

The Major Repairs Reserve (‘’MRR’’) is the main source of capital funding and the mechanism by which timing differences between resources becoming available and being applied are managed. The MRR may be used to fund capital expenditure and to repay existing debt. Depreciation is a real charge on the HRA and is paid into the MRR from the Housing Revenue Account (see Appendix 3) to fund capital expenditure. The total support to the capital programme over the five-year MTFS period 2023-24 to 2027-28 through depreciation is £25.38 million.

Capital Receipts

Housing capital receipts fall within the Governments pooling regime. Under these arrangements capital receipts from Right-to-Buy (‘’RTB’’) sales are pooled until a pre-set limit for government share of the income generated has been achieved. Non-RTB sales primarily are excluded from the pooling arrangement and are now retained in full by the Council for use as the Council sees fit.

Once the target for the government share of the RTB receipts has been reached, the Council may retain 100% of the receipts from any additional RTB sales. These are subject to a formal retention agreement between the Council and the DLUHC. Following the announcement in the Spending Review 2021, the Council will now be allowed to spend these over a longer timeframe (increasing to five years from three years), to pay up to 40% of the cost of a new home (up from 30%), and to allow them to be used for shared ownership and First Homes

New Build Shared ownership sales receipts are used towards funding the New Build shared ownership housing.

The New Build programme is primarily funded by retained RTB receipts, shared ownership receipts and borrowing.

The proceeds of dwelling sales under the RTB scheme provide a regular source of capital receipts with the number of sales estimated to be c.12 per annum. RTBs sales applications have started to slow towards the end of 2022/23 with no new applications in the last few weeks (as at January 2023). This is understandable given the current economic climate. The MTFS assumes only 5 sales in 2023-24 increasing to 12 sales per annum from 2026/27. However, this is a difficult area to predict accurately as it is impacted by external factors, such as interest rates, property prices and Government initiatives aimed at further stimulating RTB sales.

Grant Funding

Grant Funding of £1.936 million from the government’s LA Housing Fund is included in the budget proposals to support delivery of new homes to Ukrainian and Afghan refugees.

Council Resources

The MTFS 2023-24 to 2027-28 includes £8.06 million of direct revenue contributions over the five-year period. £3.9 million of this revenue funding is being transferred from HRA earmarked reserves to fund the Decarbonisation programme. £2.86 million is being funded through a reduction in the general HRA reserves towards for the development of the former Streatfeild House site into 20 new homes. The balance of revenue funding of £1.3 million supports the planned maintenance programme over the MTFS period.

Borrowing

The Prudential Code allows the Council to take borrowing if it can demonstrate that such borrowing is affordable, sustainable and prudent in its Prudential Indicators (detailed in the Capital Strategy and Treasury Management Strategy). In October 2018, the government announced the removal of the HRA borrowing cap and issued local authorities determinations to confirm that the removal of the cap was to take immediate effect. Prior to the lifting of the debt cap, Wealden had reached its maximum borrowing it could undertake without eating into the margins of safety (the debt limit imposed was £71.679 million). The Council has now set its own prudential limit for the HRA of £95 million. As with all borrowing decisions, the council will still need to take into account the affordability of borrowing against available revenue streams.

The removal of the debt cap and high value council housing levy gives local housing authorities more certainty for future HRA Business Planning. In light of this, the Council previously agreed the use of HRA balances to fund the HRA Capital New build investment programme scheme Streatfeild House. The HRA balances minimum recommended level is 5% of the budget, which is in the region of £1 million. The use of the HRA general balances over the MTFS period reduces the balances to £1.2 million, which is still above the recommended level.

The graph below shows the position of the budget proposals for borrowing for the HRA Capital Programme against the prudential borrowing limit of £95 million.

CFR = HRA Capital Financing Requirement, measures the HRA underlying need to borrow to finance the capital programme

Following the implementation of HRA self-financing on 1 April 2012 the Council has £44.3 million of external debt relating to housing stock, which is being repaid over 30-years. In addition to this, the Council has undertaken further internal borrowing of £30 million as at 2022-23. The provision to repay debt over the MTFS period is £10.8 million with further borrowing of £27.1 million to fund the HRA Capital Programme. This leaves borrowing headroom of £4.4 million.

HRA Capital Programme

Based on the spending requirements and resource assumptions, Appendix 4 provides a summary HRA capital programme, 2023-24 to 2027-28.

The revenue implications of all capital schemes, have been taken account of and included within the HRA budget (see Appendix 3).

Risks to the HRA Capital Programme

The Council has adopted a corporate approach to risk management and financial risk management is integrated into the Council’s overall management and decision-making processes.

Generation of sufficient revenue surpluses to resource required investment;
Achievement of capital receipts (including Right to Buy sales) targets;
Future building costs; and
Interest rate increases impacting on future borrowing costs.

Section 7. Reserves and Balances

The minimum prudent levels of reserves and balances that the Council should maintain are a matter of judgement. It is the Council’s safety net for unforeseen circumstances and must last the lifetime of the Council unless contributions are made from future years’ revenue budgets. CIPFA guidance does not set a statutory minimum level but it is up to local authorities themselves, taking into account all the relevant local circumstances, to make a professional judgement on what the appropriate level of reserves and balances should be.

Some reserves and balances are essential for the prudent management of the Council’s financial affairs. These will provide a working balance to cushion the impact of uneven cash flow, a contingency for the impact of unexpected events or emergencies and allow the creation of earmarked reserves to meet known liabilities. The consequences of not keeping a minimum level of reserves can be serious and is therefore one of the considerations taken into account when setting the MTFS.

The Council has a very proactive approach to managing risk and there are effective arrangements for financial control already in place. However, as a result of the changes to the core system of local government funding introduced in April 2013, which saw a move from an absolute funding level to one which is very sensitive to changes in the level of local business rates, the level of volatility and risk to the Council significantly increased. Given this uncertainty of funding that this poses to the Council’s financial position, the prudent minimum level of general reserves is now held at a level greater than previously.

The financial risks identified throughout this document, and an assessment of the estimated exposure, likelihood and possible mitigation of these has been made in the context of the Council’s overall approach to risk management and internal financial controls. This information has been used to determine the optimum level of reserve holdings needed to meet the requirements of a working balance and contingency. The conclusion of this risk assessment is that it is deemed prudent that General Fund reserves are maintained at around £2 million – £3 million, and that Housing Revenue Account reserves are maintained at around £0.9 million – £1 million, over the period of the MTFS.

The general reserves at the end of each year for 2023-24 to 2027-28 are summarised in the table below:

General Reserves

2023-24

Budget

£(000)

2024-25

Estimate

£(000)

2025-26

Estimate

£000

2026-27

Estimate

£(000)

2027-28

Estimate

£(000)

General Fund (see Appendix 1)

5,452

5,748

5,758

6,178

5,261

HRA (see Appendix 3)

1,162

1,151

1,180

1,147

The overall levels of General Fund and Housing Revenue Account balances are in line with the prudently assessed minimum level of balances, and are believed to be sufficient to meet all of the Council’s obligations over the duration of the MTFS and have been based on a detailed risk assessment.

Appendix 1 General Fund Revenue Summary

General Fund Summary	2023-24	2024-25	2025-26	2026-27	2027-28
	Budget	Estimate	Estimate	Estimate	Estimate
	£(000)	£(000)	£(000)	£(000)	£(000)
Members	397	404	411	419	427
Chief Executive’s Directorate	4,446	4,414	4,397	4,389	4,372
District Council Elections	300	0	0	0	300
Customer & Community Services	12,240	12,604	12,690	12,599	12,745
Planning, Policy & Environmental Services	4,017	4,018	4,031	4,044	4,060
Legal, Governance & Strategic Projects	1,726	1,480	1,448	1,445	1,445
Central Costs	419	419	419	419	419
Total Cost of Services	23,545	23,339	23,396	23,315	23,768
Income/Savings to be Identified	0	0	(250)	(750)	(1,250)
Provision for future pay awards & increments	0	500	960	1,380	1,800
Drainage Levies	92	94	97	100	102
Interest from Investments/ Dividend from SWH	(2,630)	(2,130)	(1,800)	(1,730)	(1,750)
Interest payable on external loans	525	405	125	35	35
Charges to the Housing Revenue Account:
Support Services	(1,163)	(1,196)	(1,232)	(1,265)	(1,298)
Minimum Revenue Provision	312	318	325	333	340
Capital Expenditure Charged to Revenue	12,666	7,669	6,640	579	572
Net Cost of Services	33,347	28,999	28,261	21,997	22,319

Business Rates/Revenue Support Grant
East Sussex Business Rates Pool and Revenue Support Grant	(7,350)	(7,459)	(3,259)	(3,259)	(3,259)
General Grants
Rural Services Delivery Grant/ New Homes Bonus Grant/ Services Grant/ Minimum Funding Guarantee Grant/ CIL	(4,890)	(3,535)	(7,332)	(1,332)	(1,332)
Other Financing
Contributions to/(from) Earmarked Reserves	(7,581)	(3,637)	(2,467)	(2,044)	(441)
Contributions to/(from) General Fund Balance	608	296	10	420	(916)
Council Tax Requirement	14,134	14,664	15,213	15,782	16,371

Funded By:
Council Tax Demand on the Collection Fund	(14,134)	(14,664)	(15,213)	(15,782)	(16,371)

Council Tax Base
Tax Base for Tax Setting Purposes	67,793.20	68,293.20	68,793.20	69,293.20	69,793.20

Note: The figures in the ‘cost of services’ section above are net figures, these therefore include income we receive from planning fees, crematorium, vicarage fields etc.

Appendix 1 General Fund Revenue Summary (cont’d)

Council Tax	2023-24	2024-25	2025-26	2026-27	2027-28
Council Tax	Budget	Estimate	Estimate	Estimate	Estimate
Band D Council Tax – previous year	202.44	208.49	214.72	221.14	227.75
Increase in Band D	6.05	6.23	6.42	6.61	6.81
% increase	2.99%	2.99%	2.99%	2.99%	2.99%
Band D Council Tax	208.49	214.72	221.14	227.75	234.56
Council Tax Income	14,134,204	14,663,916	15,212,928	15,781,526	16,370,693

General Fund Balance	2023-24	2024-25	2025-26	2026-27	2027-28
	Budget	Estimate	Estimate	Estimate	Estimate
	£(000)	£(000)	£(000)	£(000)	£(000)
Opening Balance	4,844	5,452	5,748	5,758	6,178
Movement in Year	608	296	10	420	(916)
Closing Balance	5,452	5,748	5,758	6,178	5,261

Earmarked Reserves Balance	2023-24	2024-25	2025-26	2026-27	2027-28
	Budget	Estimate	Estimate	Estimate	Estimate
	£(000)	£(000)	£(000)	£(000)	£(000)
Opening Balance	38,765	31,184	27,547	25,080	23,036
Movement in Year	(7,581)	(3,637)	(2,467)	(2,044)	(441)
Closing Balance	31,184	27,547	25,080	23,036	22,595

Appendix 2 General Fund Capital Programme

General Fund Capital Programme	2023-24 Budget	2024-25 Estimate	2025-26 Estimate	2026-27 Estimate	2027-28 Estimate
General Fund Capital Programme	£(000)	£(000)	£(000)	£(000)	£(000)
Housing
Disabled Facilities Grants	1,000	1,000	1,000	1,000	1,000
Housing Renewal Grants	10	10	10	10	10
Total Housing	1,010	1,010	1,010	1,010	1,010
Land and Buildings
Hailsham Aspires	4,060	3,379	81	14	0
Mayfield Community Hall and Health Centre	3,065	2,133	0	0	0
Crowborough Leisure Centre	2,309	5	0	0	0
Farningham Road	799	771	0	0	0
Wealden Community Sports Hub	70	2,086	6,000	0	0
Knights Farm West Employment Park	5,023	47	48	48	49
Leisure Centres – General	25	25	25	25	25
Vicarage Lane Office & Civic Community Hall	60	210	10	10	10
Jack Cade memorial	15	0	0	0	0
Birling Gap Steps	0	150	0	0	0
Car Parks & Unadopted Roads	65	60	50	50	50
SANGS Crowborough	10	10	10	10	10
SANGS Uckfield	16	16	16	17	17
Cuckoo Trail	75	25	25	25	25
Public Conveniences	35	0	0	0	0
Vicarage Shopping Units	110	110	0	0	0
Total Land and Buildings	15,737	9,027	6,265	199	186
Vehicles and Equipment
ICT Investment Programme	550	100	100	100	100
IT Visualisation Environment	214	0	0	0	0
Refuse & Recycling Containers/ Vehicles	262	1,230	275	280	286
Air Pollution Monitors	20	0	0	0	0
Total Vehicles and Equipment	1,046	1,330	375	380	386
Other Capital Expenditure
Investment in Sussex Weald Homes Ltd	0	2,150	0	0	0
Total Other Capital Expenditure	0	2,150	0	0	0

Total General Fund Capital Programme	17,793	13,517	7,650	1,589	1,582

FUNDED BY:
Borrowing	0	(2,150)	0	0	0
Capital Receipts	(2,353)	(1,378)	0	0	0
Government Grants – Better Care Fund DFG	(1,000)	(1,000)	(1,000)	(1,000)	(1,000)
Home Improvement Loans Repayments	(10)	(10)	(10)	(10)	(10)
Capital Expenditure Charged to Revenue	(12,666)	(7,669)	(6,640)	(579)	(572)
Contribution from Mayfield Parish Council	(1,765)	(1,235)	0	0	0
Contribution from National Trust	0	(75)	0	0	0
Total General Fund Capital Programme Funding	(17,793)	(13,517)	(7,650)	(1,589)	(1,582)

Appendix 3 Housing Revenue Account

Housing Revenue Account	2023-24	2024-25	2025-26	2026-27	2027-28
	Budget	Estimate	Estimate	Estimate	Estimate
	£(000)	£(000)	£(000)	£(000)	£(000)
Dwelling Rents	(15,911)	(17,110)	(17,891)	(18,823)	(19,198)
Non-Dwelling Rents	(170)	(170)	(170)	(170)	(170)
Charges for Services & Facilities	(1,418)	(1,487)	(1,517)	(1,547)	(1,577)
Interest Income	(148)	(90)	(63)	(43)	(49)
Contribution to amenities shared by the community	(70)	(70)	(70)	(70)	(70)
Other Income	(83)	(84)	(86)	(86)	(87)
Total Income	(17,800)	(19,011)	(19,797)	(20,739)	(21,151)

Supervision & Management	2,756	2,768	2,801	2,839	2,874
Repairs & Maintenance	4,203	4,391	4,585	4,712	4,842
Retirement Living Courts	1,193	1,227	1,247	1,265	1,284
Rents, Rates, Taxes & Other Charges	162	163	163	164	165
Depreciation	4,250	4,710	5,050	5,480	5,890
Debt Management Expenses	48	50	51	55	54
Loan Interest	2,373	2,706	2,946	3,141	3,070
Provision for loan repayments	2,282	2,200	2,100	2,100	2,100
Capital Expenditure Charged to Revenue	3,960	1,290	1,310	1,250	250
Write Offs and Debt Impairment Charges	180	180	180	180	180
Sub Total	21,408	19,684	20,434	21,187	20,710
Provision for future pay awards & increments	0	68	115	164	214
HRA Contribution to Corporate Costs	232	234	234	234	235
Contributions to/(from) Earmarked Reserves	(975)	(975)	(975)	(875)	25
Total Expenditure	20,665	19,011	19,808	20,710	21,184

(Surplus)/Deficit for the year	2,865	0	11	(29)	33

Housing Revenue Account Balance	2023-24	2024-25	2025-26	2026-27	2027-28
	Budget	Estimate	Estimate	Estimate	Estimate
	£(000)	£(000)	£(000)	£(000)	£(000)
Opening Balance	4,027	1,162	1,162	1,151	1,180
Movement in Year	(2,865)	0	(11)	29	(33)
Closing Balance	1,162	1,162	1,151	1,180	1,147

Earmarked Reserves Balances	2023-24	2024-25	2025-26	2026-27	2027-28
	Budget	Estimate	Estimate	Estimate	Estimate
	£(000)	£(000)	£(000)	£(000)	£(000)
Opening Balance	4,333	3,358	2,383	1,408	533
Movement in Year	(975)	(975)	(975)	(875)	25
Closing Balance	3,358	2,383	1,408	533	558

Appendix 4 Housing Revenue Account Capital Programme

Housing Revenue Account Capital Programme	2023-24	2024-25	2025-26	2026-27	2027-28
	Budget	Estimate	Estimate	Estimate	Estimate
	£(000)	£(000)	£(000)	£(000)	£(000)
New Build Programme	13,340	9,169	4,909	4,800	2,500
LA Housing Fund Programme	4,500	0	0	0	0
Planned Maintenance	5,430	5,630	5,630	5,630	5,630
Decarbonisation Programme	1,000	1,000	1,000	1,000	1,000
IT Investment	270	0	0	0	0
Shared Ownership Repurchases	300	300	300	300	300
Total Housing Revenue Account Capital Programme	24,840	16,099	11,839	11,730	9,430

FUNDED BY:
Loan	(11,317)	(8,313)	(4,273)	(3,174)	(1,464)
1-4-1 Right to Buy Receipts	(2,249)	(881)	(906)	(1,526)	(1,526)
Other Capital Receipts	(1,128)	(905)	(300)	(300)	(300)
Grant Funding – LA Housing Fund Programme	(1,936)	0	0	0	0
Major Repairs Reserve	(4,250)	(4,710)	(5,050)	(5,480)	(5,890)
Capital Expenditure Charged to Revenue	(3,960)	(1,290)	(1,310)	(1,250)	(250)
Total Housing Revenue Account Capital Programme Funding	(24,840)	(16,099)	(11,839)	(11,730)	(9,430)

2022-23 to 2026-27

Forward

Welcome to this latest version of Wealden’s General Fund Medium Term Financial Strategy covering the period 2022-2027.

Wealden District Council (“The Council”, “Wealden”, “we”, “our”) is continuing to operate in an environment of uncertainty due to the on-going Covid-19 crisis. As a result financial planning is becoming increasingly complex, requiring multiple variables to be balanced in an environment of increasing uncertainty. Having a thorough understanding of the financial outlook and the associated impact on the organisation’s ability to achieve its strategic objectives is an essential starting position for future planning and ensuring sustainability. Resources are becoming scarcer, which coupled with increasing pressures and demands on services, makes it more challenging to ensure that resources are effectively targeted.

Managing growth to meet future needs;
Protecting and enhancing Wealden’s unique rural character and environment;
Supporting our local economy and local businesses;
Generating sustainable sources of income to invest in local priorities; and
Helping to improve connectivity and access to services for all our communities.

It is the Council’s commitment to use the financial resources it employs over the coming years to make a positive difference to the area and its residents, and achieve value for money.

Since 2010 the Council, alongside the majority of other local authorities, has experienced unprecedented financial challenges in various forms and has had to adapt to:

The impact of Central Government funding reductions;
The Coronavirus (‘’Covid-19’’) pandemic which has reshaped the Council’s services and changed the way Wealden’s residents live, work and socialise;
The local impacts of the economic crisis and Covid-19 pandemic affecting jobs, housing and business growth, which has in turn created pressure on the generation of local income streams and incurring additional costs;
The national impacts of the economic crisis and Covid-19 pandemic on the financial markets and subsequent low returns on investments;
The local impacts of the economic crisis and Covid-19 pandemic creating a rising demand, and increased cost pressures, for council services from customers who rely on the safety net provided by local government; and
The impact of the vote to leave the EU and the consequent impact on the economic and political landscapes.

During this same period, the basis on which local government is funded has undergone radical reform, heralding a new era where local government is funded from local taxes with limited reliance on Central Government. This new methodology for funding local government is inextricably linked to the performance of the local economy via business rates, new homes bonus funding arrangements, council tax and local council tax reduction schemes, and Housing Revenue Account Self-Financing.

Each change to the funding brings new elements of uncertainty and volatility. However, it does present opportunities for local authorities with the freedom from and removal of reliance on Central Government and a key stake in the financial prosperity of its local economy. The Government’s three-year spending review for 2022-23 to 2024-25 (“Spending Review 2021”) announced by the Chancellor on 27 October 2021, is welcomed and represents the first return to multi-year statements since 2015.

On 7 February 2022, the Secretary of State for the Department for Levelling Up, Housing and Communities (DLUHC), Rt. Hon. Michael Gove MP, released a written statement to Parliament on the final local government finance settlement 2022/23 and supporting figures for individual authorities. However, the 2022/23 local government finance settlement is for one year only and is based on the Spending Review 2021 funding levels. This is the first time since 2015 that, in the context of a multi-year Spending Review, the government has only provided local authorities with a single-year settlement. Therefore, uncertainty still exists with regard to future settlements for Wealden, in addition to the on-going impact of the Covid-19 pandemic, Government’s fair funding review, business rates reform and the levelling up agenda.

The Council’s successful financial management to date has enabled the protection of core services for the people of Wealden while at the same time allowing the redirection of resources to the priority areas in the Corporate Plan, and the MTFS 2022-23 to 2026-27 builds on this approach. This MTFS will be kept under constant review and will need to adapt in response to new risks and opportunities during this unprecedented period of uncertainty and change.

Laurence Woolven

Head of Financial Services (S151 Officer)

Section 1. Introduction

Background

The MTFS integrates revenue allocations, savings targets, reserves and capital investment, and provides a budget for 2022-23 upon which the 2022-23 Council Tax level (General Fund) and rent levels (Housing Revenue Account(‘’HRA’’)) are determined, and sets out the forecasts for the period 2023-24 to 2026-27.

Whilst the purpose of this MTFS is to provide a costed plan over the period 2022-23 to 2026-27, it must be recognised that this plan becomes more uncertain the further out in time the forecast moves. However, uncertainty is more of a reason to produce a MTFS as the identification of potential longer-term revenues and expenses and the key risks associated with those forecasts and income and expense streams provide valuable insight for the Council and aids decision-making.

Objectives

This MTFS seeks to achieve a number of specific objectives:

Ensure the Council’s limited resources are directed to achieving the vision and strategic priorities within the Council’s Corporate Plan and HRA Business Plan;
Ensure the Council maintains a sound and sustainable financial base, delivering a balanced budget over the life of the MTFS;
Provide a range of good quality services that people expect, and offer excellent value for money;
Deliver key projects that enhance quality of life and wellbeing across Wealden, thoughtfully generating reasonable income streams in line with our Commercial Strategy to achieve a financially stable and self-sufficient council;
Maintain our measured, professional approach to managing the Council’s finance and investments, and continue to develop our enterprise culture for the benefit of the District as a whole;
Deliver more by working with partners, continue to extend our use of technology, minimise transaction costs and sustain customer satisfaction;
Growing the Council Tax and Business Rates tax base, whilst ensuring that Council Tax rate increases are kept an acceptable level;
Ensure the Council maintains robust, but not excessive, levels of reserve and balances to address any future risks and unforeseen events without jeopardising key services and the delivery of outcomes; and
Continue to manage down the Council’s recurrent cost base, in line with reductions in overall resources by ensuring the provision of efficient, effective and economic services which demonstrate value for money.

Section 2. Context

In order to set the framework for the Council’s approach to policy and financial planning it is important to understand the potential impact of the Covid-19 pandemic, economic conditions and overall national policy context, as well as the policy and delivery priorities for the Council over the MTFS period.

Local Priorities

This MTFS is central to identifying the Council’s capacity to deliver its local priority outcomes and it reflects:

The Council’s current financial position and outlook.
The Council’s overall financial strategy, including use of reserves.
Internal and external pressures which may influence the council’s financial position.

The following sub-sections set out the local context and priorities, that we have had regard to in producing a costed plan over the period 2022-23 to 2026-27.

Wealden as a Place:

Wealden is the largest local government district in East Sussex covering 323 square miles and has a population of 160,175[1]. Half the population live in five main towns: Crowborough, Hailsham, Heathfield, Polegate and Uckfield. The rest live in villages and hamlets in some of the most attractive countryside in the South of England.

Wealden has 8,495 businesses, with small and micro businesses forming a fundamental part of the Wealden economy. 91.3% of Wealden’s businesses employ fewer than 10 people[2].

The largest proportion of business enterprise in the District is in the Professional, Scientific & Technical category at 16.5% followed by construction at 14.5%[3].

The most common age group within Wealden is those aged 50-64 years old (22%). Just under a quarter (23%) of the population is traditional retirement age or above (65+).

Three quarters (78%) of Wealden residents own their home; more (44%) own it outright than do through a mortgage (34%).

90% of Wealden residents are happy with where they live, and 76% happy with the way the Council is run – nationally the figures are 79% and 61% respectively.

Financially Stable and Self-sufficient Council:

A key component of the Council being financially stable and self-sufficient, is the Council’s Commercial Strategy, which provides a framework for activities that:

Form an essential part of the solution to the funding gap, which has arisen due to public sector budget cuts, a restructuring of how local authorities are funded and increasing demographic pressures;
Potentially lead to the generation of disposable income, to provide additional resource to meet the Council’s ambitions and statutory duties for Wealden as set out in other strategies and plans; and
Deliver functions, services and outputs that bring benefits to local people and in doing so helps meet Corporate Plan objectives.

Partners and the Community:

In line with the values from the Corporate Plan to “deliver more by working with partners”, the Council continues to work with those partners, as well as service users and our communities, to protect and deliver services in new ways:

Parish and Town Councils – have been proactive in identifying services important to their local communities and working with the District Council and other bodies on local priorities. For example, Mayfield and Five Ashes Parish Council has agreed to commit funding towards a proposed community facility in conjunction with a new doctors’ surgery to be built with funding by Wealden District Council;
The voluntary sector – has also been keen to deliver services with 16 organisations operating service level agreements with the Council in 2020-21 with £0.257 million of Council funding;
Wealden Strategic Partnership – is a non-statutory, multi-agency body, which matches Wealden District Council boundaries, and brings together the different parts of the public, private, community & voluntary, and special interest sectors to work to help improve the life of the residents of Wealden;
Safer Wealden Partnership – brings together a number of agencies from the public, private, education and voluntary sector to improve people’s lives in the area by working together to reduce the levels of crime and anti-social behaviour and to manage the fear of crime;
East Sussex Strategic Partnership – brings together different parts of our local community – public services, local businesses, community groups, voluntary sector organisations and local people. The Partnership helps organisations and individuals work together in a co-ordinated way to plan local services, tackle the issues that matter to local people and improve quality of life in East Sussex; and
Sussex Weald Homes Limited – An initiative to contribute towards the self-financing objective was the Council setting up Sussex Weald Homes Limited in December 2017, a 100% owned subsidiary to build properties that will be rented or sold to the Council and privately, and acquisition of commercial properties.

Corporate Plan 2019-23 (mid-term update 2021)

The Council’s Corporate Plan sets out our direction and priorities for the next four years, building on our previous Plan 2015-19.

“Shaping Wealden as a District which offers a fulfilling and worthwhile quality of life for our residents, a thriving and prosperous place for businesses where local people and visitors can enjoy the outstanding beauty and heritage of our landscape and environment.
We will continue to chart a course for the District founded on lean, efficient principles, based on sound business management with a considered approach to investment and income generation. In a post- EU Exit, the Council will play its part in achieving strong, self-reliant and vibrant conditions for the wellbeing of our residents, our businesses and our environment.”

The Council’s vision for the future is:

These two significant issues for Wealden have led us to review our Corporate Plan for 2019-23 and update it for the remaining two years. Whilst our vision for the future remains strong and our ambitions to achieve it the same, we think now is the time to reshape our targets, keeping and enhancing the positive changes enforced upon us and building forwards to a carbon neutral future.

Our approach – we will continue for the District to be founded on lean, efficient principles, based on sound business management with a considered approach to investment and income generation.

We are a council centered on community that strives to:

Work Together with colleagues and Partners to deliver the best for our communities.
Be Excellent in serving our customers.
Aspire to be the best we can.
Provide first class Leadership for our staff and our Communities.
Be a modern, forward thinking Dynamic Council.
Be Efficient and effective in all we do.
Act with iNtegrity and be trustworthy, open, honest and dependable.

At the mid-point of the Corporate Plan, we are re-focussing our efforts on our 8 most important aims

Engaged, resilient, active communities;
Access to suitable housing, local jobs, services, facilities, leisure and recreational opportunities;
Sustainable economic growth; and
Sound business management.

We aim to:

Ensure development meets future needs, with associated investment in infrastructure.
Ensure that Wealden is Carbon Zero by 2050 at the latest.
Improve access to essential services for all our communities.
Promote a better quality of life for Wealden people through activities that improve health, resilience and well-being.
Generate ongoing sources of income to reinvest in local priorities and optimise funding from external sources.
Support our local businesses, tourism sector and entrepreneurs to achieve a locally sustainable economy.
Work with partners to regenerate our diverse market towns, creating jobs and attracting investment.
Protect and enhance Wealden’s unique natural environment and heritage.

National Priorities

The following sub-sections set out the national priorities, that we have had regard to in producing a costed plan over the period 2022-23 to 2026-27.

Covid-19:

The continuing priority for Central Government is providing businesses and individuals with financial support during the Covid-19 pandemic (and administered by Council’s), and protecting vulnerable people. On 21 December 2021 Her Majesty’s Treasury announced additional measures to support businesses during the current surge of the Omicron Variant of Covid-19. These measures are contained in the Business Rates Information Letter 2021 No. 9, which includes details of the Retail, Hospitality and Leisure Relief scheme for 2022/23, the extension of Transitional Relief and Supporting Small Business Relief for 2022/23, and new arrangements for business rates bills for schools.

Housing, Infrastructure and Other Services:

The Government’s ambition is to increase the numbers of new homes built to 300,000 per annum by the middle of the 2020s.

In March 2020 the Government announced a wide breadth of measures in the Ministry of Housing, Communities and Local Government (‘’MHCLG’’) briefing paper ‘Planning for the Future’, to provide local authorities with greater funding for infrastructure, ensuring that those who strive to build enough homes for their communities and make the most of brownfield land and urban areas are able to access sufficient resources. These measures included:

Investing another £1.1 billion in local infrastructure to unlock almost 70,000 new homes;
A new £10 billion Single Housing Infrastructure Fund; and
Reforming the New Homes Bonus (‘’NHB’’) to reward delivery

Following the briefing paper, MHCLG (now known as DLUHC) issued a consultation white paper in August 2020, which covered a package of proposals for reform of the planning system in England, covering plan-making, development management, development contributions, and other related policy proposals. The consultation has proposed to replace the Community Infrastructure Levy (‘’CIL’’) and Section 106 planning obligations with a new consolidated Infrastructure Levy, which is charged as a fixed proportion of development value above a set threshold. The Secretary of State for DLUHC in a letter dated 28 October 2021 to all Council Leaders stated; ”I am reviewing planning reforms and an announcement on next steps will be made in due course. The Government is committed to improving the planning system, which we are delivering through a new digital system that provides more certainty and better outcomes for the environment, growth and quality of design. The additional £65m announced is critical to achieving this vision.”

The Spending Review 2021, on 27 October 2021 included announcements on the following policies and programmes that are relevant to local authorities:

Investing in growth – through a range of changes to the taxation system and by increasing capital DEL expenditure on research and development from £14.8bn in 2021-22 to £20.0bn in 2024-25; through further investment in infrastructure across road, rail, digital and locally; and by a package of additional measures aimed at boosting skills.
Supporting people and businesses – through a range of measures, including reducing the taper on Universal Credit from 63% to 55% and a 6.6% increase to the National Living Wage (NLW), to £9.50 an hour, starting on 1 April 2022. There will be adjustments to business rates, including a temporary relief of £1.7bn across 400,000 retail, hospitality and leisure properties in 2022/23, a freeze on the business rates multiplier for 2022-23 and a new business rates relief for investment in property improvements from 2023.
Building back greener – through measures aimed at reducing transport as an emitter of greenhouse gases; extending efforts to reduce greenhouse contributions from buildings; supporting decarbonisation of energy and industry through new technologies and protecting and enhancing the natural environment.
Levelling up – with the government publishing a Levelling Up White Paper by the end of the year, setting out in more detail the framework and next steps towards levelling up opportunities and boosting livelihoods across the country. The Spending Review 2021 has also announced the first £1.7 billion of allocations through the Levelling Up Fund.

HRA: On 29 October 2018, the government confirmed that the HRA borrowing cap was abolished with immediate effect. As a result, local authorities with an HRA are no longer constrained by government controls over borrowing for housebuilding and are able to borrow against their expected rental income, in line with the Prudential Code.

Local Government Funding:

The Government’s aim through funding reforms (i.e. localised business rates) is to significantly reduce reliance on central grants (i.e. Revenue Support Grant) and move councils to be self-financing. This has required council’s to focus on more local self-sufficiency through other forms of local income generation, such as:

Council Tax rate increases, within prescribed referendum limits;
Increases to fees and charges;
Widening the scope of fees and charges by introducing charges for services not previously charged for;
Increasing trading activities to generate surpluses for reinvestment, including the establishment of trading companies; and
Look at ways of commercialising existing services and seeking opportunities to ‘sell’ goods and services externally.

The Spending Review 2021 included the following announcement for local government headline funding:

An average real-terms increase of 3% a year in core spending power.

Technology

COVID-19 has reaffirmed how crucial modern technology can be to enabling the delivery of local public services. The Government will therefore be making an additional £37.8 million available to help improve and maintain cyber resilience in local authorities.

Housing

Investment was announced in affordable housing, with £1.8bn added, with a view to delivering £10bn of investment during the Parliament, and 1m new homes in the SR21 period. Of this, £300m will be distributed to local authorities (and mayoral combined authorities) to support the development of smaller brownfield sites.
Adjustments were announced to the regime for Right to Buy receipts. Authorities will now be allowed to spend these over a longer timeframe (increasing to five years from three years), to pay up to 40% of the cost of a new home (up from 30%), and to allow them to be used for shared ownership and First Homes.
By 2024/25, an additional £639m will have been committed to rough sleeping. The Rough Sleeping Initiative and Homelessness Prevention Grant will be continued.

Planning

£65m to ‘digitise’ the planning system.

Other Funding

Funding of £38m was also made available to support authorities with cyber security and £35m to “strengthen local delivery and transparency”, though some of this will be required to set up the new Audit Reporting and Governance Authority (ARGA) as a new system leader for local audit.
£560m was announced for youth services, and £850m over the SR period for “cultural and heritage infrastructure”.
No statements are made about the Better Care Fund.

Fair Funding Review and Business Rates Retention Scheme:

The fair funding review aims to provide updated formulas for assessing councils’ spending needs, and it will change how central grants are distributed between councils. The original intention of Government was for the outcomes of the fair funding review to be implemented alongside the introduction of 75% business rate retention. However, it is still uncertain if and when the funding review and the introduction of 75% business rate retention will happen, especially in the context of the levelling the up agenda, whereby the impact of any reforms need to be seen to be taking account of the principle of levelling up across the different regions of local government.

Fundamental Review of Business Rates:

In the Budget 2020 (11 March 2020), Central Government published the terms of reference for a fundamental review of the business rates system to be carried out by HM Treasury. This review is wide-ranging: it will consider all elements of the current system, as well as exploring the potential strengths and weaknesses of alternative property and online taxes put forward as possible replacements for rates, as recommended by the Treasury Select Committee in its report of 31 October 2019. The review’s final conclusions were published in a report dated October 2021, and were included in the Spending Review 2021 announcements. The report main conclusions were:

The government does not intend to abolish business rates, though the review states that the government will launch a consultation on an Online Sales Tax.
There will be a further freeze of the business rates multiplier for 2022/23 (following a freeze for 2021-22).
An extension of the Retail, Hospitality and Leisure relief through 2022/23 (this time at 50% lower than the 66% currently applicable, with a cash cap of £110,000 – up from the £105,000 cap applicable in 2021-22). The government anticipates that the relief will cost £1.7bn nationally in 2022-23.
After the next revaluation in 2023, revaluations will take place every three years. The delay to 2023 of the next revaluation means that there is currently a gap in the Transitional Relief and Supporting Small Business schemes, and so these have been extended for 2022-23. A consultation on the Transitional Relief scheme for the 2023 revaluation will be carried out in 2022.
There will also be a new relief introduced from 2023, which will allow businesses to benefit from 100% relief for 12-months from when they make improvements to a hereditament. There will be a consultation on this prior to implementation, and then it will be reviewed after five years. A relief will also be introduced for plant and machinery used in onsite renewable energy generation and storage.

The above could lead to big changes in the design and yield of the tax, which would matter greatly for local government given that it currently contributes around 30% of non-schools revenues. However, all of these measures (additional reliefs, multiplier freeze, and revaluations) have historically been implemented with a view to ensuring a neutral impact on local government finance, with s31 grants provided (or top up/tariff adjustments, in the case of revaluation) to cover the costs involved. There is no reason to believe that this would change for these announcements, but this is risk to the Council’s level of resources.

Covid-19 Pandemic

The impact of Coronavirus (‘’Covid-19’’) pandemic on the Council was first felt towards the end of March 2020, and continues to have an effect in the 2021-22 financial year but to a lesser degree. In 2021-22, the Council’s substantial losses that occurred in 2020-21 across many of its largest streams of income building control fees, commercial rents and licensing fees, have abated. This is mainly due to successful rollout of the vaccine programme and easing of restrictions. However, the Council is still experiencing lower collection rates for council tax and business rates, and although the position has improved since the rollout of the vaccine and ending of lockdown restrictions, the impact could still lead to an increase in the write off arrears or increased debt provision.

On the expenditure front, some of the key areas of additional pressure that continue include accommodation and support for rough sleepers – some of whom may not have required our support previously and support our vulnerable residents. Whilst Central Government has provided funding for these areas it does not cover all the financial pressures.

It is uncertain if these losses will continue over the period of the MTFS (i.e. 2022-23 to 2026-27), in addition to the potential adverse impact on the growth of the council and business rate tax base.

At the end of 2020/21, the Government announced that the sales, fees and charges scheme (which refunds 75% of eligible income loss beyond a 5% threshold) would be extended on a pro-rata basis into the first three months of 2021-22. In addition, Wealden received £0.671 million of unringfenced Covid grant funding. It is currently unclear if this funding the Council will continue into 2022-23.

The Council has sought in recent years to build up the General Fund reserve balance to ensure the Council is financially resilient.

Economic and Fiscal Climate

The public sector finances are increasingly coming under pressure, due to the significant increase in government spending to support the economy during the Covid-19 pandemic, as well as lower tax receipts. The Office for Budget Responsibility’s (“OBR’s”) Economic and fiscal outlook, published on 27 October 2021 (alongside the Spending Review 2021) paints a better picture than was original forecast, however challenges do lie ahead with the following forecasts/expectations:

The economy is now expected to grow by 6.5% in 2021 (2.4% faster than OBR predicted in March);
Unemployment to rise only modestly to 5¼% this winter (1¼% lower than March), which helps the budget deficit to almost halve to £183 billion in 2021-22 (£51 billion lower than March);
Inflation peaking at close to 5% next year, and it could hit the highest rate seen in the UK for three decades;
Revised up nominal GDP[4][5] – the key driver of tax revenues – by 4.1% in 2025-26 relative to March;
While higher inflation also boosts public spending, overall the pre-measures forecast for borrowing is lower by £38 billion a year on average relative to OBR March forecast;
Borrowing reached a peacetime record of £320 billion (15.2% of GDP) in 2020-21, but was £35 billion (1.7% of GDP) lower than we estimated in March; and
Borrowing falls back below £100 billion next year, declining more slowly thereafter to stabilise at around £44 billion (1.5% of GDP) in the medium term.

The economic and interest forecast[6] by the Council’s Treasury Management Advisors, Arlingclose, highlights the follows:

ONS 2018 mid-year estimate

ONS/Inter Departmental Business Register (IDBR) 2019

[3] ONS/Inter Departmental Business Register (IDBR) 2019

[4] GDP measures the total value of all of the goods made, and services provided, during a specific period of time

[6] Source: Economic and Interest Rate Forecast, December 2021, Arlingclose

Section 3. General Fund Reserve

Spending Plans

This MTFS is central to identifying the Council’s financial capacity to deliver its vision and strategic priorities within the Corporate Plan 2019-23, and requires a balance to be struck between the need to support the delivery of the vision with the need to maintain a sustainable financial position. Striking the correct balance between these two requirements becomes ever more difficult in the challenging financial context in which the Council operates. This is compounded by the continuing impact of Covid-19, and the localised business rates funding which is subject to uncertainty and volatility.

The Council’s Corporate Plan is supported by a programme of work containing a range of projects that will meet each of the four strategic themes. In the absence of any new Government funding and in the context of the continuing impact of Covid-19, general cost pressures, and savings underpinning the MTFS, the resources to finance these projects have been made possible by allowing the redirection of resources to the priority areas as well as seeking external financial support in the form of grants and contributions.

It should be noted that the full financial implications of a number of major projects i.e. Hailsham Aspires, Crowborough Leisure Centre – Teaching Pool, Knights Farm – Sports Park and Knights Farm – Employment Park, have not been reflected in the costed General Fund Revenue Summary and Capital Programme 2022-23 to 2026-27, because these projects are still being developed. At the point when a full business case has been assessed and finalised to demonstrate that the capital investment is affordable and sustainable, the full revenue and capital implications will be built into future iterations of the MTFS.

Climate Change:

As the Council has declared a Climate Emergency, there will be costs associated with addressing this, where these are known they are built into the MTFS, for example £5 million in the HRA Capital Programme for decarbonisation works. In addition to these costs, it is anticipated that there will be further impact on the MTFS and therefore the Council has set aside earmarked reserves to finance climate change initiatives totalling £5 million (General Fund £1.1 million, and HRA £3.9 million), which demonstrates the Council’s commitment to reducing the impact of climate change.

Spending Pressures

Inflation – Pay and Prices:

The General Fund MTFS follows the Spending Review 2021 announcement on public sector pay to increase Officer salaries by 2.5% and increase the hourly rate for staff earning the national living wage to £9.50 per hour rate.

An allowance has been included for a 2% pay award for staff in 2023-24 to 2026-27, plus an estimate of staff increments.

Revenue implications of the General Fund Capital Programme:

In section 4. ‘General Fund Capital Programme’, the expenditure for major projects (where known) such as Hailsham Aspires, Crowborough Leisure Centre Teaching Pool and the development phase of Knight’s Farm – Sports Park and Employment Park, and the loan to Sussex Weald Homes Ltd, has been built into general fund capital programme. This has the following implications for the General Fund – revenue.

Interest Payable on External Loans

Capital expenditure totalling £12.485 million is anticipated to be funded from borrowing and the interest payable associated with this additional borrowing has been built into the MTFS.

Minimum Revenue Provision (“MRP”)

Capital Expenditure Charged to Revenue

Increases in the amount of revenue being used to fund the capital programme are partly negated on the General Fund through the contribution from S106, CIL and earmarked reserves i.e. Capital Investment Fund.

Resources

Business Rates:

The MTFS has assumed that Wealden will continue being part of the existing East Sussex Business Rates Pool based on a 50% rate retention, over the period 2022-23 to 2026-27, the agreement to pool is one that is reviewed on an annual basis.

At budget setting 2021-22, business rates for 2022-23 were estimated to be £3.1 million, this has improved significantly since then to an estimated £5.3 million. This increase is due to the anticipated reset of business rates from 2023-24 as opposed to in 2022-23 (delayed from 2020-21). This delay is consistent with recent announcements by DLUHC and was confirmed in the 2022-23 finance settlement. As part of the reset, the Council will lose any growth it has built up since the last baseline reset in 2013-14. In effect, the Council has benefitted from keeping its growth since 2013, and this reset redistributes the growth. This is a result of how the current redistribution system was designed and implemented in 2013.

The MTFS currently reflects our predicted worst case scenario, as there a number of unknowns that may occur between now and 2023-24 and beyond; including:

The reset being delayed further (post 2023-24);
The government giving some form of transitional relief to those who lose out and also the impact of the fair funding review;
Any impact this may have on the reform of the business rates system; and
Whether lower tier service and service grants will continue and at what levels.

The estimates will be reviewed throughout the remainder of this year and through next year ahead of setting the budget for 2023-24.

Council Tax:

The Council’s main income stream is from Council Tax. The Localism Act 2011 introduced a power for residents to approve or veto excessive council tax increases. This means that any local authority setting an excessive increase as set by the Secretary of State would trigger a referendum of all registered electors in their area. The higher of 2% or £5 referendum threshold for 2022-23 was highlighted in the Spending Review 2021 and was confirmed alongside the 2022/23 final finance settlement.

In light of the financial position of the Council and mindful of the potential referendum thresholds the MTFS assumes the following indicative council tax increases and subsequent overall yields:

	2022-23	2023-24	2024-25	2025-26	2026-26
Band D Council Tax	£202.44	£207.44	£212.44	£217.44	£222.44
Band D Increase (£)	£5.00	£5.00	£5.00	£5.00	£5.00
Band D Increase (%)	2.53%	2.47%	2.41%	2.35%	2.30%
Council Tax Base (Number of Properties) for Tax Setting Purposes	67,187.90	67,587.90	68,087.90	68,587.90	69,087.90
Council Tax Income Estimate – Demand on the Collection Fund	£13.601m	£14.020m	£14.464m	£14.913m	£15.367m

The tax base estimate has been calculated in accordance with legislation in December 2021.

Revenue Support Grant (“RSG”):

The core grant funding from Government is known as RSG. This MTFS assumes zero RSG in line with government announcements of the intention to remove all core grant.

Central and Specific Grants:

Over recent years the number of grants received by the Council from Government has been very limited. Within the revenue budget we receive a small amount of Rural Services Delivery Grant. As part of the 2022/23 final finance settlement, the Council received an increase in general grants covering New Homes Bonus, Lower Tier Services Grant and Services Grant, which have helped to achieve a balanced MTFS.

However, it is uncertain [and unlikely] this level of funding will be maintained in following years. As set out in the National Priorities section above, there are a number of Government reviews that will change how central grants are distributed between councils i.e. reforming the NHB to reward delivery and the fair funding review which aims to provide updated formulas for assessing councils’ spending needs. When the outcome of these reviews are known the implications for Wealden and the MTFS will be determined.

Fees and Charges:

The fees and charges levied by the Council are an important source of income. The fees and charges levied include planning fees, garden waste collection and building control.

Bridging the gap

Last year’s General Fund MTFS included a savings/additional income target of £0.5 million from 2022-23, which has been fully met (and hence no savings/additional target has been included in this year’s MTFS – see Appendix 1). The Council’s approach to achieving this target has centred on planning ahead, securing savings in advance, re-investing in more efficient ways of working and digital services, and adopting a more commercial approach whilst making careful use of reserves to meet funding gaps, and has sought to protect its core services that matter most.

General Fund Revenue Budget and Forecast

Based on the preceding financial objectives, underlying principles, national and local priorities, savings targets, spending pressures and resources assumptions, Appendix 1 provides a five-year (2022-23 to 2026-27) General Fund revenue estimate for the Council.

As highlighted earlier the full costings (i.e. capital financing implications, and operating costs and income) of the Council’s major projects have not been reflected in the General Fund Revenue Budget and Forecast 2022-23 to 2026-27, because some projects are still being developed i.e. Hailsham Aspires, Crowborough Leisure Centre – Teaching Pool, Knights Farm – Sports Park and Knights Farm – Employment Park. The affordability of these schemes are being assessed in the context of the MTFS and if the business cases are approved, the financial implications will be built into the MTFS.

Risks to the General Fund Revenue Budget and Forecast

The Council has adopted a corporate approach to risk management, and financial risk management is integrated into the Council’s overall management and decision-making processes.

The main areas the key risks cover are:

Future impact of the Covid-19 pandemic;
Fluctuations in the Business Rates tax base;
Future changes to the retained Business Rates system;
Future levels of Central Government funding;
Impact of current economic climate on both demand for services and income streams;
Changes to other key external funding sources;
Changes to other key assumptions within the MTFS; and
Financial and budget management issues.

These risks form part of our financial risk assessment, Officers will continually monitor and appraise these risks as part of the on-going financial management

[1] MRP is statutory requirement for a Council to make a charge to its General Fund to make provision for the repayment of the Council’s capital borrowing

Section 4. General Fund Capital Programme

General Fund Capital Priorities

In addition to this, the programme includes a number of major projects that the Council is embarking on:

Hailsham Aspires;
Mayfield Community and Health Centre;
Crowborough Leisure Centre – Teaching Pool;
Knights Farm – Sports Park; and
Knights Farm – Employment Park.

The total of these major projects total £27.7 million over the period of the MTFS. However, as highlighted earlier the full costings have not been reflected in the Capital Programme 2022-23 to 2026-27, because some of these projects are still being developed i.e. Hailsham Aspires, Knights Farm – Sports Park and Knights Farm – Employment Park. The affordability of these schemes are being assessed in the context of the MTFS and if the business cases are approved, the financial implications will be built into the MTFS.

Indicative allowances have been included within the capital programme to support an additional £3.685 million of borrowing in excess of the allocations within the existing approved programme over the period bringing the total borrowing up to £12.485 million, and this position will be reviewed as the capital programme is developed.

Resources

The resources necessary to fund the Council’s General Fund Capital Programme are fully identified in Appendix 2, and are summarised below.

Capital receipts:

The generation of capital receipts can help to provide resources to support additional capital investment or can help to reduce the borrowing requirement and therefore the cost to the revenue budget. Capital receipts totalling £3.797 million have been included as funding over the period of the capital programme. This will leave a balance of unused capital receipts of £0.625 million (this balance assumes no additional sales of general fund assets. If additional capital receipts are generated over and above this balance, this would provide the Council with the flexibility to consider the introduction of additional projects to the capital programme or the ability to reduce the current estimated borrowing requirement built into the capital programme.

Grants and Contributions:

In the capital programme we are anticipating (or have already) to secure external contributions to support a number of project (i.e. Mayfield Community and Health Centre), details of which can be seen in Appendix 2.

A number of capital schemes are being funded by CIL (£9 million in total) i.e. Knights Farm – Sports Park and Crowborough Leisure Centre – Teaching Pool.

Council Resources:

Borrowing:

The basic principle of the Prudential System is that local authorities are free to borrow so long as their capital spending plans are affordable, prudent and sustainable. The Council will need to meet the whole of the capital financing costs associated with any level of extra borrowing through its revenue account. These financing costs cover MRP and interest. The use of prudential borrowing will be as a funding mechanism for some key projects i.e. Hailsham Aspires (following a full financial assessment), and may be used as a short-term measure to fund capital expenditure prior to a capital receipt being received i.e. for the loans to Sussex Weald Homes. The MTFS includes a prudential borrowing requirement of £12.485 million over the period 2022-23 to 2026-27.

PWLB loans are no longer available to local authorities planning to buy investment assets primarily for yield. The Council intends to avoid this activity in order to retain its access to PWLB loans.

On 20 December 2021 CIPFA published its revised Prudential Code for Capital Finance and Treasury Management in the Public Services: Code of Practice. In line with the permitted ‘soft implementation’ the Council will be implementing the revised reporting requirements from 2023/24. The key changes in the two codes are around permitted reasons to borrow, knowledge and skills, and the management of non-treasury investments. There are also various tweaks to the capital prudential indicators. In practice the impact on Wealden will be minimal and is confined to additional reporting requirements as opposed to the Council having to change its existing investment and borrowing practices.

General Fund Capital Programme

The capital spending plans for the next five years include the delivery of key capital schemes identified to support the delivery of the Council’s Corporate Plan. Appendix 2 provides a five-year (2022-23 to 2026-27) General Fund Capital Programme for the Council.

Risks to the General Fund Capital Programme

The Council has adopted a corporate approach to risk management and financial risk management is integrated into the Council’s overall management and decision-making processes.

Achievement of capital receipts/other capital funding target of £1 million of the period of the MTFS;
Loss of anticipated external resources;
Increased project costs; and
Unplanned emergency maintenance to Council’s corporate properties.

Section 5. Housing Revenue Account

Housing Revenue Account Business Planning

Self-financing, however, also significantly increased risks from Central Government to local authorities, meaning that the Council:

Now bears the responsibility for the long term security and viability of council housing in Wealden;
Has to fund all activity related to council housing, from the income generated from rents, through to long term business planning;
Is more exposed to changes in interest rates, high inflation and the financial impact of falling stock numbers;
Needs to factor in the impact of changes in government policy e.g. the impacts of the welfare reform on income recovery, and rent setting; and

This places a greater emphasis on the need for long-term planning for the management, maintenance and investment in the housing service and housing stock.

The HRA Business Plan

The Council’s Housing Revenue Account Business Plan 2021-2051, approved by Cabinet in October 2021, had been updated to reflect national and housing policy, legislation and best practice.

Major changes to the Business Plan since the previous plan, included the need for further improvements to the energy efficiency of our homes to reduce carbon emissions, additional fire safety measures in anticipation of changes to the Building Regulations and ongoing investment in building new homes. The Business Plan reflects the impact of Government policy changes and financial assumptions at the time. The Business plan sets out:

The long term plans for the Council’s housing stock, including the decarbonisation of our homes;
The finances to deliver plans;
How the Council will manage the income from its stock, demand for housing and stock condition; and
Identifies resources for building new council dwellings.

The current Business Plan is reflected in this MTFS for the period 2022-23 to 2026-27, and been framed in the light of:

Government Policy on rents for Social Housing increasing rents from 2022-23 by CPI plus 1% for three years thereafter CPI only;
One for one replacement of Right to Buy sales and continuation of the Council’s New Build programme;
Appropriate capital investment in maintaining the quality of the housing stock through planned maintenance and replacement works; and
Servicing and repaying debt so that new borrowing is available for future maintenance works or investment in further new build schemes.

The Business Plan is a living document which sets out our short, medium and long-term strategies for the management, maintenance, improvement and addition to the Council’s housing stock. It is continually reviewed on a regular basis to ensure that the priorities reflect local need and political aspirations, to ensure the investment proposals remain fundable and the assumptions on which the plan are based remain correct and that the HRA remains a sustainable and viable entity over the 30-year period. The 30 year Business Plan will next be updated in three years’ time.

Spending Plans

Spending Pressures

Inflation – Pay and Prices:

Thereafter an allowance has been included for a 2% pay award for staff in 2023-24 to 2026-27, plus an estimate of staff increments. The pay award 2022-23 is subject to being agreed and the HRA MTFS will be updated following the decision if required.

Repairs and Maintenance:

The level of expenditure for revenue repairs proposed for 2022/23 is £3.124 million. This covers costs such as responsive repairs, cyclical works, void repairs and redecoration.

Revenue implications of the HRA Capital Programme:

Depreciation – must be charged to the HRA in accordance with proper accounting practices, it reflects the decline in the value of the HRA council’s stock over time due to wear and tear. The calculation is based on the social housing valuation of the councils stock. The Councils stock is revalued each year and the depreciation value will fluctuate depending on the annual valuations of the Council’s housing stock. Depreciation is transferred to a major repairs reserve to fund the HRA capital programme. This amounts to £4.110 million for 2022-23 and increases in future years to reflect the increases in housing stock from new builds and inflation.
Interest Payable – is associated with additional borrowing for capital expenditure on the Housing investment programme, including interest payable on the balance of £44.3 million for the self- financing transaction from 2011-12.
Provision for Loan Repayments – planned loan repayments have been updated in the MTFS which is key to self-financing and creating opportunities for new borrowing for investment in new builds and major repairs.
Capital Expenditure Charged to Revenue – the amount of revenue that is being used to fund the capital programme between 2022-23 to 2024-25 includes £4.36 million funding for the development of the former Streatfield House site into 20 new homes, which is mainly being funded out of general HRA revenue reserves. Revenue funding is also used to support the planned maintenance programme over the MTFS period.

Debt write off and impairment:

Income collection became more challenging due to the impact of the Covid-19 pandemic, and although the position has improved since the rollout of the vaccine and ending of lockdown restrictions, the impact could still lead to an increase in the write off arrears or increased debt provision.

Similarly, the transition to universal credit means that some rents that would have been received automatically are now recoverable from the tenant. Where tenants suffer a financial impact from the current economic climate arrears are likely to increase, with a potential for further write offs/debt provision, which represents a cost to the council. Therefore the budget provision for debt write offs and impairment has been increased to £0.180 million.

Resources

Rents and Service Charges:

This is the third year since 1 April 2016 that the Council has been permitted to increase rents. For four years the Government imposed mandatory rent cuts of 1% per annum as part of welfare reform reducing income over that period. The Government introduced the new social rent policy that was effective from 2020-21 for a five year period, enabling councils to increase rents by CPI + 1% per annum, which restores some medium term certainty about income levels.

In line with Government Policy on rents for social housing, rents will be increasing by 4.1% (CPI at September 2021 = 3.1% + 1%) in 2022-23. The average rents are shown in the table below:

	Rent per week (52 week basis)
	2021-22	2022-23
General Needs – Social Rent	£89.10	£92.75
Retirement Living – Social Rent	£76.35	£79.48
General Needs – Affordable Rent	£146.12	£152.11
Retirement Living – Affordable Rent	£104.78	£109.08

When properties become vacant, they will continue to be re-let at Formula Rent, in line with the social rent policy.

The additional income generated by the rent increase of 4.1%, if agreed, will be utilised on a number of HRA items including; maintenance of the stock, supervision and management resources, paying for the cost of investment and running costs where appropriate for the stock.

The MTFS assumes rent increases in line with social rent policy of CPI + 1% per annum up to 2024-25 and thereafter increases are assumed at CPI. The dwellings rent budget also allows for increased rental income from new build properties and reductions in rental income from RTB sales and voids.

Service Charges:

Tenants – in addition to the rent some tenants may also pay service charges. Rents are generally taken to include all charges associated with the occupation of the property, such as maintenance and general housing management services. Service charges reflect additional services which may not be provided to every tenant, or which may be connected with communal facilities. These service charges are reviewed annually and calculated on a per property basis to recover the actual cost of the service. Tenants will be notified in writing of any changes in their rent and service charges for the coming year April to March. The rent notification letter will set out a schedule of services that will be provided and how much we will charge for them. We will only increase service charges within the legal requirement that they will not exceed the cost of the services and will always be reasonable
Leaseholders (Retirement Living, Shared Ownership and Right-to-Buy) – service charges to leaseholder are charged in accordance with their lease. Service charges are calculated to recover the costs of providing communal services, such as cleaning, repairs, grounds maintenance and electricity. Not all leaseholders receive additional services and the amount that is charged will depend on the type of property a leaseholder lives in, and what services are provided.

Right-to-Buy leaseholders are usually notified in April with an annual estimated charge and again within six months of the year end with the Final account figures.

Interest Receivable:

Interest is received on HRA cash balances during the year. This is reducing partly due to lower interest rates forecast and reducing general reserve balances.

Other Income:

Other Income includes income received from feed in tariffs on solar panels on council dwellings of approximately £0.075 million per annum.

Housing Revenue Account Budget and Forecast

Appendix 3 provides a summary HRA revenue budget and forecast for the period 2022-23 to 2026-27.

Risks to the HRA Budget and Forecast

The Council has adopted a corporate approach to risk management, and financial risk management is integrated into the Council’s overall management and decision-making processes.

Future impact of the Covid-19 pandemic;
Risk of government announcements limiting the flexibilities and freedoms offered by the HRA Self -Financing regime;
Government changes to legislations such as the Decent Homes review, Building Safety regulations and uncertainty of rent policy after four-years (i.e. from 2025-26);
Economic shocks such as shortage of labour, building costs;
Changes to key assumptions within the MTFS e.g.inflation, interest rates etc;
Efficient delivery of housing repairs;
Impact on the rental income estimates included in the MTFS from any delays in the delivery of the New Build Programme;
Ability to release further revenue resources for investment and improvements;
The impacts of the Welfare Reform Act; and
Financial and budget management issues.

Section 6. Housing Revenue Account Capital Programme

HRA Capital Priorities

The five-year housing programme comprises the following main areas of work:

Maintenance of the Decent Homes;
Health & Safety Requirements – covers the work to meet statutory requirements, and includes fire safety, communal lighting and asbestos removal;
Decarbonisation works;
New Build and acquisition programme to deliver approximately 166 new council dwellings within the HRA.
ICT investment for a new Housing Management system to be procured over the next few years and for the installation of Wi-Fi in retirement living communal areas.

Investment in our existing stock has been increased to reflect the stock condition survey requirements and deliverability of these requirements through our contractors. The cost implications of the government’s Decent Homes Standard review are not yet known and are therefore not included in the current HRA investment plan. A review of the programmed works will be required once the new standard is announced.

Wealden has the ambition to become carbon neutral by 2050. This will require changes in the way that we manage our existing stock, cost and policy implications and our plans for investing in new council homes. The investment programme now includes £1 million per annum from 2022/23 for decarbonisation works. This is based an approximate benchmark cost of £20,000 per property. This will only go half way to meeting the 2050 target. The level of external funding potentially available is currently unknown and the cost of new technology may also reduce as new solutions become mainstream. An amount of £3.9 million is included in HRA earmarked reserves balances for future use towards the decarbonisation programme. This area of the capital programme will need to be reviewed and updated once we have a clear development plan.

Resources

The resources necessary to fund the Council’s HRA Capital Programme are fully identified in Appendix 4.

Major Repairs Reserve:

The Major Repairs Reserve (‘’MRR’’) is the main source of capital funding and the mechanism by which timing differences between resources becoming available and being applied are managed. The MRR may be used to fund capital expenditure and to repay existing debt. Depreciation is a real charge on the HRA and is paid into the MRR from the Housing Revenue Account (see Appendix 3) to fund capital expenditure. The total support to the capital programme over the five-year MTFS period 2022-23 to 2026-27 through depreciation is £24.88 million.

Capital Receipts:

New Build Shared ownership sales receipts are used towards funding the New Build shared ownership housing.

The New Build programme is primarily funded by retained RTB receipts, shared ownership receipts and borrowing.

The proceeds of dwelling sales under the RTB scheme provide a regular source of capital receipts with the number of sales increasing in recent years. The MTFS assumes 12 sales per year from 2022-23 to 2026-27. However, this is a difficult area to predict accurately as it is affected by external factors, such as interest rates, property prices and Government initiatives aimed at further stimulating RTB sales.

Council Resources:

The MTFS 2022-23 to 2026-27 includes £7.520 million of direct revenue contributions over the five year period. This includes funding of £4.4 million for the development of the former Streatfield House site into 20 new homes, which is being funded out of general HRA revenue reserves and borrowing. Revenue funding is also used to support the planned maintenance programme over the MTFS period.

Borrowing:

The removal of the debt cap and high value council housing levy gives local housing authorities more certainty for future HRA Business Planning. In light of this, the Council previously agreed the use of HRA balances to fund the HRA Capital New build investment programme. The HRA balances minimum recommended level is 5% of the budget, which is in the region of £0.9 million. The use of the HRA general balances over the MTFS period reduces the balances to £1.3 million, which is still above the recommended level.

The graph below shows the position of the budget proposals for borrowing for the HRA Capital Programme against the prudential borrowing limit of £95 million.

CFR = HRA Capital Financing Requirement, measures the HRA underlying need to borrow to finance the capital programme

Following the implementation of HRA self-financing on 1 April 2012 the Council has £44.3 million[i] of external debt relating to housing stock, which is being repaid over 30-years. In addition to this, the Council has undertaken further internal borrowing of £27.9 million as at 2021-22. The provision to repay debt over the MTFS period is £10.6 million with further borrowing of £27.4 million to fund the HRA Capital Programme. This leaves borrowing headroom of £5.9 million.

HRA Capital Programme

Based on the spending requirements and resource assumptions, Appendix 4 provides a summary HRA capital programme, 2022-23 to 2026-27.

The revenue implications of all capital schemes, have been taken account of and included within the HRA budget (see Appendix 3).

Risks to the HRA Capital Programme

The Council has adopted a corporate approach to risk management and financial risk management is integrated into the Council’s overall management and decision-making processes.

Generation of sufficient revenue surpluses to resource required investment;
Achievement of capital receipts (including Right to Buy sales) targets;
Future building costs; and
Interest rate increases impacting on future borrowing costs.

[1] External debt of £44.3 million is net of a repayment of £2.282 million due 28 March 2022.

Section 7. Reserves and Balances

Having regard to these prudent levels, General Fund reserves were at a level at the end of 2020-21 whereby £3 million was transferred to an earmarked reserve to support the Council’s capital projects.

The general reserves at the end of each year for 2022-23 to 2026-27 are summarised in the table below:

2022-23

£(000)

2023-24

£(000)

2024-25

£000

2025-26

£(000)

2026-27

£(000)

General Fund (see Appendix 1)

4,431

4,222

4,116

3,887

3,133

HRA (see Appendix 3)

2,825

1,294

1,153

1,119

1,254

Appendix 1 General Fund Revenue Summary

General Fund Summary	2022-23	2023-24	2024-25	2025-26	2026-27
	Estimate	Estimate	Estimate	Estimate	Estimate
	£(000)	£(000)	£(000)	£(000)	£(000)
Members	380	386	393	399	406
Chief Executive’s Directorate	5,531	5,535	5,554	5,574	5,591
District Council Elections	0	300	0	0	0
Customer & Community Services	9,232	9,801	9,751	9,930	10,122
Planning, Policy & Environmental Services	3,958	3,908	3,923	3,928	3,963
Central Costs	496	496	496	496	496
Total Cost of Services	19,597	20,426	20,117	20,327	20,578
Provision for future pay awards & increments	0	455	866	1,233	1,607
Drainage Levies	87	90	92	95	98
Interest from Investments/ Dividend from SWH	(1,240)	(1,190)	(980)	(950)	(910)
Interest payable on external loans	220	200	180	160	150
Charges to the Housing Revenue Account:
Support Services	(1,147)	(1,170)	(1,205)	(1,239)	(1,274)
Minimum Revenue Provision	305	199	206	233	353
Capital Expenditure Charged to Revenue	3,663	15,200	1,025	494	553
Net Cost of Services	21,485	34,210	20,301	20,353	21,155

Business Rates/Revenue Support Grant
East Sussex Business Rates Pool	(5,300)	(3,100)	(3,300)	(3,300)	(3,300)
General Grants
Rural Services Delivery Grant/ New Homes Bonus Grant/ Lower Tier Services Grant/CIL	(2,798)	(8,617)	(1,617)	(617)	(617)
Other Financing
Collection Fund (Surplus)/Deficit	0	0	0	0	0
Contributions to/(from) Earmarked Reserves	134	(8,264)	(814)	(1,294)	(1,117)
Contributions to/(from) General Fund Balance	80	(209)	(106)	(229)	(754)
Council Tax Requirement	13,601	14,020	14,464	14,913	15,367

Funded By:
Council Tax Demand on the Collection Fund	(13,601)	(14,020)	(14,464)	(14,913)	(15,367)

Council Tax Base
Tax Base for Tax Setting Purposes	67,187.90	67,587.90	68,087.90	68,587.90	69,087.90

Note: The figures in the ‘cost of services’ section above are net figures, these therefore include income we receive from planning fees, crematorium, vicarage field etc.

Appendix 1 General Fund Revenue Summary (cont’d)

Council Tax	2022-23	2023-24	2024-25	2025-26	2026-27
Council Tax	Estimate	Estimate	Estimate	Estimate	Estimate
Band D Council Tax – previous year	197.44	202.44	207.44	212.44	217.44
Increase in Band D	5.00	5.00	5.00	5.00	5.00
% increase	2.53%	2.47%	2.41%	2.35%	2.30%
Band D Council Tax	202.44	207.44	212.44	217.44	222.44
Council Tax Income Estimate	13,601,518	14,020,434	14,464,593	14,913,753	15,367,912

General Fund Balance	2022-23	2023-24	2024-25	2025-26	2026-27
	Estimate	Estimate	Estimate	Estimate	Estimate
	£(000)	£(000)	£(000)	£(000)	£(000)
Opening Balance	4,351	4,431	4,222	4,116	3,887
Movement in Year	80	(209)	(106)	(229)	(754)
Closing Balance	4,431	4,222	4,116	3,887	3,133

Earmarked Reserves Balance	2022-23	2023-24	2024-25	2025-26	2026-27
	Estimate	Estimate	Estimate	Estimate	Estimate
	£(000)	£(000)	£(000)	£(000)	£(000)
Opening Balance	27,598	27,732	19,468	18,654	17,360
Movement in Year	134	(8,264)	(814)	(1,294)	(1,117)
Closing Balance	27,732	19,468	18,654	17,360	16,243

Appendix 2 General Fund Capital Programme

General Fund Capital Programme	2022/23 Forecast	2023/24 Forecast	2024/25 Forecast	2025/26 Forecast	2026/27 Forecast
General Fund Capital Programme	£(000)	£(000)	£(000)	£(000)	£(000)
Housing
Disabled Facilities Grants	1,000	1,000	1,000	1,000	1,000
Housing Renewal Grants	10	10	10	10	10
Total Housing	1,010	1,010	1,010	1,010	1,010
Land and Buildings
Hailsham Aspires	4,340	3,354	55	56	57
Mayfield Community and Health Centre	1,093	3,038	0	0	0
Knights Farm – Sports Park	0	6,057	2,058	0	0
Knights Farm – Employment Park	0	5,057	58	59	61
Leisure Centres – Crowborough Teaching Pool	48	2,319	0	0	0
Leisure Centres	25	25	25	25	25
Vicarage Lane Office & Civic Community Hall	10	10	10	10	10
Jack Cade memorial	0	15	0	0	0
Birling Gap Steps	0	0	150	0	0
Car Parks & unadopted roads	155	65	60	50	50
SANGS Crowborough	11	10	10	10	10
SANGS Uckfield	25	15	15	15	15
Cuckoo Trail	25	25	25	25	25
Public Conveniences	95	35	0	0	0
Investment Property	10	0	0	0	0
Total Land and Buildings	5,837	20,025	2,466	250	253
Vehicles and Equipment
ICT Investment Programme	100	550	100	100	100
IT Visualisation Environment	150	0	0	0	0
Refuse & Recycling Containers	200	200	200	200	200
Total Vehicles and Equipment	450	750	300	300	300
Other Capital Expenditure
Investment in Sussex Weald Homes Ltd	6,535	0	2,150	0	0
Total Other Capital Expenditure	6,535	0	2,150	0	0

Total General Fund Capital Programme	13,832	21,785	5,926	1,560	1,563

FUNDED BY:
Borrowing	(8,035)	(1,300)	(3,150)	0	0
Capital Receipts	(544)	(2,531)	(666)	(56)	0
Government Grants – Better Care Fund DFG	(1,000)	(1,000)	(1,000)	(1,000)	(1,000)
Home Improvement Loans Repayments	(10)	(10)	(10)	(10)	(10)
Capital Expenditure Charged to Revenue	(3,663)	(15,200)	(1,025)	(494)	(553)
Contribution from Mayfield Parish Council	(580)	(1,744)	0	0	0
Contribution from National Trust	0	0	(75)	0	0
Total GF Capital Programme Funding	(13,832)	(21,785)	(5,926)	(1,560)	(1,563)

Appendix 3 Housing Revenue Account

Housing Revenue Account	2022-23	2023-24	2024-25	2025-26	2026-27
	Estimate	Estimate	Estimate	Estimate	Estimate
	£(000)	£(000)	£(000)	£(000)	£(000)
Dwelling Rents	(14,555)	(15,354)	(16,311)	(17,223)	(17,282)
Non-Dwelling Rents	(167)	(170)	(174)	(177)	(181)
Charges for Services & Facilities	(1,278)	(1,304)	(1,330)	(1,356)	(1,383)
Interest Income	(60)	(50)	(50)	(50)	(50)
Contribution to amenities shared by the community	(70)	(70)	(70)	(70)	(70)
Other Income	(95)	(95)	(95)	(95)	(95)
Total Income	(16,225)	(17,043)	(18,030)	(18,972)	(19,061)

Supervision & Management	2,538	2,543	2,553	2,563	2,571
Repairs & Maintenance	3,124	3,177	3,231	3,287	3,343
Retirement Living Courts	1,184	1,178	1,189	1,197	1,207
Rents, Rates, Taxes & Other Charges	163	163	163	164	164
Depreciation	4,110	4,650	5,000	5,360	5,760
Debt Management Expenses	57	52	52	52	52
Loan Interest	1,901	2,168	2,368	2,438	2,471
Provision for loan repayments	2,282	1,800	2,100	2,100	2,282
Capital Expenditure Charged to Revenue	2,360	2,360	1,000	1,300	500
Write Offs and Debt Impairment Charges	180	180	180	180	180
Sub Total	17,899	18,271	17,837	18,641	18,531
Provision for future pay awards		28	57	87	117
HRA Contribution to Corporate Costs	253	251	252	252	254
Contributions to/(from) Earmarked Reserves	25	25	25	25	25
Total Expenditure	18,177	18,575	18,171	19,005	18,927

(Surplus)/Deficit for the year	1,953	1,532	141	33	(134)

Housing Revenue Account Balance	2022-23	2023-24	2024-25	2025-26	2026-27
	Estimate	Estimate	Estimate	Estimate	Estimate
	£(000)	£(000)	£(000)	£(000)	£(000)
Opening Balance	4,778	2,825	1,294	1,153	1,119
Movement in Year	(1,953)	(1,532)	(141)	(33)	134
Closing Balance	2,825	1,294	1,153	1,119	1,254

Earmarked Reserves Balance	2022-23	2023-24	2024-25	2025-26	2026-27
	Estimate	Estimate	Estimate	Estimate	Estimate
	£(000)	£(000)	£(000)	£(000)	£(000)
Opening Balance	4,379	4,404	4,429	4,454	4,479
Movement in Year	25	25	25	25	25
Closing Balance	4,404	4,429	4,454	4,479	4,504

Appendix 4 Housing Revenue Account Capital Programme

Housing Revenue Account Capital Programme	2022-23	2023-24	2024-25	2025-26	2026-27
	Estimate	Estimate	Estimate	Estimate	Estimate
	£(000)	£(000)	£(000)	£(000)	£(000)

New Build Programme	11,005	17,831	4,863	3,300	3,300
Planned Maintenance	5,430	5,380	5,380	5,380	5,380
Decarbonisation Programme	1,000	1,000	1,000	1,000	1,000
IT Investment	35	235	0	0	0
Shared Ownership Repurchases	500	500	500	500	500
Total HRA Capital Programme	17,970	24,946	11,743	10,180	10,180

FUNDED BY:
Loan	(7,660)	(11,395)	(4,437)	(1,760)	(2,160)
1-4-1 Right to Buy Receipts	(3,130)	(4,257)	(716)	(1,320)	(1,320)
Other Capital Receipts	(710)	(2,284)	(590)	(440)	(440)
Major Repairs Reserve	(4,110)	(4,650)	(5,000)	(5,360)	(5,760)
Capital Expenditure Charged to Revenue	(2,360)	(2,360)	(1,000)	(1,300)	(500)
Total HRA Capital Programme Funding	(17,970)	(24,946)	(11,743)	(10,180)	(10,180)

2021-22 to 2025-26

Forward

Welcome to this latest version of Wealden’s General Fund Medium Term Financial Strategy covering the period 2021-2026.

Wealden District Council (“The Council”, “Wealden”, “we”, “our”) is operating in an environment of greater uncertainties than any other year as a result of the Covid-19 crisis. As a result financial planning is becoming increasingly complex, requiring multiple variables to be balanced in an environment of increasing uncertainty. Having a thorough understanding of the financial outlook and the associated impact on the organisation’s ability to achieve its strategic objectives is an essential starting position for future planning and ensuring sustainability. Resources are becoming scarcer, which coupled with increasing pressures and demands on services, makes it more challenging to ensure that resources are effectively targeted.

Managing growth to meet future needs;
Protecting and enhancing Wealden’s unique rural character and environment;
Supporting our local economy and local businesses;
Generating sustainable sources of income to invest in local priorities; and
Helping to improve connectivity and access to services for all our communities.

It is the Council’s commitment to use the financial resources it employs over the coming years to make a positive difference to the area and its residents, and achieve value for money.

Since 2010 the Council, alongside the majority of other local authorities, has experienced unprecedented financial challenges in various forms and has had to adapt to:

The impact of Central Government funding reductions;
The Coronavirus (‘’Covid-19’’) pandemic which has reshaped the Council’s services and changed the way Wealden’s residents live, work and socialise;
The local impacts of the economic crisis and Covid-19 pandemic affecting jobs, housing and business growth, which has in turn created pressure on the generation of local income streams and incurring additional costs;
The national impacts of the economic crisis and Covid-19 pandemic on the financial markets and subsequent low returns on investments;
The local impacts of the economic crisis and Covid-19 pandemic creating a rising demand, and increased cost pressures, for council services from customers who rely on the safety net provided by local government; and
The impact of the vote to leave the EU and the consequent impact on the economic and political landscapes.

During this same period the basis on which local government is funded has undergone radical reform, heralding a new era where local government is funded from local taxes with limited reliance on Central Government. This new methodology for funding local government is inextricably linked to the performance of the local economy via business rates, new homes bonus funding arrangements, council tax and local council tax reduction schemes, and Housing Revenue Account Self-Financing.

Each change to the funding brings new elements of uncertainty and volatility. However, it does present opportunities for local authorities with the freedom from and removal of reliance on Central Government and a key stake in the financial prosperity of its local economy. The Government’s one-year spending review for 2021-22 (“Spending Review 2020”) announced by the Chancellor on 25 November 2020, as opposed to a multi-year review and subsequent 2021-22 Local Government Finance Settlement, provides further longer-term financial uncertainty as to the level of funding the Council will receive.

The Council’s successful financial management to date has enabled the protection of core services for the people of Wealden while at the same time allowing the redirection of resources to the priority areas in the Corporate Plan, and the MTFS 2021-22 to 2025-26 builds on this approach. This MTFS will be kept under constant review and will need to adapt in response to new risks and opportunities during this unprecedented period of uncertainty and change.

Laurence Woolven

Head of Finance (S151 Officer)

Section 1. Introduction

Background

In order to achieve its priorities the Council has a clear and robust financial strategy which focuses on its long term financial sustainability. The MTFS does this by balancing the financial implications of objectives and policies against constraints in resources and provides the basis for decisions to be made about its finances.

The MTFS integrates revenue allocations, savings targets, reserves and capital investment, and provides a budget for 2021-22 upon which the 2021-22 Council Tax level (General Fund) and rent levels (Housing Revenue Account(‘’HRA’’)) are determined, and sets out the forecasts for the period 2022-23 to 2025-26.

Whilst the purpose of this MTFS is to provide a costed plan over the period 2021-22 to 2025-26, it must be recognised that this plan becomes more uncertain the further out in time the forecast moves. However, uncertainty is more of a reason to produce a MTFS as the identification of potential longer-term revenues and expenses and the key risks associated with those forecasts and income and expense streams provide valuable insight for the Council and aids decision making.

Objectives

This MTFS seeks to achieve a number of specific objectives:

Ensure the Council’s limited resources are directed to achieving the vision and strategic priorities within the Council’s Corporate Plan and HRA Business Plan;
Ensure the Council maintains a sound and sustainable financial base, delivering a balanced budget over the life of the MTFS;
Provide a range of good quality services that people expect, and offer excellent value for money;
Deliver key projects that enhance quality of life and wellbeing across Wealden, thoughtfully generating reasonable income streams in line with our Commercial Strategy to achieve a financially stable and self-sufficient council;
Maintain our measured, professional approach to managing the Council’s finance and investments, and continue to develop our enterprise culture for the benefit of the District as a whole;
Deliver more by working with partners, continue to extend our use of technology, minimise transaction costs and sustain customer satisfaction;
Growing the Council Tax and Business Rates tax base, whilst ensuring that Council Tax rate increases are kept an acceptable level;
Ensure the Council maintains robust, but not excessive, levels of reserve and balances to address any future risks and unforeseen events without jeopardising key services and the delivery of outcomes; and
Continue to manage down the Council’s recurrent cost base, in line with reductions in overall resources by ensuring the provision of efficient, effective and economic services which demonstrate value for money.

Section 2. Context

Local Priorities

This MTFS is central to identifying the Council’s capacity to deliver its local priority outcomes and it reflects:

The Council’s current financial position and outlook.
The Council’s overall financial strategy, including use of reserves.
Internal and external pressures which may influence the council’s financial position.

The following sub-sections set out the local context and priorities, that we have had regard to in producing a costed plan over the period 2021-22 to 2025-26.

Wealden as a Place:

Wealden has 8,495 businesses, with small and micro businesses forming a fundamental part of the Wealden economy. 91.3% of Wealden’s businesses employ fewer than 10 people[2].

The largest proportion of business enterprise in the District is in the Professional, Scientific & Technical category at 16.5% followed by construction at 14.5%[3].

Just under a quarter (23%) of the population of the District is traditional retirement age or above (65+).

Three quarters (78%) of Wealden residents own their home; more (44%) own it outright than do through a mortgage (34%).

90% of Wealden residents are happy with where they live, and 76% happy with the way the Council is run – nationally the figures are 79% and 61% respectively.

Financially Stable and Self-sufficient Council:

A key component of the Council being financially stable and self-sufficient, is the Council’s Commercial Strategy which provides a framework for activities that:

Form an essential part of the solution to the funding gap, which has arisen due to public sector budget cuts, a restructuring of how local authorities are funded and increasing demographic pressures;
Potentially lead to the generation of disposable income, to provide additional resource to meet the Council’s ambitions and statutory duties for Wealden as set out in other strategies and plans; and
Deliver functions, services and outputs that bring benefits to local people and in doing so helps meet Corporate Plan objectives.

Partners and the Community:

Parish and Town Councils – have been proactive in identifying services important to their local communities and working with the District Council and other bodies on local priorities. For example, Mayfield and Five Ashes Parish Council has agreed to commit funding towards a proposed community facility in conjunction with a new doctors’ surgery to be built with funding by Wealden District Council;
The voluntary sector – has also been keen to deliver services with 16 organisations operating service level agreements with the Council in 2019/20 with £0.271 million of Council funding;
Wealden Strategic Partnership – is a non-statutory, multi-agency body, which matches Wealden District Council boundaries, and brings together the different parts of the public, private, community & voluntary, and special interest sectors to work to help improve the life of the residents of Wealden;
Safer Wealden Partnership – brings together a number of agencies from the public, private, education and voluntary sector to improve people’s lives in the area by working together to reduce the levels of crime and anti-social behaviour and to manage the fear of crime;
East Sussex Strategic Partnership – brings together different parts of our local community – public services, local businesses, community groups, voluntary sector organisations and local people. The Partnership helps organisations and individuals work together in a co-ordinated way to plan local services, tackle the issues that matter to local people and improve quality of life in East Sussex; and
Sussex Weald Homes Limited – An initiative to contribute towards the self-financing objective was the Council setting up Sussex Weald Homes Limited in December 2017, a 100% owned subsidiary to build properties that will be rented or sold to the Council and privately, and acquisition of commercial properties.

Corporate Plan 2019-23:

The Council’s Corporate Plan sets out our direction and priorities for the next four years, building on our previous Plan 2015-19.

“Shaping Wealden as a District which offers a fulfilling and worthwhile quality of life for our residents, a thriving and prosperous place for businesses where local people and visitors can enjoy the outstanding beauty and heritage of our landscape and environment. We will continue to chart a course for the District founded on lean, efficient principles, based on sound business management with a considered approach to investment and income generation. In a post- EU Exit, the Council will play its part in achieving strong, self-reliant and vibrant conditions for the wellbeing of our residents, our businesses and our environment.”

The Council’s vision for the future is:

We will continue to work with our partners to support Wealden’s communities, environment and economy with:

Engaged, resilient, active communities;
Access to suitable housing, local jobs, services, facilities, leisure and recreational opportunities;
Sustainable economic growth; and
Sound business management.

We aim to:

Protect and enhance Wealden’s high quality natural environment and heritage;
Promote a better quality of life for Wealden people through activities that improve health, resilience and well-being;
Improve access to essential services for all our communities;
Ensure development meets future needs, with associated investment in infrastructure;
Take advantage of opportunities to promote new, cleaner technologies;
Work with partners to regenerate our diverse market towns, creating jobs and attracting investment;
Support our local businesses and entrepreneurs to achieve a locally sustainable economy; and
Generate ongoing sources of income to reinvest in local priorities and optimise funding from external sources.

Our strategic priorities for Wealden over 2019-23 cover four themes:

Communities

We want people in Wealden’s communities to have the opportunity to enjoy an excellent quality of life through:

Active, healthy and fulfilling lifestyles;
Access to good health care;
Safe environments for all ages;
Positive democratic engagement;
Strong community leadership;
Skills that match local opportunities and worthwhile jobs;
Thriving community clubs, sport, recreation and leisure; and
Good housing local people can afford, in places they want to live.

Environment

We are steadfast in our duty and desire to protect Wealden’s beautiful landscape. We want people in Wealden to be able to access and enjoy the outstanding natural beauty and heritage of our landscape and environment, including conservation areas. Also, for residents to live in good quality housing that integrates harmoniously.

Key strands:

Planned growth that respects our environment;
Ongoing improvements to infrastructure;
Working with partners for more renewable energy use;
Securing sustainable growth in our towns and villages;
Accessible open spaces close to homes and workplaces;
Increased action within communities to improve the environment;
Harnessing our natural resources for sustainable rural enterprise;
Valuing our green spaces and biodiversity assets;
Conserving and enhancing the character of our rural areas; and
Managing the street scene.

Local economy

We want Wealden businesses, communities and residents to thrive and prosper in the District. We are committed to planning and promoting opportunities for sustainable growth through:

Vibrant town centres and villages;
Business innovation in a green environment;
Promoting Wealden as a tourist destination;
Stimulating high quality tourism experiences;
Better broadband, 4G and 5G connectivity;
Appropriate employment spaces;
Leveraging funding into the District;
Working with the South East Local Enterprise Partnership;
Supporting local businesses, the Chambers of Commerce & the Federation of Small Businesses; and
Re-balancing the housing market to reflect local needs.

Sound business management

Wealden will continue to be a well-run Council, well thought of and respected by our residents, peers and partners.

We will:

Provide the range of good quality services that people expect, and offer excellent value for money;
Deliver key projects that enhance quality of life and wellbeing across Wealden, thoughtfully generating reasonable income streams in line with our Commercial Strategy to achieve a financially stable and self-sufficient council;
Maintain our measured, professional approach to managing the Council’s finance and investments, and continue to develop our enterprise culture for the benefit of the District as a whole; and
Deliver more by working with partners continue to extend our use of technology, minimise transaction costs and sustain customer satisfaction.

National Priorities

The following sub-sections set out the national priorities, that we have had regard to in producing a costed plan over the period 2021-22 to 2025-26.

Covid-19:

The immediate priority for Central Government is providing businesses and individuals with financial support during the Covid-19 pandemic (and administered by Council’s), and protecting vulnerable people.

Housing, Infrastructure and Other Services:

The Government’s ambition is to increase the numbers of new homes built to 300,000 per annum by the middle of the 2020s.

Investing another £1.1 billion in local infrastructure to unlock almost 70,000 new homes;
A new £10 billion Single Housing Infrastructure Fund; and
Reforming the New Homes Bonus (‘’NHB’’) to reward delivery[4].

Following the briefing paper, MHCLG issued a consultation white paper in August 2020, which covered a package of proposals for reform of the planning system in England, covering plan-making, development management, development contributions, and other related policy proposals. The consultation has proposed to replace the Community Infrastructure Levy (‘’CIL’’) and Section 106 planning obligations with a new consolidated Infrastructure Levy, which is charged as a fixed proportion of development value above a set threshold. Subject to the outcome of the consultation, The Government will seek to bring forward legislation and policy changes to implement the reforms.

The Spending Review 2020, on 25 November 2020 included announcements on the following policies and programmes that are relevant to local authorities:

£16 million to support modernisation of local authorities’ cyber security systems;
£254 million of additional resource funding to support rough sleepers and those at risk of homelessness during COVID-19, including £103 million announced earlier this year for accommodation and substance misuse support;
£165 million for Troubled Families;
£60 million for Social Housing Decarbonisation;
£621 million to regenerate high streets, town centres and communities through the Towns Fund; and
£4 billion levelling up fund, which will invest in local infrastructure that has a visible impact on people and their communities and will support economic recovery.

Local Government Funding

The Central Government aim through funding reforms (i.e. localised business rates) is to significantly reduce reliance on central grants (i.e. Revenue Support Grant) and move councils to be self-financing. This has required council’s to focus on more local self-sufficiency through other forms of local income generation, such as:

Council Tax rate increases, within prescribed referendum limits;
Increases to fees and charges;
Widening the scope of fees and charges by introducing charges for services not previously charged for;
Increasing trading activities to generate surpluses for reinvestment, including the establishment of trading companies; and
Look at ways of commercialising existing services and seeking opportunities to ‘sell’ goods and services externally.

Fair Funding Review and Business Rates Retention Scheme

The fair funding review aims to provide updated formulas for assessing councils’ spending needs, and it will change how central grants are distributed between Councils. The outcomes of the fair funding review are to be implemented alongside the introduction of 75% business rate retention.

The Secretary of State for MHCLG announced in April 2020 (and reaffirmed in the Spending Review 2020), that the fair funding review and changes to the business rates retention scheme due to be implemented from April 2021, were to be postponed because of the Covid-19 pandemic. No date was provided as to when the review will be implemented, but the Secretary of State stated that the Government are committed to reforming the funding framework for local government so that it is simpler, more up to date, and more transparent. The Government has established a steering group and a number of working groups, chaired jointly by MHCLG and the Local Government Association, to develop these reforms.

Business Rates Revaluation

In July 2020, Central Government confirmed that the 2021 revaluation would be postponed to reduce uncertainty for businesses. Central Government has announced that the next revaluation is likely take effect in 2023. To enable the next revaluation to reflect the impact of Covid-19 more closely, this revaluation will be based on property values as of 1 April 2021.

Fundamental Review of Business Rates

In the Budget 2020 (11 March 2020), Central Government published the terms of reference for a fundamental review of the business rates system to be carried out by HM Treasury. This review is wide-ranging: it will consider all elements of the current system, as well as exploring the potential strengths and weaknesses of alternative property and online taxes put forward as possible replacements for rates, as recommended by the Treasury Select Committee in its report of 31 October 2019. The reviews final conclusions are expected in Spring 2021. This could lead to big changes in the design and yield of the tax, which would matter greatly for local government given that it currently contributes around 30% of non-schools revenues.

Covid-19 Pandemic

The impact of Coronavirus (‘’Covid-19’’) pandemic on the Council was first felt towards the end of March 2020, and continues to have an effect in the 2020-21 financial year. In 2020-21, the Council is experiencing substantial losses across many of its largest streams of income. These include council tax and business rates, building control fees, commercial rents and licensing fees. As with any recession, investment income is reducing which will create further pressures on the Council’s finances. On the expenditure front, some of the key areas of additional pressure include accommodation and support for rough sleepers – some of whom may not have required our support previously, shield and hub costs to protect and support our vulnerable residents, and additional staff costs to cope with the increased demand for some services i.e. revenues and benefits. Whilst Central Government has provided emergency Covid-19 funding to the Council for 2020-21 and 2021-22 this funding does not cover all the financial pressures.

It is uncertain if these losses will continue over the period of the MTFS (i.e. 2021-22 to 2025-26), in addition to the potential adverse impact on the growth of the council and business rate tax base.

In the Spending Review 2020, the Chancellor announced that current sales, fees and charges scheme (which refunds 75% of eligible income loss beyond a 5% threshold) is being extended on a pro-rata basis into the first three months of 2021-22. In addition, councils will receive £670 million of unringfenced grant funding to enable them to continue reducing council tax bills for those least able to pay, including households affected by Covid-19.

The Council has sought in recent years to build up the General Fund reserve balance to ensure the Council is financially resilient. The Council is therefore in a position to draw upon its General Fund reserve balance to balance its budget (within a certain tolerance level) if required.

It is also uncertain over the period of the MTFS if Central Government will be providing further support to businesses and individuals, through schemes that are administered by Wealden on behalf the Government and how these schemes would financially impact the Council.

Economic and Fiscal Climate

The Public sector finances are increasingly coming under pressure, due to the significant increase in government spending to support the economy during the Covid-19 pandemic, as well as lower tax receipts. The Office for Budget Responsibility’s (“OBR’s”) Economic and fiscal outlook, published on 25 November 2020 (alongside the Spending Review 2020) puts these pressures into stark focus with the following forecasts/expectations:

Economic outlook remains “highly uncertain”;
GDP[5] to shrink by 11.3% in 2020;
Unemployment rate to average 4.4% across 2020, rising to 7.5% at its peak in Q2 2021-21. The unemployment rate is then projected to fall to 4.4% by 2025; and
Borrowing peaks at £393.5 billion[6], 19.0% of GDP in 2020-21, the highest peacetime level on record, before forecasting to fall to 3.9 per cent in 2025. However, borrowing costs continue to be very low, driven by interest rates that are low by historical standards, making the current costs of servicing this increase in debt affordable.

Provisional estimates indicate that the £173.7 billion borrowed in the first five months of 2020-21 (April to August 2020) was just over three times the £55.8 billion borrowed in the whole of 2019-20.[7]

The economic outlook forecast[8] by the Council’s Treasury Management Advisors, Arlingclose, highlights the follows:

While the strict initial lockdown restrictions have eased, coronavirus has not been supressed and second waves have prompted more restrictive measures on a regional and national basis. This ebb and flow of restrictions on normal activity will continue for the foreseeable future, at least until an effective vaccine is produced and importantly, distributed;
However, the scale of the economic shock to demand, ongoing social distancing measures, regional lock downs and reduced fiscal support will mean that the subsequent pace of recovery is limited. Early signs of this are already evident in UK monthly GDP data, even before the latest restrictions; and
This situation will result in the Bank of England maintaining low interest rates for the medium term. In the UK, the EU Exit is a further complication. Bank Rate is therefore likely to remain at low levels for a very long time (currently 0.1%), with a distinct possibility of being cut to zero. Money markets have priced in a chance of negative Bank Rate.

The Consumer Price Index (‘’CPI’’) fell to 0.3%[9] in November 2020, and is further below Central Government’s target rate of 2%, with the Retail Price Index (‘’RPI’’) standing at 0.9%[10] in November 2020. Both indexes are anticipated to remain low for the foreseeable future[11].

Pressures loom in 2021-22 and beyond. Firstly, falls in council tax and business rates collected will have to be reflected in the following years. Secondly, tax collections and potentially income from sales, fees and charges and commercial activities could remain depressed looking forward, as higher unemployment pushes up the cost of council tax support (‘’CTS’’) schemes and changed consumer behaviour impacts the viability of high streets. Thirdly, a range of spending pressures could persist (or arise) as some services see increased costs and demands, and councils’ pension schemes are revalued in April 2023.

Section 3. General Fund Revenue

Spending Plans

This MTFS is central to identifying the Council’s financial capacity to deliver its vision and strategic priorities within the Corporate Plan 2019-23, and requires a balance to be struck between the need to support the delivery of the vision with the need to maintain a sustainable financial position. Striking the correct balance between these two requirements becomes ever more difficult in the challenging financial context in which the Council operates. This is compounded by Government funding reductions, the impact of Covid-19, and the localised business rates funding which is subject to uncertainty and volatility.

The Council’s Corporate Plan is supported by a programme of work containing a range of projects that will meet each of the four strategic themes. In the absence of any new Government funding and in the context of the impact of Covid-19, general cost pressures, and savings underpinning the MTFS, the resources to finance these projects have been made possible by allowing the redirection of resources to the priority areas as well as seeking external financial support in the form of grants and contributions.

It should be noted that the full financial implications of the Hailsham Aspires major project, have not been reflected in the costed General Fund Revenue Summary and Capital Programme 2021-22 to 2025-26, because the project is being developed. At the point when a full business case has been assessed and finalised to demonstrate that the capital investment is affordable and sustainable, the full revenue and capital implications will be built into future iterations of the MTFS.

Spending Pressures

Inflation – Pay and Prices

The General Fund MTFS follows the Spending Review 2020 announcement on a public sector pay ‘pause’ for 2021-22, except for those earning less than the full-time salary equivalent of £24,000 who will receive a £250 per annum increase (full time equivalent). Thereafter an allowance has been included for a 2% pay award for staff in 2022-23 to 2025-26, plus an estimate of staff increments.

Revenue implications of the General Fund Capital Programme

In section 4. ‘General Fund Capital Programme’, the expenditure for major projects such as Hailsham Aspires – phase 1, Crowborough Leisure Centre Teaching Pool and the development phase of Knight’s Farm, has been built into general fund capital programme. This has the following implications for the General Fund – revenue.

Interest Payable on External Loans – Capital expenditure totalling £8.8 million is anticipated to be funded from borrowing and the interest payable associated with this additional borrowing has been built into the MTFS.
Minimum Revenue Provision (“MRP”) – As detailed in the Council’s Capital Strategy which will be approved in February, there is a proposal to change the method of charging MRP[12] from 2021-22, to better match the repayment profile to how the benefits of assets financed by borrowing are consumed over their useful life. This change will provide some budget headroom over the medium term to cushion the additional MRP from the increase expenditure in the General Fund Capital Programme (i.e. Hailsham Aspires) that is funded from borrowing. In line with the Council’s MRP policy[13] whereby MRP is charged in the year following when assets become operational, MRP has not been reflected in the MTFS, because it is anticipated the Hailsham Aspires properties will not become operational during the period of the MTFS i.e. before the end of 2025-26.
Capital Expenditure Charged to Revenue – In 2021-22 and 2022-23 there is an increase in the amount of revenue that is being used to fund the capital programme. However, the impact of this is partly negated on the General Fund through the receipt of the New Homes Bonus grant, and the contribution from earmarked reserves i.e. Capital Investment Fund.

Resources

Business Rates

The MTFS has assumed that Wealden will continue being part of the existing East Sussex Business Rates Pool based on a 50% rate retention, over the period 2021-22 to 2025-26, the agreement to pool is one that is reviewed on an annual basis. The agreement to continue the existing East Sussex Business Rates Pool for 2021-22 was made in early January 2021.

At budget setting 2020-21, business rates for 2021-22 were estimated to reduce to £3.3 million, this has improved significantly since then to an estimated £4.5 million, however then drops off in future years, as previously estimated. The reduction in business rates, which is now expected to be between 2021-22 and 2022-23, is due to the anticipated reset of business rates in 2022-23 (delayed from 2020-21). This delay to the reset is consistent with the Spending Review 2020 announcement that reaffirmed MHCLG announcements earlier in the year regarding a delay to the implementation of the fair funding review and the move to 75% business rates retention. As part of the reset, the Council will lose any growth it has built up since the last baseline reset in 2013-14. In effect, the Council has benefitted from keeping its growth since 2013, and this reset redistributes the growth. This is a result of how the current redistribution system was designed and implemented in 2013.

The MTFS currently reflects our predicted worst case scenario, as there a number of unknowns that may occur between now and 2022-23 including the reset being delayed further (post 2022-23), the government giving some form of transitional relief to those who lose out and also the impact of the fair funding review and any impact this may have on the reform of the business rates system. The estimates will be reviewed throughout the remainder of this year and through next year ahead of setting the budget for 2022-23.

As part of the measures put in place to help councils during the Covid-19 pandemic the Government announced additional legislation in early November, the Local Authorities (Collection Fund: Surplus and Deficit) (Coronavirus) (England) Regulations 2020, which allows councils to spread the estimated 2021-22 collection fund deficit equally across the next three years. The business rates estimate within the MTFS takes this into account.

Council Tax

The Council’s main income stream is from Council Tax. The Localism Act 2011 introduced a power for residents to approve or veto excessive council tax increases. This means that any local authority setting an excessive increase as set by the Secretary of State would trigger a referendum of all registered electors in their area. The 2% referendum threshold for 2021-22 was highlighted in the Spending Review 2020. MHCLG subsequently confirmed the 2021-22 referendum threshold for shire Districts (which includes Wealden) at 2% or £5.00 whichever is higher[14].

In light of the financial position of the Council and mindful of the potential referendum thresholds the MTFS assumes the following indicative council tax increases and subsequent overall yields:

	2021-22	2022-23	2023-24	2024-25	2025-26
Band D Council Tax	£197.44	£202.44	£207.44	£212.44	£217.44
Band D Increase (£)	£0.00	£5.00	£5.00	£5.00	£5.00
Band D Increase (%)	0%	2.53%	2.47%	2.41%	2.35%
Council Tax Base (Number of Properties) for Tax Setting Purposes	66,429.20	66,729.20	67,129.20	67,629.20	68,129.20
Council Tax Income Estimate – Demand on the Collection Fund	£13.115m	£13.508m	£13.925m	£14.367m	£14.814m

The council tax base estimate has been produced based on the Council Tax Base (“CTB1”) return completed in September 2020 and adjusted for loss of collection and estimated new builds coming on board in 2021-22. This has been calculated in accordance with legislation in December 2020 and the MTFS has been updated.

Actual council tax increases will be decided on an annual basis taking into account financial circumstances of the Council at the time, the level of resources available and the referendum limits set by Government for each respective financial year. Annual increases remain subject to the decision of both Cabinet and Council.

Revenue Support Grant (“RSG”)

The core grant funding from Government is known as RSG. Since the drive for localisation from 2013-14[15] there has been a reduction in RSG for Wealden up to 2017-18. This MTFS assumes zero RSG in line with government announcements of the intention to remove all core grant.

Central and Specific Grants

Currently, the number of grants received by the Council from Government is very limited. Within the revenue budget we receive a small amount of Rural Services Delivery Grant, and a decreasing amount of New Homes Bonus (“NHB”) which is used to fund the General Fund Capital Programme.

As set out in the National Priorities section above, there are a number of Government reviews that will change how central grants are distributed between councils i.e. reforming the NHB to reward delivery and the fair funding review which aims to provide updated formulas for assessing councils’ spending needs. When the outcome of these reviews are known the implications for Wealden and the MTFS will be determined.

Fees and Charges

The fees and charges levied by the Council are an important source of income. The fees and charges levied include planning fees, garden waste collection and building control.

It is normal practice for the Council to review fees and charges annually and propose revised and new charges from 1 April each year. This will include the development of any policies in respect of discounts and concessions. As part of the annual review, all fees and charges are considered. The fees and charges are approved separately from this MTFS as part of the February round of budget setting for the forth-coming year. Any impact on income budgets arising from these fees and charges are reflected in the income budgets included in this MTFS.

2021-22 Local Government Finance Settlement

The provisional 2021-22 Local Government Finance Settlement (“the Settlement”) was announced in Parliament on 17 December 2020 by the Secretary of Statement for the MHCLG. The Final Settlement will be confirmed in early 2021. It sets out the distribution of centrally allocated resources for local authorities and provides authorities with a combination of grant allocations and their baseline figures within the business rates retention scheme. The headline Settlement grant allocations for Wealden built into the MTFS are as follows:

2021-22

New Homes Bonus (“NHB”): £1.401 million;
Lower Tier Services Grant: £0.126 million*;
Covid Grant: £0.671 million*;
Rural Services Delivery Grant: £0.217 million*;
Flexible Homelessness Support Grant: £0.545 million*; and
Local income guarantee for 2020-21: compensation for BR losses.[16]

In addition to the above, the following grants announced in the Settlement have not been built into the MTFS because either the expenditure that the grant is funding has not been reflected in the MTFS or the amount of the grant is unknown at the time of developing the MTFS:

2021-22

Sales, fees and charges compensation April – June (amount unknown).

2021-22 to 2023-24 (assumes Collection Fund deficit spread of 3-years)[17]

Local Council Tax Scheme (“LCTS”) Grant c.£0.200 million; and
Local income guarantee for 2020-21: compensation for council tax.

In view of the 2021-22 Settlement only being for one year, as opposed to a multi-year, this creates financial uncertainty for the funding to be received centrally from Government from 2022-23. This has meant that assumptions have had to be made, for example, the grants above marked with an asterix (*) have been assumed to be one-off grants in 2021-22, and the NHB reducing to £0.370 million in 2022-23 and ceasing thereafter.

Bridging the gap

The Council’s approach has centred on planning ahead, securing savings in advance, re-investing in more efficient ways of working and adopting a more commercial approach whilst making careful use of reserves to meet funding gaps, and has sought to protect its core services that matter most. The General Fund MTFS includes savings/additional income targets of £0.5 million from 2022-23.

General Fund Revenue Budget and Forecast

Based on the preceding financial objectives, underlying principles, national and local priorities, savings targets, spending pressures and resources assumptions, Appendix 1 provides a five-year (2021-22 to 2025-26) General Fund revenue estimate for the Council.

Risks to the General Fund Revenue Budget and Forecast

The Council has adopted a corporate approach to risk management, and financial risk management is integrated into the Council’s overall management and decision-making processes.

The main areas the key risks cover are:

Future impact of the Covid-19 pandemic;
Fluctuations in the Business Rates tax base;
Future changes to the retained Business Rates system;
Future levels of Central Government funding;
Delivery of savings targets;
Impact of current economic climate on both demand for services and income streams;
Changes to other key external funding sources;
Changes to other key assumptions within the MTFS; and
Financial and budget management issues.

These risks form part of our financial risk assessment, Officers will continually monitor and appraise these risks as part of the on-going financial management.

Section 4. General Fund Capital Programme

General Fund Capital Priorities

The Capital Programme is made up of a number of rolling programmes which include repairs, maintenance and improvement programmes to car parks, leisure centres and the Cuckoo Trail, as well as continuing investment in IT and Digital services, and waste containers.

In addition to this, the programme includes a number of major projects that the Council is embarking on, such as Hailsham Aspires, Crowborough Leisure Centre Teaching Pool and the development phase of Knight’s Farm totalling over £12 million over the period of the MTFS.

Indicative allowances have been included within the capital programme to support an additional £8.8 million of borrowing in excess of the allocations within the existing approved programme over the period and this position will be reviewed as the capital programme is developed.

Any capital investment decision will have implications for the revenue budget. The revenue costs over the lifetime of each proposed capital project are considered when the project is being developed to ensure that the impact can be incorporated within the Council’s financial plans and to demonstrate that the capital investment is affordable. Revenue implications may include the costs associated with supporting additional borrowing as well as any changes to the running costs associated with the asset or wider benefits to the council such as the delivery of on-going revenue budget savings or additional income through the generation of business rates, lease income and council tax.

There is the potential that the government will introduced mandatory food waste collections, which would have an impact on the Council’s Capital Programme, it is too early at this stage to say what this impact would be, but if it is introduced, it will need to be incorporated into the Capital Programme.

Resources

The resources necessary to fund the Council’s General Fund Capital Programme are fully identified in Appendix 2, and are summarised below.

Capital receipts

Grants and Contributions

In the capital programme we are anticipating (or have already) to secure external contributions to support a number of project, details of which can be seen in Appendix 2.

Grants incorporated in the capital programme are the NHB (£1.771 million) and the Disabled Facilities Grant (“DFG”) (£5 million). The continuation of the DFG and the amount has not yet been confirmed, and there is a risk that this funding will reduce, however, even without this grant we have a legal obligation to deliver a number of adaptations to some of our residents and would therefore have to look at other sources of funding to support this.

Council Resources

	2021-22 £(000)	2022-23 £(000)	2023-24 £(000)	2024-25 £(000)	2025-26 £(000)
Capital Expenditure Charged to Revenue (see Appendix 1)	5,052	2,426	25	25	0
Less: Contribution from Earmarked Reserves*	(3,651)	(2,056)	(25)	(25)	0
Net impact on General Fund**	1,401	370	0	0	0

* Included in the line ‘Contributions to/(from) Earmarked Reserves’ in Appendix 1.

** The net impact is funded from New Homes Bonus.

Borrowing

The basic principle of the Prudential System is that local authorities are free to invest so long as their capital spending plans are affordable, prudent and sustainable. The Council will need to meet the whole of the capital financing costs associated with any level of extra borrowing through its revenue account. These financing costs cover MRP and interest. The use of prudential borrowing will be as a funding mechanism for some key projects i.e. Hailsham Aspires (following a full financial assessment) and may be used as a short-term measure to fund capital expenditure prior to a capital receipt being received. The MTFS includes a prudential borrowing requirement of £8.8 million over the period 2021/22 to 2025-26.

In March 2020, Central Government launched a consultation on reforms to the Public Works Loan Board (“PWLB”) intended to prevent the trend, in a minority of local authorities, of taking on debt to buy assets primarily for income. In the Spending Review 2020 the Government announced the outcome of the consultation[18], which set out that the PWLB will not lend to a local authority that plans to buy investment assets primarily for yield anywhere in their capital plans, regardless of whether the transaction would notionally be financed from a source other than the PWLB.

The Council’s General Fund Capital Programme does not include capital expenditure to buy or construct capital assets primarily for income, in order to retain its access to PWLB loans.

Further details about the Council’s borrowing requirements and the Prudential Indicators can be found in the Council’s Capital Strategy and Treasury Management Strategy.

General Fund Capital Programme

The capital spending plans for the next five years include the delivery of key capital schemes identified to support the delivery of the Council’s Corporate Plan. Appendix 2 provides a five-year (2021-22 to 2025-26) General Fund Capital Programme for the Council.

Risks to the General Fund Capital Programme

The Council has adopted a corporate approach to risk management and financial risk management is integrated into the Council’s overall management and decision-making processes.

Achievement of capital receipts targets;
Loss of anticipated external resources;
Increased project costs; and
Unplanned emergency maintenance to Council’s corporate properties.

Section 5. Housing Revenue Account

Housing Revenue Account Business Planning

Self-financing, however, also significantly increased risks from Central Government to local authorities, meaning that the Council:

Now bears the responsibility for the long term security and viability of council housing in Wealden;
Has to fund all activity related to council housing, from the income generated from rents, through to long term business planning;
Is more exposed to changes in interest rates, high inflation and the financial impact of falling stock numbers; and
Needs to factor in the impact of changes in government policy e.g. the impacts of the welfare reform on income recovery, and rent setting.

This places a greater emphasis on the need for long-term planning for the management, maintenance and investment in the housing service and housing stock.

The HRA Business Plan

The Council’s Housing Revenue Account Business Plan 2020-2050 was updated in July 2020 to reflect housing policy, legislation, best practice and work in progress. It did not reflect costs associated with responding to the coronavirus pandemic and achieving the Council’s climate change aspirations. The Business Plan reflects the impact of Government policy changes and financial assumptions at the time. The Business plan sets out:

The long term plans for the Council’s housing stock;
The finances to deliver plans;
How the Council will manage the income from its stock, demand for housing and stock condition; and
Identifies resources for building new council dwellings.

The current Business Plan is reflected in this MTFS for the period 2021-22 to 2025-26, and been framed in the light of:

Government Policy on rents for Social Housing increasing rents from 2021-22 by CPI plus 1% for five years thereafter CPI only;
One for one replacement of Right to Buy sales and continuation of the Council’s New Build programme which is using local builders to promote local growth and jobs;
Appropriate capital investment in maintaining the quality of the housing stock through planned maintenance and replacement works; and
Servicing and repaying debt so that new borrowing is available for future maintenance works or investment in further new build schemes.

A complete review of the 30-year Business Plan is currently underway to reflect the required investment in our stock as a result of the recent 100% stock condition survey, to build in known assumptions relating to achieving the Council’s climate change commitments and to reflect the long term impact of the Covid pandemic.

Spending Plans

Spending Pressures

Inflation – Pay and Prices

The HRA MTFS follows the Spending Review 2020 announcement on a public sector pay ‘pause’ for 2021-22, except for those earning less than the full-time salary equivalent of £24,000 who will receive a £250 per annum increase (full time equivalent). Thereafter an allowance has been included for a 2% pay award for staff in 2022-23 to 2025-26, plus an estimate of staff increments.

Repairs and Maintenance

The level of expenditure for revenue repairs proposed for 2021/22 is £2.961 million. This covers costs such as responsive repairs, cyclical works, void repairs and redecoration.

Revenue implications of the HRA Capital Programme

Depreciation – must be charged to the HRA in accordance with proper accounting practices, it reflects the decline in the value of the HRA council’s stock over time due to wear and tear. The calculation is based on the social housing valuation of the councils stock. The Councils stock is revalued each year and the depreciation value will fluctuate depending on the annual valuations of the Council’s housing stock. Depreciation is transferred to a major repairs reserve to fund the HRA capital programme. This amounts to £3.850 million for 2021-22 and increases in future years to reflect the increases in housing stock from New Builds and inflation.
Interest Payable – is associated with additional borrowing for capital expenditure on the Housing investment programme, including interest payable on the balance of £46.6 million for the self- financing transaction from 2011-12.
Provision for Loan Repayments – planned loan repayments have been updated in the MTFS which is key to self-financing and creating opportunities for new borrowing for investment in new builds and major repairs.
Capital Expenditure Charged to Revenue – the amount of revenue that is being used to fund the capital programme between 2021-22 to 2023-24 includes £4.75 million funding for the development of the former Streatfield House site into 20 new homes, which is mainly being funded out of general HRA revenue reserves. Revenue funding is also used to support the planned maintenance programme over the MTFS period.

Debt write off and impairment

Income collection has become more challenging due to the impact of the Covid-19 pandemic and could lead to an increase in the write off arrears or increased debt provision.

Resources

Rents and Service Charges

This is the second year since 1 April 2016 that the Council has been permitted to increase rents. For four years the Government imposed mandatory rent cuts of 1% per annum as part of welfare reform reducing income over that period. The Government introduced the new social rent policy that was effective from 2020-21 for a five year period, enabling councils to increase rents by CPI + 1% per annum, which restores some medium term certainty about income levels.

In line with Government Policy on rents for social housing, rents will be increasing by 1.5% (CPI at September 2020 = 0.50% + 1%) in 2021-22. The average rents are shown in the table below:

	Rent per week (52 week basis)
	2020-21	2021-22
General Needs – Social Rent	£88.32	£89.54
Retirement Living – Social Rent	£75.97	£76.95
General Needs – Affordable Rent	£143.74	£145.89
Retirement Living – Affordable Rent	£107.99	£109.61

When properties become vacant they will continue to be re-let at Formula Rent, in line with the social rent policy.

The additional income generated by the rent increase of 1.5%, if agreed, will be utilised on a number of HRA items including; maintenance of the stock, supervision and management resources, paying for the cost of investment and running costs where appropriate for the stock.

Service Charges

Tenants – in addition to the rent some tenants may also pay service charges. Rents are generally taken to include all charges associated with the occupation of the property, such as maintenance and general housing management services. Service charges reflect additional services which may not be provided to every tenant, or which may be connected with communal facilities. These service charges are reviewed annually and calculated on a per property basis to recover the actual cost of the service. Tenants will be notified in writing of any changes in their rent and service charges for the coming year April to March. The rent notification letter will set out a schedule of services that will be provided and how much we will charge for them. We will only increase service charges within the legal requirement that they will not exceed the cost of the services and will always be reasonable
Leaseholders (Retirement Living, Shared Ownership and Right-to-Buy) – service charges to leaseholder are charged in accordance with their lease. Service charges are calculated to recover the costs of providing communal services, such as cleaning, repairs, grounds maintenance and electricity. Not all leaseholders receive additional services and the amount that is charged will depend on the type of property a leaseholder lives in, and what services are provided.

Right-to-Buy leaseholders are usually notified in April with an annual estimated charge and again within six months of the year end with the Final account figures.

Interest Receivable

Interest is received on HRA cash balances during the year. This is reducing partly due to lower interest rates forecast and reducing general reserve balances.

Other Income

Other Income includes income received from feed in tariffs on solar panels on council dwellings of approximately £0.075 million per annum.

Housing Revenue Account Budget and Forecast

Appendix 3 provides a summary HRA revenue budget and forecast for the period 2021-22 to 2025-26.

Risks to the HRA Budget and Forecast

The Council has adopted a corporate approach to risk management, and financial risk management is integrated into the Council’s overall management and decision-making processes.

The main areas they cover are:

Future impact of the Covid-19 pandemic;
Risk of government announcements limiting the flexibilities and freedoms offered by the HRA Self -Financing regime;
Government changes to legislations such as retro-fitting sprinklers and uncertainty of rent policy after five-years (i.e. from 2025-26);
Economic shocks such as shortage of labour, building costs;
Changes to key assumptions within the MTFS e.g. inflation, interest rates etc;
Efficient delivery of housing repairs;
Ability to release further revenue resources for investment and improvements;
The impacts of the Welfare Reform Act; and
Financial and budget management issues.

Section 6. Housing Revenue Account Capital Programme

HRA Capital Priorities

The five-year housing programme comprises the following main areas of work:

Maintenance of the Decent Homes;
Health & Safety Requirements – covers the work to meet statutory requirements, and includes fire safety, communal lighting and asbestos removal; and
New Build and acquisition programme to deliver approximately 153 new council dwellings within the HRA.

A recent 100% stock condition survey was carried out on both the internal and external condition of our properties. The information from the survey is currently being reviewed alongside the delivery of the council’s future climate change aspirations. Once this piece of work is complete the 30-year Business Plan model will be updated and this will inform future capital programmes based on resources available.

Until then the Planned Maintenance Programme is limited to funding available in the MTFS and the New Build Programme in 2024-25 to 2025-26 limited to using retained Right-to-Buy receipts and borrowing for one for one replacement homes only.

Resources

The resources necessary to fund the Council’s HRA Capital Programme are fully identified in Appendix 4.

Major Repairs Reserve

The Major Repairs Reserve (‘’MRR’’) is the main source of capital funding and the mechanism by which timing differences between resources becoming available and being applied are managed. The MRR may be used to fund capital expenditure and to repay existing debt. Depreciation is a real charge on the HRA and is paid into the MRR from the Housing Revenue Account (see Appendix 3) to fund capital expenditure. The total support to the capital programme over the five-year MTFS period 2021-22 to 2025-26 through depreciation is £22.37 million.

Capital Receipts

Once the target for the government share of the RTB receipts has been reached, the Council may retain 100% of the receipts from any additional RTB sales. These are subject to a formal retention agreement between the Council and the MHCLG and must be used for replacement of the council housing sold, within an agreed timeframe. The retained receipts can only fund up to 30% of the eligible new build expenditure.

New Build Shared ownership sales receipts are used towards funding the New Build shared ownership housing, as the cost of building shared ownership properties is not eligible for use of retained RTB receipts.

The New Build programme is primarily funded by retained RTB receipts, shared ownership receipts and borrowing.

The proceeds of dwelling sales under the RTB scheme provide a regular source of capital receipts with the number of sales increasing in recent years. The MTFS assumes 12 sales per year from 2021-22 to 2025-26. However, this is a difficult area to predict accurately as it is affected by external factors, such as interest rates, property prices and Government initiatives aimed at further stimulating RTB sales.

Council Resources

The MTFS 2021-22 to 2025-26 includes £6.932 million of direct revenue contributions over the five year period. This includes funding for the development of the former Streatfield House site into 20 new homes, which is mainly being funded out of general HRA revenue reserves. Revenue funding is also used to support the planned maintenance programme over the MTFS period,

Borrowing

The removal of the debt cap and high value council housing levy gives local housing authorities more certainty for future HRA Business Planning. In light of this, last year the Council agreed the use of £4.9 million of HRA balances to fund the HRA Capital New build investment programme. The HRA balances minimum recommended level is 5% of the budget, which is in the region of £0.9 million. The use of the HRA general balances over the MTFS period reduces the balances to between £1 million – £1.4 million, which is still above the recommended level.

The graph below shows the position of the budget proposals for borrowing for the HRA Capital Programme against the prudential borrowing limit of £95 million[1].

INSERT TABLE Pg 29.

Following the implementation of HRA self-financing on 1 April 2012 the Council has £46.6 million of external debt relating to housing stock which is being repaid over 30-years. In addition to this the Council has undertaken further internal borrowing of £23.8 million as at 2020-21. The provision to repay debt over the MTFS period is £10.5 million with further borrowing of £24.1 million to fund the HRA Capital Programme. This leaves borrowing headroom of £11 million.

HRA Capital Programme

Based on the spending requirements and resource assumptions, Appendix 4 provides a summary HRA capital programme, 2021-22 to 2025-26.

The revenue implications of all capital schemes, have been taken account of and included within the HRA budget (see Appendix 3).

Risks to the HRA Capital Programme

The Council has adopted a corporate approach to risk management and financial risk management is integrated into the Council’s overall management and decision-making processes.

Generation of sufficient revenue surpluses to resource required investment;
Achievement of capital receipts (including Right to Buy sales) targets;
Future building costs; and
Interest rate increases impacting on future borrowing costs.

Section 7. Reserves and Balances

The general reserves at the end of each year for 2021-22 to 2025-26 are summarised in the table below:

2021-22

£(000)

2022-23

£(000)

2023-24

£000

2024-25

£(000)

2025-26

£(000)

General Fund (see Appendix 1)

7,254

6,214

5,377

4,747

3,909

HRA (see Appendix 3)

4,494

2,793

1,194

1,412

1,562

Appendix 1 General Fund Reserve Summary

General Fund Summary	2021-22	2022-23	2023-24	2024-25	2025-26
	Estimate	Estimate	Estimate	Estimate	Estimate
	£(000)	£(000)	£(000)	£(000)	£(000)
Members	367	373	379	385	391
Chief Executive’s Directorate	5,252	5,081	5,088	5,091	5,099
District Council Elections	20	0	300	0	0
Customer & Community Services	9,031	8,969	9,029	9,229	9,423
Planning, Policy & Environmental Services	4,096	4,204	4,226	4,249	4,272
Central Costs	1,242	595	595	595	595
Total Cost of Services	20,008	19,222	19,617	19,549	19,780
Savings/Income to be Identified	0	(500)	(500)	(500)	(500)
Provision for Future Pay Awards & Increments	0	450	850	1,200	1,550
Drainage Levies	84	86	88	90	92
Interest from Investments/ Dividend from SWH	(400)	(458)	(708)	(750)	(750)
Interest Payable on External Loans	44	141	200	200	241
Charges to the Housing Revenue Account:
Support Services	(1,185)	(1,199)	(1,233)	(1,267)	(1,301)
Minimum Revenue Provision	637	305	199	206	213
Capital Expenditure Charged to Revenue	5,052	2,426	25	25	0
Net Cost of Services	24,240	20,473	18,538	18,753	19,325

Business Rates/Revenue Support Grant
East Sussex Business Rates Pool (includes BR (Surplus)/Deficit)	(4,500)	(3,100)	(3,100)	(3,300)	(3,300)
General Grants
Rural Services Delivery Grant/ New Homes Bonus Grant/ Flexible Homelessness Support Grant	(2,163)	(583)	(218)	(221)	(221)
Lower Tier Services Grant/ Covid Grant	(797)	0	0	0	0
Other Financing
Council Tax (Surplus)/Deficit	0	0	0	0	0
Contributions to/(from) Earmarked Reserves	(3,493)	(2,242)	(458)	(235)	(152)
Contributions to/(from) General Fund Balance	(172)	(1,040)	(837)	(630)	(838)
Council Tax Requirement	13,115	13,508	13,925	14,367	14,814

Funded By
Council Tax Income Estimate – Demand on the Collection Fund	(13,115)	(13,508)	(13,925)	(14,367)	(14,814)

Council Tax Base:
Tax Base (Number of Properties) for Tax Setting Purposes	66,429.20	66,729.20	67,129.20	67,629.20	68,129.20

Council Tax	2021-22	2022-23	2023-24	2024-25	2025-26
Council Tax	Estimate	Estimate	Estimate	Estimate	Estimate
Band D Council Tax – previous year	£197.44	£197.44	£202.44	£207.44	£212.44
Increase in Band D (£)	£0.00	£5.00	£5.00	£5.00	£5.00
Increase in Band D (%)	0.00%	2.53%	2.47%	2.41%	2.35%
Band D Council Tax	£197.44	£202.44	£207.44	£212.44	£217.44
Council Tax Income Estimate – Demand on the Collection Fund	£13,115,781	£13,508,659	£13,925,281	£14,367,147	£14,814,013

General Fund Balance	2021-22	2022-23	2023-24	2024-25	2025-26
	Estimate	Estimate	Estimate	Estimate	Estimate
	£(000)	£(000)	£(000)	£(000)	£(000)
Opening Balance	7,426	7,254	6,214	5,377	4,747
Movement in Year	(172)	(1,040)	(837)	(630)	(838)
Closing Balance	7,254	6,214	5,377	4,747	3,909

General Fund Earmarked Reserves Balance	2021-22	2022-23	2023-24	2024-25	2025-26
	Estimate	Estimate	Estimate	Estimate	Estimate
	£(000)	£(000)	£(000)	£(000)	£(000)
Opening Balance	18,335	14,842	12,600	12,142	11,907
Movement in Year	(3,493)	(2,242)	(458)	(235)	(152)
Closing Balance	14,842	12,600	12,142	11,907	11,755

Appendix 2 General Fund Capital Programme

	2021-22 Estimate	2022-23 Estimate	2023-24 Estimate	2024-25 Estimate	2025-26 Estimate
	£(000)	£(000)	£(000)	£(000)	£(000)
Housing (General Fund)
Disabled Facilities Grants	1,000	1,000	1,000	1,000	1,000
Housing Renewal Grants	10	10	10	10	10
Total Housing	1,010	1,010	1,010	1,010	1,010
Land and Buildings
Hailsham Aspires – Phase 1	3,750	3,300
Mayfield Community and Health Centre	600	2,205
Leisure Centres	95	25	25	25	25
Crowborough Teaching Pool		2,000
Vicarage Lane Office & Civic Community Hall	10	10	10	10	10
Jack Cade Memorial			15
Birling Gap Steps				150
Car Parks & Unadopted Roads	47	78	62	51	50
SANGS Crowborough	15	11
SANGS Uckfield	25		25	25
Cuckoo Trail	70	60	90	75	70
Public Conveniences	75	35
Knights Farm Development		400
Investment Property	10
Infrastructure Investment	2,000
Total Land and Buildings	6,697	8,124	227	336	155
Vehicles and Equipment
ICT Investment Programme	60	100	100	100	100
E-financials Upgrade	42
IT Visualisation Environment	250
Legal Case Management System	20
Refuse & Recycling Containers	200	200	200	200	200
Total Vehicles and Equipment	572	300	300	300	300
Other Capital Expenditure
Investment in Sussex Weald Homes Ltd		3,000	3,000
Community Grants to Voluntary Orgs.	50	50	50	50	50
Total Other Capital Expenditure	50	3,050	3,050	50	50

Total General Fund Capital Programme	8,329	12,484	4,587	1,696	1,515

Funded By
Borrowing	(1,500)	(4,300)	(3,000)
Capital Receipts	(747)	(926)	(552)	(586)	(505)
Government Grants – Better Care Fund DFG	(1,000)	(1,000)	(1,000)	(1,000)	(1,000)
Home Improvement Loans Repayments	(10)	(10)	(10)	(10)	(10)
Capital Grants Unapplied	(20)
External Contribution/Grant funding		(2,400)
Revenue – NHB/Reserves	(5,052)	(2,426)	(25)	(25)
Contribution from Mayfield Parish Council		(1,423)
Contribution from National Trust				(75)
Total GF Capital Programme Funding	(8,329)	(12,484)	(4,587)	(1,696)	(1,515)

Appendix 3 Housing Revenue Account

Housing Revenue Account	2021-22	2022-23	2023-24	2024-25	2025-26
	Estimate	Estimate	Estimate	Estimate	Estimate
	£(000)	£(000)	£(000)	£(000)	£(000)
Dwelling Rents	(14,081)	(14,505)	(15,060)	(15,515)	(15,788)
Non-Dwelling Rents	(165)	(165)	(165)	(165)	(165)
Charges for Services & Facilities	(1,240)	(1,264)	(1,288)	(1,313)	(1,338)
Interest Income	(70)	(60)	(50)	(50)	(50)
Contribution to Amenities Shared by the Community	(70)	(70)	(70)	(70)	(70)
Other Income	(95)	(95)	(95)	(95)	(95)
Total Income	(15,721)	(16,159)	(16,728)	(17,208)	(17,506)

Supervision & Management	2,362	2,316	2,320	2,323	2,324
Repairs & Maintenance	2,953	2,987	3,025	3,235	3,292
Retirement Living Courts	1,119	1,092	1,092	1,092	1,093
Rents, Rates, Taxes & Other Charges	155	65	65	65	65
Depreciation	3,850	4,240	4,530	4,750	5,000
Debt Management Expenses	52	51	51	51	51
Loan Interest	1,835	1,976	2,244	2,307	2,324
Provision for Loan Repayments	2,282	2,282	1,800	2,100	2,100
Capital Expenditure Charged to Revenue	900	2,360	2,672	500	500
Write Offs and Debt Impairment Charges	170	170	170	170	170
Sub Total	15,678	17,539	17,969	16,593	16,919
Provision for Future Pay Awards & Increments	0	37	74	112	151
HRA Contribution to Corporate Costs	293	284	284	285	286
Contributions to/(from) Earmarked Reserves	0	0	0	0	0
Total Expenditure	15,971	17,860	18,327	16,990	17,356

(Surplus)/Deficit for the Year	250	1,701	1,599	(218)	(150)

Housing Revenue Account Balance	2021-22	2022-23	2023-24	2024-25	2025-26
	Estimate	Estimate	Estimate	Estimate	Estimate
	£(000)	£(000)	£(000)	£(000)	£(000)
Opening Balance	4,744	4,494	2,793	1,194	1,412
Movement in Year	(250)	(1,701)	(1,599)	218	150
Closing Balance	4,494	2,793	1,194	1,412	1,562

Housing Revenue Account Earmarked Reserves Balance	2021-22	2022-23	2023-24	2024-25	2025-26
	Estimate	Estimate	Estimate	Estimate	Estimate
	£(000)	£(000)	£(000)	£(000)	£(000)
Opening Balance	4,413	4,413	4,413	4,413	4,413
Movement in Year	0	0	0	0	0
Closing Balance	4,413	4,413	4,413	4,413	4,413

Appendix 4 Housing Revenue Account Capital Programme

	2021-22	2022-23	2023-24	2024-25	2025-26
	Estimate	Estimate	Estimate	Estimate	Estimate
	£(000)	£(000)	£(000)	£(000)	£(000)
New Build Programme	7,221	13,583	5,979	3,000	3,000
Planned Maintenance	4,600	4,600	4,600	5,250	5,500
Shared Ownership Repurchases	500	500	500	500	500
Total HRA Capital Programme	12,321	18,683	11,079	8,750	9,000

Funded By
Loan	(5,252)	(8,384)	(2,034)	(2,160)	(2,117)
1-4-1 Right-to-Buy Receipts	(1,798)	(2,801)	(952)	(900)	(943)
Other Capital Receipts	(521)	(898)	(891)	(440)	(440)
Major Repairs Reserve	(3,850)	(4,240)	(4,530)	(4,750)	(5,000)
Capital Expenditure Charged to Revenue	(900)	(2,360)	(2,672)	(500)	(500)
Total HRA Capital Programme Funding	(12,321)	(18,683)	(11,079)	(8,750)	(9,000)

Authorised But Not Committed Capital Programme – New Build Programme	2021-22	2022-23	2023-24	Total
	Estimate	Estimate	Estimate	Estimate
	£(000)	£(000)	£(000)	£(000)
Authorised but not Committed	2,000	2,000	2,000	6,000
Total Authorised but not Committed Capital Programme	2,000	2,000	2,000	6,000

Funded By
Loan	(1,400)	(1,400)	(1,400)	(4,200)
1-4-1 Right to Buy Receipts	(600)	(600)	(600)	(1,800)
Total HRA Capital Programme Funding	(2,000)	(2,000)	(2,000)	(6,000)

Capital Strategy

The Capital Strategy details how the Council deploys and will subsequently manage its capital resources thereby explaining the Council’s financial framework for capital investment in support of its strategic priorities. This strategy includes a number of prudential and local indicators and annual MRP statements.

2023-24

Introduction

The Council is required to produce a Capital Strategy in line with the requirements of The Chartered Institute of Public Finance and Accountancy (‘’CIPFA’’) Prudential Code for Capital Finance in Local Authorities [updated in 2021].

The aim of the Capital Strategy is to provide an understanding of the Council’s overall long-term objectives, governance procedures, allocation and monitoring of capital expenditure and risk appetite.

This Capital Strategy (‘’the Strategy’’, ‘’this Strategy’’) details how the Council deploys and will subsequently manage its capital resources thereby explaining the Council’s financial framework for capital investment in support of its strategic priorities. The Strategy sets out the long term context in which capital expenditure and investment decisions are made taking into account stewardship, value for money, prudence, sustainability and affordability, and gives due consideration to the risk and reward and impact on the achievement of priority outcomes.

The Strategy has been updated in the context of the Council operating in a financial environment of greater uncertainty. As a result capital planning and monitoring is becoming increasingly complex, requiring multiple variables to be balanced in an environment of rising uncertainty.

The Strategy covers all aspects of the Council’s capital expenditure, resourced both directly by the Council and where resources have been attracted through external funding opportunities.

The Strategy has regard to the Statutory Guidance on Local Government Investments (MHCLG[1], 2018)[2], and is reported separately from the Treasury Management Strategy, with treasury investments being reported through the Treasury Management Strategy and non-treasury investments reported through this Strategy under the heading of ‘Investment Strategy: Non-Treasury Investments’. This ensures the separation of the core treasury function under security, liquidity and yield principles, and the non-treasury function where the policy for service and commercial investments are usually associated with capital expenditure in relation to an asset.

The indicators contained in this Strategy do not reflect the impact of the new accounting standard IFRS 16 Leases. The implementation of IFRS 16 for local government has been deferred until 2024/25. Once the impact of IFRS 16 has been determined, revisions will be made to the affected indicators.

[1] With effect from 20 September 2021, MHCLG was renamed Department for Levelling Up, Housing and Communities (“DLUHC”).

[2] Statutory Guidance on Local Government Investments (3^rd Addition).

Capital Expenditure and Funding

Definition of Capital Expenditure

Capital expenditure is where the Council spends money on the acquisition, construction or enhancement of an asset (for example land, buildings, equipment) that will benefit the Council for a period greater than one year. The definition extends to expenditure on grants or loans to other bodies that they will use to fund expenditure that the Council would have classed as capital had it incurred the expenditure itself, and the purchase of shares in companies. The Council has some limited discretion on what counts as capital expenditure, for example expenditure that qualifies as capital expenditure below £10,000 is not capitalised and is charged to revenue, as per the accounting policies set in the Council’s annual Statement of Accounts.

Capital expenditure is different to revenue expenditure, which is the money used by the Council for the day-to-day delivery of services, staffing and supplies.

Governance – Capital Investment

In an environment of financial constraints and competing pressures on the Council it is important that the Council adheres to its methodology for prioritising potential projects and schemes. The methodology is based on both corporate and service based priorities. As well as considering capital costs and funding, attention is also focussed on the revenue implications of any capital expenditure to ensure the Council will not inherit a legacy of increased revenue costs. Therefore, only whole life costs are considered when evaluating potential capital projects including the costs of Minimum Revenue Provision (“MRP”) and borrowing costs.

Each year, the capital programme is updated, with service managers requesting projects for inclusion in the Council’s capital programme. Requests are put forward and discussed with finance officers who develop the overall proposed programme which is reviewed and appraised by the Head of Finance (S151 Officer) and the Corporate Management Team, and is informed by budget discussions between finance and service areas.

There is a separate capital programme for the General Fund and for the Housing Revenue Account (“HRA”), and these are both presented as part of the respective budget proposals to Cabinet and Council in February each year. They are also subject to public consultation in December and January.

The detailed governance arrangements for capital (i.e. financial planning and budgeting, control of resources, asset management and treasury management) are set out in the Financial Procedure Rules, within the Council’s Constitution.

Links with Other Strategies

The Council’s capital programme and its subsequent revenue implications form part of the Medium Term Financial Strategy (‘’MTFS’’) General Fund and HRA, and as such, is one of a suite of plans and strategies that sit within the Council’s Policy and Financial Planning Framework. Linkages with other key strategies and plans are identified on the next page.

Corporate Plan – sets out our long-term vision for the district, our aim as an organisation, our strategic priorities and the long-term outcomes that we want to achieve. The Council’s strategic priorities are overarching in their application to prioritising spend, whilst capital projects are a key feature of the Council’s transformation programme. The strategic priorities for Wealden that may need capital resources are:
Engaged Communities
Sustainable Environment
Thriving Economy

These priorities are underpinned by the Council being an ‘Ambitious Council’ through being transparent, accountable, dynamic and forward thinking.

MTFS (General Fund and HRA) – how the Council will use its General Fund financial resources to underpin the strategic priorities within the Corporate Plan. Sets out how the Council will use its HRA financial resources to underpin the strategic priorities within the Corporate Plan and 30-year HRA Business Plan[1].

Asset Management Plan – sets out how the Council’s assets support the corporate objectives and the services we provide. It sets out principles, priorities and action to ensure our assets are used and managed as efficiently and effectively as possible, under the direction of the asset management group.
ICT Strategy – identifies the Council’s approach to using Information and Communications Technology (‘’ICT’’). It builds upon work already undertaken and reinforces the key principles of using ICT to effectively deliver the Corporate Plan objectives, support the Council’s business requirements and delivery of customer service.
Service Plans – sets out the individual service priorities and objectives, and how these will be achieved.
Commercial Strategy – forms an essential part of the solution to the funding gap which has arisen due to public sector budget cuts. It will also potentially lead to the generation of disposable income to help meet the Council’s ambitions and statutory duties as well as deliver functions, services and outputs that bring benefits to local people.
Treasury Management Strategy – how the Council properly manages the money we have at hand (cash flow) to make sure money is always available to run the Council and deliver services.

Capital Programme

The Council’s capital programmes is monitored throughout the year by the Corporate Management Team and Cabinet. As set out in the Financial Procedure Rules, within the Council’s Constitution, the Head of Finance, the Cabinet Portfolio Holder with responsibility for Finance, Cabinet and Council have varying levels of authority to approve changes to the programme during the year.

A distinction is made between the General Fund schemes and HRA schemes, although both are subject to the same degree of scrutiny and approval mechanisms.

General Fund

The Council’s capital programme – general fund for the forthcoming five years is detailed in the MTFS 2023/24 to 2027/28. This is a key document that captures the full extent of the Council’s planned non-Housing capital expenditure and associated funding.

The Council has historically had a moderate general fund capital programme with the exception of the recent purchase of the Vicarage Field Shopping Centre, construction of the crematorium and the investment in Sussex Weald Homes (shares and loan), but the scale of investment required going forward is potentially increasing. Capital schemes in varying stages of planning and development include:

Hailsham Aspires Combined Medical and Leisure Hub (Phase 1);
Crowborough Leisure Centre;
Wealden Community Sports Hub;
Knights Farm West Employment Park
Mayfield Community Hall and Health Centre;
Farningham Road;
Ongoing investment in ICT infrastructure and software through the ICT strategy; and
Investment [loans] in Sussex Weald Homes Limited.

The full costings of the major projects covering the first four bullet points above have not been reflected in the Capital Programme 2023/24 to 2027/28, because these projects are still being developed. Once these additional programme costings are approved this will amend some of the indicators in this Strategy.

Clearly it is key that all expenditure, be it revenue or capital, is allocated in order to support the achievement of the Council’s corporate priorities. The Council’s corporate priorities are overarching in their application to prioritising spend, whilst capital projects are a key feature of the Council’s transformation programme.

The investment in the Sussex Weald Homes Limited[2] (through equity and loans) a housing development company, is a commercial strategy that the Council continues to pursue in order to build affordable housing as well as providing a future financial return for the Council through dividends. Further detail is included in the section ‘Investment Strategy: Non-Treasury Investments’.

Housing Revenue Account

A detailed capital programme – HRA for the forthcoming five years is detailed in the MTFS 2023/24 to 2027/28. This is a key document that captures the Council’s planned Housing capital expenditure and associated funding.

The programme underpins the Council’s HRA 30-year business plan, and reflects the Council’s continued commitment to building new council homes and acquisition programme, shared ownership repurchases, health and safety requirements and maintaining council homes to a high standard through undertaking major refurbishment works.

Funding

Capital expenditure can be funded from a number of sources, as follows:

Capital grants and contributions – although funding opportunities can be limited, where possible, external contributions to projects are sought.
Capital receipts – amounts generated from the sale of assets and from the repayment of capital loans, grants or other financial assistance. A key part of the Council’s Asset Management Plan is to identify surplus and poorly performing assets for potential disposal. The two tables below illustrate the movement in the General Fund and HRA Capital Receipts.

Table 1a. General Fund Capital Receipts – Movement Analysis
	31/03/22 Actual	31/03/23 Forecast	31/03/24 Estimate	31/03/25 Estimate	31/03/26 Estimate
	£m	£m	£m	£m	£m
Opening Balance: Capital Receipts	4.440	4.173	3.614	1.261	0.000
Additions – Retained Receipts (Sales)	0.209	0.000	0.000	0.117	0.000
Additions – Retained Receipts (Loan Repayments)	0.000	0.000	10.000	8.000	0.000
Less – used for Capital Programme Funding	(0.476)	(0.559)	(2.353)	(1.378)	0.000
Less – used for Repayment of Borrowing	0.000	0.000	(10.000)	(8.000)	0.000
Closing Balance: Capital Receipts	4.173	3.614	1.261	0.000	0.000
Table 1b. HRA Capital Receipts – Movement Analysis
	31/03/22 Actual	31/03/23 Forecast	31/03/24 Estimate	31/03/25 Estimate	31/03/26 Estimate
	£m	£m	£m	£m	£m
Opening Balance: Capital Receipts	3.192	2.558	3.321	1.487	1.488
Additions – Retained Receipts (Sales)	3.063	3.400	1.543	1.787	1.206
Less – used for Capital Programme Funding	(3.697)	(2.637)	(3.377)	(1.786)	(1.206)
Closing Balance: Capital Receipts	2.558	3.321	1.487	1.488	1.488

Revenue contributions – amounts set aside from the revenue budget or reserve. Such revenue contributions include the capital investment fund (general fund), major repairs reserve (HRA) and revenue funding directly from the general fund and HRA commonly referred to as ‘Capital Expenditure Charged to Revenue’.
Community Infrastructure Levy (‘’CIL’’)* – this is similar to Section 106 funding, in that it is a levy on development, to be spent on local and sub-regional infrastructure needed to support new development in the area, but it is applicable to a wider range of developments and does not have to spent on infrastructure that is directly related to the development in question.
Section 106 Planning Obligations* – developer contributions received in lieu of provision of open space or housing provision. Ring-fenced to provide facilities in line with the individual section 106 agreements.

* MHCLG [now DLUHC] issued a consultation white paper (Planning for the Future) in August 2020, which covered a package of proposals for reform of the planning system in England, covering plan-making, development management, development contributions, and other related policy proposals. The consultation has proposed to replace the CIL and Section 106 planning obligations with a new consolidated Infrastructure Levy, which is charged as a fixed proportion of development value above a set threshold. Subject to the outcome of the consultation, The Government will seek to bring forward legislation and policy changes to implement the reforms.

Borrowing – borrowing is only undertaken when all other sources of funding have been considered. The basic principle of the Prudential System is that local authorities are free to invest so long as their capital spending plans are affordable, prudent and sustainable, and in accordance with approved limits as detailed in the Treasury Management Strategy.

Borrowing is either internal (where cash balances allow) or external borrowing. Currently, the only external borrowing held is for:

loans that were taken out to fund the ‘self-financing’ payment required to be paid to Government in 2012 for the HRA to buy itself out of the previous Housing Subsidy system; and
£10m loan advanced to Sussex Weald Homes Limited.

Because of the healthy cash balances that the Council has held over recent years, internal borrowing has been used as a source of funding for some General Fund projects, including the purchase of the Vicarage Field Shopping Centre, and a loan to and equity investment in Sussex Weald Homes Limited (as wholly owned subsidiary of the Council). This has been an effective strategy as it has avoided the cost of external borrowing and has mitigated the risks and difficulties associated with investing cash balances.

The General Fund capital programme in the MTFS 2023/24 to 2027/28, includes an additional borrowing requirement to fund additional loans to Sussex Weald Homes Limited. However, as highlighted earlier the full costs and associated funding [including borrowing] for a number of major projects have not been reflected in the Capital Programme 2023/24 to 2027/28, because these projects are still being developed.

PWLB loans are no longer available to local authorities planning to buy investment assets primarily for yield. The Council intends to avoid this activity in order to retain its full access to PWLB loans.

The Council’s General Fund and HRA capital programme does not include capital expenditure to buy or construct capital assets primarily for income.

[1] Under the self-financing housing system the Business Plan provided the overall vision for the HRA and housing stock over a 30-year period.

[2] 100% Council owned subsidiary

Prudential Indicators

Non-Treasury Indicators

The Council is required to comply with CIPFA’s Prudential Code for Capital Finance (the ‘Prudential Code’) when assessing the affordability, prudence and sustainability of its capital investment plans. To demonstrate that an authority has fulfilled these objectives, the Prudential Code sets out the following indicators that must be set and monitored each year.

Fundamental to the prudential framework is a requirement to set a series of prudential indicators. These indicators are intended to collectively build a picture that demonstrates the impact over time of the Council’s expenditure plans upon the revenue budget and upon borrowing and investment levels, and explain the overall controls that will ensure that the activity remains affordable, prudent and sustainable.

To demonstrate that the Council has fulfilled these objectives, the prudential indicators for the period 2023/24 to 2025/26 set by the Council are detailed in Appendix A[1]. This Appendix includes further explanation as to the indicators’ meaning. The indicators relating to 2023/24 estimate will be monitored and reported during 2023/24.

It should be noted that the indicators relating to treasury management (see below) are included in the Council’s Treasury Management Strategy:

External Debt – Operational Boundary

The most likely, prudent view of the level of gross external indebtedness. External debt includes both borrowing and long term liabilities. It encompasses all borrowing, whether for capital or revenue purposes.

External Debt – The Authorised Limit

The upper limit on the level of gross external indebtedness, which must not be breached without Council approval. It is the worst-case scenario. It reflects the level of borrowing which, while not desired, could be afforded but may not be sustainable. Any breach must be reported to Council, indicating the reason for the breach and the corrective action undertaken or required to be taken. This limit is a statutory limit required to be set by the Council under Section 3(1) of the Local Government Act 2003.

External Debt – Actual External Debt

The indicator for actual external debt will not be directly comparable to the operational boundary and authorised limit, since the actual external debt will reflect the actual position at one point in time.

Gross External Borrowing and the Capital Financing Requirement

The level of external borrowing is required to be compared to the Capital Financing Requirement which represents the underlying need to borrow. Requires that borrowing in the medium term can only be for capital purposes.

Maturity Structure of Borrowing

The Council’s debt portfolio consist of a number of loans with differing maturities. Setting limits assists in ensuring any new borrowing in particular when combined with existing borrowing does not result in large concentrations of borrowing maturing in a short period of time.

Principal sums invested for greater than one year

This indicator measures the exposure of the Council to investing for periods of greater than one year.

The Treasury Management Strategy covers the security, liquidity and yield principles to managing the Council’s cash flows in relation to core treasury function of borrowing and treasury investments.

Capital Financing Requirement and Borrowing

One of the key prudential indicators focuses on the Capital Financing Requirement (‘’CFR’’). The CFR measures the underlying need to borrow for a capital purpose, (i.e. the amount of capital expenditure that has not been financed by capital receipts, capital grants/contributions or contributions from revenue). This borrowing may not necessarily take place externally. As referenced earlier in the Strategy the Council has in the past undertaken a prudent approach to make use of cash that it has already invested for long-term purposes. In doing this, the Council does not reduce the magnitude of the funds it is holding for these long-term purposes but simply adopts an efficient and effective treasury management strategy. This practice, known as ‘internal borrowing’, has been used by the Council for its current General Fund borrowing and means there is no immediate link between the need to borrow to pay for capital spending and the level of external borrowing.

As stated earlier the General Fund capital programme in the MTFS 2023/24 to 2027/28, includes an additional borrowing requirement to fund additional loans to Sussex Weald Homes Limited.

When capital expenditure is funded from borrowing, this does not result in expenditure being funded immediately, but instead for the General Fund results in an annual charge to the revenue budget over a number of years in the form of Minimum Revenue Provision (‘’MRP’’). The Council’s MRP policy is explained further in the next section of the Strategy. There is not the same statutory requirement for the HRA to pay MRP – although the HRA can make voluntary set asides to reduce debt levels, it can, theoretically, maintain debt levels indefinitely, albeit with the associated interest costs. However, where it is affordable the Council has a policy for the HRA to voluntary set aside revenue to reduce the debt levels. For external borrowings, the HRA pays interest to the PWLB, whilst it pays interest to the General Fund on the remainder of its CFR.

The forward projections of the CFR reflect:

Additional capital expenditure from borrowing or further credit arrangements resulting in an increase to the CFR; and
Revenue budget provision being made for the repayment of debt (i.e. MRP and voluntary set asides), which results in a reduction to the CFR.

The CFR movement for each financial year is shown in the table below which provides a breakdown of the forecast/estimated CFR shown in Appendix 1.

Table 2. Capital Financing Requirement – Movement Analysis
	31/03/22 Actual	31/03/23 Forecast	31/03/24 Estimate	31/03/25 Estimate	31/03/26 Estimate
	£m	£m	£m	£m	£m
Opening CFR	82.092	92.261	101.363	100.086	100.031
New borrowing in the year	13.089	11.689	11.317	10.463	4.273
MRP – statutory charge (General Fund)	(0.637)	(0.305)	(0.312)	(0.318)	(0.325)
Use of Capital Receipts to repay Borrowing*	0.000	0.000	(10.000)	(8.000)	0.000
Voluntary set aside (HRA)	(2.282)	(2.282)	(2.282)	(2.200)	(2.100)
Closing CFR	92.261	101.363	100.086	100.031	101.879

* In line the Council’s MRP policy, in respect of loans provided to Sussex Weald Homes Limited, the Council will make nil MRP, but will instead apply the capital receipts arising from principal loan repayments to reduce the capital financing requirement instead.

Table 2. Capital Financing Requirement – Movement Analysis (cont’d)
	31/03/22 Actual	31/03/23 Forecast	31/03/24 Estimate	31/03/25 Estimate	31/03/26 Estimate
	£m	£m	£m	£m	£m
Closing CFR	92.261	101.363	100.086	100.031	101.879
The closing CFR is split between the General Fund and HRA as follows:
General Fund	21.184	28.879	18.567	12.399	12.074
HRA	71.077	72.484	81.519	87.632	89.805

The Council’s gross debt position is summarised below. The table shows the gross external borrowing against the underlying CFR[2], and the resulting over or under borrowing.

Table 3. Gross External Borrowing and Capital Financing Requirement – Movement Analysis
	31/03/22 Actual	31/03/23 Forecast	31/03/24 Estimate	31/03/25 Estimate	31/03/26 Estimate
	£m	£m	£m	£m	£m
External Debt – General Fund at 31 March	10.000	18.000	8.000	2.150	2.150
CFR – General Fund	21.184	28.879	18.567	12.399	12.074
Under/(Over) Borrowing – General Fund	11.184	10.879	10.567	10.249	9.924
External Debt – HRA at 31 March	44.312	48.001	59.318	66.631	69.904
CFR – HRA	71.077	72.484	81.519	87.632	89.805
Under/(Over) Borrowing – HRA	26.765	24.483	22.201	21.001	19.901

Statutory guidance states that debt should remain below the CFR, except in the short-term for cash flow management purposes. As can be seen from the table above, the level of external debt is significantly below the level of CFR. It should be noted that it is anticipated that external borrowing will be undertaken, in line with the borrowing requirements included in the General Fund and HRA capital programmes in the MTFS 2023/24 to 2027/28.

The Council does not borrow more than or in advance of their needs, purely in order to profit from the investment of the extra sums borrowed.

[1] Includes 2021/22 actual and 2022/23 forecast where relevant.

[2] This table provides more detail relating to Gross External Borrowing and Capital Financing Requirement indicator included in the Council’s Treasury Management Strategy.

Minimum Revenue Provision

The CFR shows how much capital expenditure has historically been funded from borrowing and therefore how much remains to be funded in future. In relation to the General Fund CFR, it is a requirement that an annual charge is made to the revenue budget in order to pay off a portion of the debt. This is called Minimum Revenue Provision (‘’MRP’’).

MRP is statutory[1] requirement for a Council to make a charge to its General Fund to make provision for the repayment of the Council’s past capital debt and other credit liabilities. The Council is also allowed to undertake additional voluntary payments if required (voluntary revenue provision (“VRP”)). MRP does not need to be set aside for the HRA.

The Council is under a statutory duty “to determine an amount of MRP which it considers to be prudent”. Local authorities are required by the Secretary of State “to prepare an annual statement of their policy on making MRP for submission to their full Council”. Further background to MRP and the Council’s Annual MRP Statement for 2022/23 is set out in Appendix 2.

As detailed in Annual MRP Statement (Appendix 2), the Asset Life – Annuity Method is being used for capital expenditure incurred from 1 April 2008. It is considered the Asset Life – Annuity Method provides a more prudent charge to revenue for the following reasons:

Makes provision for an annual charge to the General Fund which takes account of the time value of money (whereby paying £100 in 10 years’ time is less of a burden than paying £100 now).
The annuity method also matches the repayment profile to how the benefits of the asset financed by borrowing are consumed over its useful life (i.e. the method reflects the fact that asset deterioration is slower in the early years of an asset and accelerates towards the latter years).

[1] Capital Finance Regulations

Investment Strategy: Non Treasury Investments

Treasury investments – investments of cash balances are dealt with as part of the Treasury Management Strategy. CIPFA’s latest Treasury Management Code requires authorities to incorporate non-financial investments within the capital strategy. Separately, the Ministry of Housing, Communities and Local Government (MHCLG) updated its Statutory Guidance on Local Authority Investments in 2018, which sets out disclosures and reporting requirements in relation to investments.

The Council’s non-treasury investments are made in accordance with the Commercial Strategy. The Commercial Strategy provides the framework for activities that:

Forms an essential part of the solution to the funding gap;
Potentially leads to the generation of revenue income, to provide additional resource to meet the council’s ambitions and statutory duties for Wealden as set out in other strategies and plans; and
Delivers functions, services and outputs that bring benefits to local people and in doing so helps meet Corporate Plan objectives.

One of the current projects being delivered as part of the Commercial Strategy is the purchase of shares and the making of loans to the Council’s wholly owned company Sussex Weald Homes Limited (‘’SWH’’). The company was established with the following objectives:

Enable new homes to be built for sale that meets an unmet need;
Provide employment to aid the local economy;
Contribute to the regeneration of towns and villages;
Deliver the 35% affordable homes on each development, as required in the Wealden Plan, which are usually sold to the Housing Revenue Account; and
Provide a capital and revenue return to the Council to contribute to the General Fund to enable it to continue to run services to best meet the needs of the local community.

Risk assessment: A business case was constructed for the SWH, with external consultants utilised to scrutinise and challenge the assumptions and projections therein. A risk analysis was carried out as part of the business case. In light of the public service objective associated with the equity investment and loan in this project, the Council is willing to take more risk than with treasury investments if appropriate and subject to the Council’s risk management policy; however it still plans for these investments to generate a profit after all costs. The performance of SWH will be kept under careful review via quarterly updates to the Audit, Finance and Governance Committee.

Service Investment – Loan and Shares: SWH

As at 31 March 2022 SWH held a 2-year £10 million loan advanced by the Council in March 2022. The General Fund capital programme in the MTFS 2023/24 to 2027/28, includes additional loans to SWH totalling £10.15 million.

Risk assessment: The main risk when making service loans is that the borrower will be unable to repay the principal lent and/or the interest due. However, the Council makes every reasonable effort to collect the full sum lent and has appropriate credit control arrangements in place to recover overdue repayments. In order to limit the risk, and to ensure that the total exposure to service loans remains proportionate to the size of the Council, an upper limit on the outstanding loan exposure has initially been set at £21 million. This will accommodate the loans to SWH, but can reviewed in future should it be beneficial to increase it.

As at 31 March 2022 the Council held share capital in SWH totalling £3.429 million which is the upper limit on the total exposure to equity investments.

Risk assessment: One of the risks of investing in shares is that they can fall in value, potentially meaning that the initial outlay will not be recovered. As described above, a risk analysis was carried out as part of the Housing company business plan. It is forecast that SWH should grow successfully and its performance will be kept under careful review via updates to the Audit, Finance and Governance Committee, so that remedial action can be taken if necessary. Liquidity: although this type of investment is fundamentally illiquid, the limit on the level of investment mitigates the risk and the Council will earn a return from the company via dividends (i.e. proceeds from the sale of housing and net rental income from homes that are rented). The General Fund within the MTFS 2023/24 to 2027/28 includes a forecast of the Council receiving £0.250 million dividends from SWH in 2023/24 and £0.500 million in 2024/25 to 2027/28.

The loan to and shares in SWH are both classified as capital expenditure under the Capital Finance Regulations. In this regard the resources being set aside to finance the capital expenditure is as follows:

Loan – funded by borrowing with the repayment of the loan (which is classified as a capital receipt) being used in lieu of MRP to set aside resources to finance the original loan advance (see MRP policy in Appendix 2); and
Shares – funded by borrowing, with MRP being charged over a 20-year period in line with the MHCLG guidance.

The upper limits on the sums invested in and loaned to the company have been set out in the following table.

Table 4. Limits on Equity & Loans to Sussex Weald Homes Ltd.
	Equity	Loans	Total
	£m	£m	£m
Working Capital	1.7	0.0	1.7
Development Financing	1.7	0.0	1.7
Various Housing Development Projects	0.0	21.0*	21.0
Total	3.4	21.0	24.4

* New loans in 2021/22 £10 million, 2022/23 £8 million and 2024/25 £2.150 million.

Accounting standards require the Council to set aside a loss allowance for the loan and value the shares at fair value, reflecting the likelihood of non-payment and current value of the shares[1], respectively. The figures for the loan and shares in the Council’s statement of accounts will be shown net of this loss allowance for the loan and fair value adjustment for the shares.

The Council has set a local indicators (see Appendix 1) to allow Members and the public to assess the Council’s total risk exposure as a result of its investment in shares and loan decisions in SWH.

Service Investment – Investment and Commercial Properties

The Council owns a small number of ‘investment properties’, as defined in CIPFA’s Code of Practice on Local Authority Accounting. These are land and building assets held solely to earn rentals or for capital appreciation or both (the Crematorium does not fit within the CIPFA definition and therefore is not included within the Capital Strategy). The Council purchased the Vicarage Lane Shopping Centre in 2017/18, and this is defined as a ‘commercial property’. The investment properties are measured at fair value (based on and these values are updated annually, which ensures that the values reflect current market conditions at the end of each reporting period. The Vicarage Lane Shopping Centre is measured at current value based on its existing use value.

The latest fair values of investment properties are shown in the table below:

Table 5. Investment Properties – Fair Values
	Fair Value as at 31 March 2020	Fair Value as at 31 March 2021	Increase/ (Decrease) in Fair Value
	£m	£m	£m
Retail	0.288	0.287	(0.001)
Industrial and Warehousing	1.080	1.568	0.488
Other	1.038	1.108	0.070
Total	2.406	2.963	0.557

The latest existing use values of the commercial property is shown in the table below:

Table 6. Commercial Property – Exiting Use Values
	Fair Value as at 31 March 2020	Fair Value as at 31 March 2021	Increase/ (Decrease) in Fair Value
	£m	£m	£m
Shopping Centre	9.261	7.400	(1.861)
Total	9.261	7.400	(1.861)

There is outstanding debt in relation to Vicarage Lane Shopping Centre, with the CFR balance as at 31 March 2022 relating to this property totalling £7.490 million, with annual MRP being charged (see Appendix 2).

In 2021/22, the Council received £0.686 million of income in relation to these assets, whilst running costs were £0.140 million; the net income of £0.546 million supported the Council’s General Fund revenue budget. As such, the fair values of the investment properties and existing use value of the commercial property are considered to retain sufficient value to provide security of investment. Any losses in fair value and/or existing use value would not in themselves change this; so long as the assets are generating a net income, they are supporting the revenue budget. For the same reason, although these are not highly liquid assets, as they would take time to sell, this is not considered to be a problem at present.

Additional opportunities are being sought through the Commercial Strategy for non-treasury investments. This includes Farningham Road[2] which has been built into the Council’s capital programme and general revenue budgets within the MTFS 2023/24 to 2027/28. Farningham Road is a development on Council owned land in Crowborough, to attract new business to the area and accommodate local growth, as well as delivering revenue in line with the Council’s Commercial Strategy. This scheme will be fully funded from revenue earmarked reserves [with no borrowing] and is forecast to become operational during 2024/25.

These schemes have been subject to careful and robust financial and non-financial appraisals, with external experts involved if necessary, and would be approved through Cabinet and Council. Due regard would be given to the statutory guidance issued by MHCLG and CIPFA’s Prudential Code when assessing any potential investments.

As illustrated by the local indicator in Appendix 1, investment in investment properties is considered to be ‘proportional’ at present, and a higher percentage could be accommodated. The Council is not overly reliant on investment properties income to balance its budget.

[1] The shares fair value being based on the net assets of the company.

[2] Scheme was approved by Cabinet, 7 September 2022

Knowledge and Skills

The Council employs professionally qualified and experienced staff in senior positions with responsibility for making capital expenditure, borrowing and investment decisions. For example, the Head of Finance, Financial Services Manager and Principal Accountant are all qualified accountants, each with more than 10 years’ experience. The Council pays for junior staff to study towards relevant professional qualifications including CIPFA and AAT.

Where Officers do not have specialist knowledge and skills required, use is made of external advisers and consultants that are specialists in their field. The Council currently employs Arlingclose Limited as treasury management advisers and makes use of different property consultants as required. This approach is more cost effective than employing such staff directly, and ensures that the Council has access to knowledge and skills commensurate with its risk appetite.

The needs of the Council’s treasury management staff for training in investment management are assessed every six months as part of the staff appraisal process, and additionally when the responsibilities of individual members of staff change. They also regularly attend training courses, seminars and conferences provided by Arlingclose and CIPFA.

The CIPFA Code requires the responsible Officer to ensure that Members with responsibility for treasury management receive adequate training in treasury management. This especially applies to Members responsible for scrutiny. The Audit, Finance and Governance Committee will receive training presentations on treasury management[1] as needed in 2023/24[2], which are provided by the Council’s treasury advisers Arlingclose.

[1] Training was provided to all Members on 16 November 2022.

Appendix 1: Prudential and Local Indicators

Prudential Indicators

Pru Indicator 1. Estimates of Capital Expenditure
	2021/22 Actual	2022/23 Forecast	2023/24 Estimate	2024/25 Estimate	2025/26 Estimate
	£m	£m	£m	£m	£m
General Fund Services	1.438	4.786	17.793	11.367	7.650
Capital Investments*	10.000	8.000	0.000	2.150	0.000
General Fund Total	11.438	12.786	17.793	13.517	7.650
HRA New Builds	5.732	5.756	13.340	9.169	4.909
HRA Other Capital Expenditure	5.728	6.180	11.500	6.930	6.930
HRA Total	11.460	11.936	24.840	16.099	11.839
Grand Total	22.898	24.722	42.633	29.616	19.489

* Capital Investments reflects the loans to Sussex Weald Homes.

The level of capital expenditure incurred and likely to be incurred in future years. This is based on an accruals basis and on the definition of capital expenditure.

Pru Indicator 2. Capital Financing Requirement Projections
	2021/22 Actual	2022/23 Forecast	2023/24 Estimate	2024/25 Estimate	2025/26 Estimate
	£m	£m	£m	£m	£m
General Fund CFR	21.184	28.879	18.567	12.399	12.074
HRA CFR	71.077	72.484	81.519	87.632	89.805
Total CFR (cumulative balance)	92.261	101.363	100.086	100.031	101.879
In-Year Movement	10.170	9.102	(1.277)	(0.055)	1.848

The Capital Financing Requirement (‘’CFR’’) replaced the ‘Credit Ceiling’ measure of the Local Government and Housing Act 1989. It measures the Council’s underlying need to borrow or use other long-term liabilities, to pay for capital expenditure. The CFR reflects the cumulative balance of borrowing needed to fund the capital programme after first allowing for the use of grants funding, revenue contributions and capital receipts – it reflects total new borrowing (internal or external) needed to fund capital less any minimum revenue or voluntary payments of debt.

Pru Indicator 3. Proportion of Financing Costs to Net Revenue Stream
	31/03/22 Actual £m	31/03/23 Forecast £m	31/03/24 Estimate £m	31/03/25 Estimate £m	31/03/26 Estimate £m
GF Financing Costs	(0.073)	(1.745)	(1.793)	(1.407)	(1.350)
HRA Financing Costs	3.975	4.280	4.507	4.816	4.983
GF Proportion of Net Revenue Stream (%)	(0.29%)	(7.86%)	(6.80%)	(5.46%)	(5.23%)
HRA Proportion of Net Revenue Stream (%)	28.06%	28.77%	28.03%	27.87%	27.59%

This indicator is a measure of affordability of historic and future capital investment plans. It identifies the trend in the cost of capital financing which include:

Interest payable on borrowing and receivable on investments.
Penalties or any benefits receivable on early repayment of debt.
Prudent revenue budget provision for repayment of capital expenditure paid for by borrowing (i.e. MRP and voluntary set aside).

For the General Fund, the net revenue stream is the amount to be met from non-specific grants and council tax, whilst for the HRA it is the amount to be met from rent payers. An increasing ratio indicates that a greater proportion of the Council’s budget is required for capital financing costs over the planned capital programme period.

It should be noted that these figures include a number of assumptions such as:

No new approvals of additional borrowing apart from that currently proposed over the period of the programme.
Estimated interest rates.
The level of internal borrowing and timing of external borrowing decisions and capital expenditure.

Local Indicators

Service Investment – Loan and shares: SWH

Local Indicator 1. Risk Exposure Relating to Service Investments	31/03/22 Actual	31/03/23 Forecast	31/03/24 Estimate
	£m	£m	£m
Treasury management investments	78.650	70.000	40.000
Service investments:
Shares in & Loans to Sussex Weald Homes Ltd (‘’SWH’’)	13.429	21.429	11.429
Total Exposure	92.079	91.429	51.429

This indicator shows the Council’s total exposure to potential investment losses from shares in and loans to SWH is low, and although increasing due to additional loans to be advanced in 2021/22 and 2022/23, levels are still within prudent levels. The Council has funded the equity (share) and loans to SWH shown in the above table by internal borrowing and external borrowing, respectively.

Service Investment – Investment and Commercial Properties

Local Indicator 2. Commercial Income to Net Revenue Stream Ratio	31/03/22 Actual £m	31/03/23Forecast £m	31/03/24 Estimate £m
Net revenue stream – General Fund	(25.14)	(22.20)	(24.84)
Investment and Commercial Properties Net Income	(0.615)	(0.580)	(0.661)
Proportion (%)	2.45%	2.61%	2.66%

This indicator measures how much of the Council’s relies on income from investment and commercial properties to support General Fund services, through the comparison of net revenue stream to the net income from investment and commercial properties. As can be seen from this indicator the proportion of investment commercial properties income is small compared to the total net revenue stream. Therefore the Council’s General Fund is not over reliant on this source of income and its risk expose to income losses adversely affecting funding of services is very low.

Appendix 2 Annual MRP Statement 2023/24

Background

Where the Council finances capital expenditure by debt, it must put aside resources to repay that debt in later years. The amount charged to the revenue budget for the repayment of debt is known as Minimum Revenue Provision (‘’MRP’’), although there has been no statutory minimum since 2008. The Local Government Act 2003 requires the Council to have regard to the Ministry for Housing, Communities and Local Government’s (‘’MHCLG’’) Statutory Guidance on Minimum Revenue Provision, the most recent edition of which was issued in 2018 to take effect from 1 April 2019.

The Council is legally obliged to “have regard” to the guidance, which offers four main options under which MRP could be made, with an overriding recommendation that the Council should make prudent provision to redeem its debt liability over a period which is reasonably commensurate with that over which the capital expenditure is estimated to provide benefits. The requirement to ‘have regard’ to the guidance therefore means that:

Although four main options are recommended in the guidance, there is no intention to be prescriptive by making these the only methods of charge under which a local authority may consider its MRP to be prudent; and
It is the responsibility of each authority to decide upon the most appropriate method of making a prudent provision, after having had regard to the guidance.

There is no requirement to charge MRP where the Capital Financing Requirement (‘’CFR’’) is nil or negative at the end of the preceding financial year. There is no requirement on the Housing Revenue Account to make an MRP charge but there is a requirement for a charge for depreciation to be made.

Option 1: Regulatory Method

Under the previous MRP regulations, MRP was set at a uniform rate of 4% of the adjusted CFR (i.e. adjusted for “Adjustment A” in relation to the Housing Revenue Account to ensure consistency with previous Regulations) on a reducing balance method (which in effect meant that MRP charges would stretch into infinity). This historic approach must continue for all capital expenditure incurred in years before the start of this new approach. It may also be used for new capital expenditure up to the amount which is deemed to be supported through the Supported Capital Expenditure annual allocation.

Option 2: Capital Financing Requirement Method

This is a variation on option 1 which is based upon a charge of 4% of the aggregate CFR without any adjustment for Adjustment A, or certain other factors which were brought into account under the previous statutory MRP calculation. The CFR is the measure of an authority’s outstanding debt liability as depicted by their balance sheet.

Option 3: Asset Life Method

This method may be applied to most new capital expenditure, including where desired that which may alternatively continue to be treated under options 1 or 2.

Under this option, it is intended that MRP should be spread over the estimated useful life of either an asset created, or other purpose of the expenditure. There are two useful advantages of this option:

Longer life assets e.g. freehold land can be charged over a longer period than would arise under options 1 and 2; and
No MRP charges need to be made until the financial year after that in which an item of capital expenditure is fully incurred and, in the case of a new asset, comes into service use (this is often referred to as being an ‘MRP holiday’). This is not available under options 1 and 2.

There are two methods of calculating charges under option 3:

Equal instalment method – equal annual instalments; or
Annuity method – annual payments gradually increase during the life of the asset.

Option 4: Depreciation Method

Under this option, MRP charges are to be linked to the useful life of each type of asset using the standard accounting rules for depreciation (but with some exceptions) i.e. this is a more complex approach than option 3. The same conditions apply regarding the date of completion of the new expenditure as apply under option 3.

Annual Minimum Revenue Provision Statement 2023/24

For capital expenditure incurred before 1 April 2008, the MRP policy will be to follow the existing practice outlined in former regulations (Option 1). This provides for an approximate 4% reduction in the borrowing need (CFR) each year.

The Head of Finance has evaluated the options for the MRP policy in respect of capital expenditure incurred from 1 April 2008 and considers that the Asset Life – Annuity Method is the most appropriate to use with effect from 2023/24 [no change from 2022/23].

Estimated life periods will be determined by the Head of Finance. To the extent that expenditure is not on the creation of an asset and is of a type that is subject to estimated life periods that are referred to in the guidance, these periods will generally be adopted by the Council. However, the Council reserves the right to determine useful life periods and prudent MRP in circumstances where the recommendations of the guidance would not be appropriate.

As some types of capital expenditure incurred by the Council are not capable of being related to an individual asset, asset lives will be assessed on a basis which most reasonably reflects the anticipated period of benefit that arises from the expenditure. Also, whatever type of expenditure is involved, it will be grouped together in a manner which reflects the nature of the main component of expenditure and will only be divided up in cases where there are two or more major components with substantially different useful economic lives.

When borrowing to provide an asset, the Council may commence charging MRP in the financial year following the one in which the asset becomes operational.

Where considered prudent to do so, voluntary MRP will be charged as determined by the Head of Finance. Overpayments of MRP (i.e. voluntary MRP), maybe used to reduce future years’ statutory MRP where considered prudent, as determined by the Head of Finance.

In respect of loans provided to external organisations (e.g. Sussex Weald Homes Limited), that meet the definition of capital expenditure, the Council will make nil MRP but will instead apply the capital receipts arising from principal loan repayments to reduce the capital financing requirement. While this is not one of the options in the MHCLG Guidance, it is thought to be a prudent approach since it ensures that the capital expenditure incurred in the loan is fully funded over the life of the assets.

Principal repayments included in finance leases are applied as MRP.

No MRP will be charged in respect of assets held within the Housing Revenue Account.

Treasury Management Strategy

The Treasury Management Strategy sets out how the Council manages cash flows, borrowing, investments, and the associated risks. This strategy includes a number of prudential (treasury management) and local indicators.

2023-24

Introduction

Treasury management is the management of the Wealden District Council’s (“the Council”) cash flows, borrowing and investments, and the associated risks. The Council has borrowed and invested substantial sums of money and is therefore exposed to financial risks including the loss of invested funds and the revenue effect of changing interest rates. The successful identification, monitoring and control of financial risks are therefore central to the Council’s prudent financial management.

This Treasury Management Strategy has been produced in line with the requirements of The Chartered Institute of Public Finance and Accountancy (‘’CIPFA’’) Treasury Management in the Public Services: Code of Practice 2021 Edition (‘’the CIPFA Code’’), the supporting guidance notes[1] and the Prudential Code[2] which require the Council to approve a treasury management strategy before the start of each financial year. This report fulfils the Council’s legal obligation under the Local Government Act 2003 to have regard to the CIPFA Code.

The aim of the treasury management strategy is to protect the Council from market-related risks by monitoring interest rates, economic indicators, and UK and overseas government finances. A range of information sources is used to inform economic analysis and forecasts.

This Treasury Management Strategy (‘’the Strategy’) covers the security, liquidity and yield principles to managing the Council’s cash flows in relation to core treasury function of borrowing and treasury investments. It considers the strategy to be followed during 2023/24, for investment and borrowing. It also sets out the Council’s expectation for interest rates and highlights the uncertainties and risks in the forecast.

The Strategy reflects that the Council is operating in an environment of greater financial uncertainties. As a result treasury management is becoming increasingly complex, requiring multiple variables to be balanced in an environment of increasing uncertainty.

The Strategy has regard to the Statutory Guidance on Local Government Investments (MHCLG[3], 2018)[4], and is reported separately from the Capital Strategy, with non-treasury investments being reported through the Capital Strategy and treasury investments being reported through this Strategy under the heading of ‘Investment Strategy: Treasury Investments’. This ensures the separation of the core treasury function under security, liquidity and yield principles, and the non-treasury function where the policy for service and commercial investments are usually associated with capital expenditure in relation to an asset.

[1] Treasury management in the public services guidance notes for local authorities including police forces and fire and rescue authorities 2021 edition.

[2] CIPFA Prudential Code for Capital Finance in Local Authorities [updated 2021].

[3] With effect from 20 September 2021, MHCLG was renamed Department for Levelling Up, Housing and Communities (“DLUHC”).

[4] Statutory Guidance on Local Government Investments (3^rd Addition).

External Context and Internal Context

Economic Background

The ongoing impact on the UK from the war in Ukraine, together with higher inflation, higher interest rates, uncertain government policy, and a deteriorating economic outlook, will be major influences on the Council’s Treasury Management Strategy for 2023/24.

The economic outlook forecast by the Council’s treasury management advisors, Arlingclose, highlights the following:

Credit Outlook

Credit default swap (“CDS”) prices have followed an upward trend throughout the year, indicating higher credit risk. They have been boosted by the war in Ukraine, increasing economic and political uncertainty and a weaker global and UK outlook, but remain well below the levels seen at the beginning of the Covid-19 pandemic.

CDS price volatility has been higher in 2022 compared to 2021 and this year has seen a divergence in prices between ringfenced (retail) and non-ringfenced (investment) banking entities once again.

The weakening economic picture during 2022 led the credit rating agencies to reflect this in their assessment of the outlook for the UK sovereign as well as several local authorities and financial institutions, revising them from to negative from stable.

There are competing tensions in the banking sector which could impact bank balance sheet strength going forward. The weakening economic outlook and likely recessions in many regions increase the possibility of a deterioration in the quality of banks’ assets, while higher interest rates provide a boost to net income and profitability.

However, the institutions on our adviser Arlingclose’s counterparty list remain well-capitalised and their counterparty advice on both recommended institutions and maximum duration remain under constant review and will continue to reflect economic conditions and the credit outlook.

Interest Forecast

The Council’s treasury management adviser Arlingclose is forecasting that Bank Rate will continue to rise in in 2022 and 2023 as the Bank of England attempts to subdue inflation which is significantly above its 2% target.

While interest rate expectations reduced during October and November 2022, multiple interest rate rises are still expected over the forecast horizon despite looming recession. Arlingclose expects Bank Rate to rise to 4.25% by June 2023 under its central case, with the risks in the near- and medium-term to the upside should inflation not evolve as the Bank forecasts and remains persistently higher.

Yields are expected to remain broadly at current levels over the medium-term, with 5, 10 and 20-year gilt yields expected to average around 3.6%, 3.7%, and 3.9% respectively over the 3-year period to September 2025. The risks for short, medium and longer-term yields are judged to be broadly balanced over the forecast horizon. As ever, there will undoubtedly be short-term volatility due to economic and political uncertainty and events.

Local Context

At 31st December 2022, the Council held £54.312 million of borrowing and £109.374 million of treasury investments. This is set out in further detail at Appendix 1. Forecast changes in these sums are shown in the balance sheet analysis in table 1 below.

Table 1. Balance Sheet Summary and Forecast
	31/03/2022 Actual	31/03/2023 Forecast	31/03/2024 Estimate	31/03/2025 Estimate	31/03/2026 Estimate
	£m	£m	£m	£m	£m
General Fund CFR	21.184	28.879	18.567	12.399	12.074
HRA CFR	71.077	72.484	81.519	87.632	89.805
Total CFR	92.261	101.363	100.086	100.031	101.879
Less: External borrowing	54.312	66.001	67.318	68.781	72.054
Internal borrowing	37.949	35.362	32.768	31.250	29.825
Less: Balance Sheet Resources	(116.599)	(105.362)	(72.768)	(71.250)	(69.825)
Investments	78.650	70.000	40.000	40.000	40.000

The underlying need to borrow for capital purposes is measured by the Capital Financing Requirement (“CFR”), while the balance sheet resources are the underlying resources available for investment. The Council’s current strategy is to maintain external borrowing below underlying levels of the CFR, sometimes known as internal borrowing.

The Council has an increasing CFR in 2022/23 due to the additional borrowing to fund the General Fund and Housing Revenue Account (“HRA”) Capital Programmes[1]. Whilst in the following years borrowing is required to fund the HRA capital programme, the CFR reduces because of the repayment of some loans. There are plans to use usable reserves for funding of the Capital Programmes and the General Fund Revenue Budget.

CIPFA’s Prudential Code for Capital Finance in Local Authorities recommends that the Council’s total external debt should be lower than its highest forecast CFR over the next three years. The table above shows that we expect to comply with this recommendation.

Liability benchmark: To compare the Council’s actual borrowing against an alternative strategy, a liability benchmark has been calculated showing the lowest risk level of borrowing. This assumes the same forecasts as table 1 above for CFR and balance sheet resources, but that cash and investment balances are kept to a minimum level of £30 million at each year-end, to maintain sufficient liquidity but minimise credit risk.

The liability benchmark is an important tool to help establish whether the Council is likely to be a long-term borrower or long-term investor in the future, and so shape its strategic focus and decision-making. The liability benchmark itself represents an estimate of the cumulative amount of external borrowing the Council must hold to fund its current capital and revenue plans. As can be seen from the table below, the Council is forecast to be a borrower over the medium term.

Table 2. Liability Benchmark
	31/03/2022 Actual	31/03/2023 Forecast	31/03/2024 Estimate	31/03/2025 Estimate	31/03/2026 Estimate
	£m	£m	£m	£m	£m
Loans CFR	92.261	101.363	100.086	100.031	101.879
Less: Balance Sheet Resources	(116.599)	(105.362)	(72.768)	(71.250)	(69.825)
Net Loans Requirement	(24.338)	(3.999)	27.318	28.781	32.054
Plus: Liquidity Allowance	30.000	30.000	30.000	30.000	30.000
Liability Benchmark	5.662	26.001	57.318	58.781	62.054

Following on from the medium-term forecasts in table 2 above, the long-term liability benchmark assumes:

Capital expenditure funded by borrowing as set out below:

31/03/22 Actual

31/03/23 Forecast

31/03/24 Estimate

31/03/25 Estimate

31/03/26 Estimate

£m

New borrowing in the year

13.089

11.689

11.317

10.463

4.273

Minimum revenue provision (‘’MRP’’) on new capital expenditure based on the Council’s MRP policy[2]
Level of reserves based on the Council’s Medium Term Financial Strategy (‘’MTFS’’) 2023/24 to 2027/28

The forecasts for loans CFR, net loans requirement and liability benchmark against actual borrowing over a ten-year period is shown in the chart below:

Chart 1 Liability Benchmark

Actual current borrowing [grey area in the chart above] is based on the maturity profile of the current loans [and excludes forecast or expected new borrowing, so that the liability benchmark can be used as a tool to forecast future requirements].

It can be seen from the chart above there is a gap between current actual borrowing [grey area] and the liability benchmark [solid red line]. This gap represents the Council’s forecast need to undertake new borrowing to fund its capital programme.

[1] See the Council’s Medium Term Financial Strategy 2023/24 to 2027/28, for further details.

[2] MRP policy forms part of the Councils 203/24 Capital Strategy

Borrowing Strategy

Introduction

The Council currently holds £54.312 million of loans as at 31 December 2022, an increase of £7.718 million on the previous year, as part of its strategy for funding previous years’ Housing Revenue Account capital programme and funding a loan advanced to Sussex Weald Homes Limited[1] (“SWH”) in 2022/23. The balance sheet forecast in table 1 shows that external borrowing in 2023/24 increases to £67.318 million [compared to £66.001 million the previous year]. This increase is because the Council is forecast to borrow an additional £11.317 million to fund the 2023/24 HRA capital programme, the Council is forecast to repay £10 million general fund loans. The Council may also borrow additional sums to pre-fund future years’ requirements, providing this does not exceed the authorised limits for borrowing (see Prudential Indicator (TM) 2 in Appendix 2).

Objectives

The Council’s main objective when borrowing money is to strike an appropriately low risk balance between securing low interest costs and achieving certainty of those costs over the period for which funds are required. The flexibility to renegotiate loans should the Council’s long-term plans change is a secondary objective.

Strategy

Given the significant cuts to public expenditure and in particular to local government funding, the Council’s borrowing strategy continues to address the key issue of affordability without compromising the longer-term stability of the debt portfolio. With short-term interest rates currently much lower than long-term rates, it is likely to be more cost effective in the short-term to either use internal resources, or to borrow short-term loans instead.

By doing so, the Council is able to reduce net borrowing costs (despite foregone investment income) and reduce overall treasury risk. The benefits of internal borrowing will be monitored regularly against the potential for incurring additional costs by deferring borrowing into future years when long-term borrowing rates are forecast to rise modestly. Arlingclose will assist the Council with this ‘cost of carry’ and breakeven analysis. Its output may determine whether the Council borrows additional sums at long-term fixed rates in 2023/24 with a view to keeping future interest costs low, even if this causes additional cost in the short-term.

The Council has previously raised all of its long-term borrowing from the PWLB but will consider long-term loans from other sources including banks, pensions and local authorities, and will investigate the possibility of issuing bonds and similar instruments, in order to lower interest costs and reduce over-reliance on one source of funding in line with the CIPFA Code.

PWLB loans are no longer available to local authorities planning to buy investment assets primarily for yield. The Council intends to avoid this activity in order to retain its access to PWLB loans.

Alternatively, the Council may arrange forward starting loans, where the interest rate is fixed in advance, but the cash is received in later years. This would enable certainty of cost to be achieved without suffering a cost of carry in the intervening period. The Council’s General Fund and HRA capital programme does not include capital expenditure to buy or construct capital assets primarily for income.

In addition, the Council may borrow short-term loans to cover unplanned cash flow shortages.

Sources of Borrowing

The approved sources of long-term and short-term borrowing are:

HM Treasury’s PWLB lending facility (formerly the Public Works Loan Board);
any institution approved for investments (see below);
any other bank or building society authorised to operate in the UK;
any other UK public sector body; and
UK Municipal Bonds Agency plc and other special purpose companies created to enable local authority bond issues.

Other Sources of Debt Finance

In addition, capital finance may be raised by the following methods that are not borrowing, but may be classed as other debt liabilities:

Operating and Finance Leases;
Hire Purchase; and
Sale and Leaseback

Short Term and Variable Rate Loans

These loans leave the Council exposed to the risk of short-term interest rate rises and are therefore subject to the interest rate exposure limits in the treasury management indicators below. Financial derivatives may be used to manage this interest rate risk.

Municipal Bond Agency

The UK Municipal Bonds Agency plc was established in 2014 by the Local Government Association as an alternative to the PWLB. It issues bonds on the capital markets and lends the proceeds to local authorities. This is a more complicated source of finance than the PWLB for two reasons:

Borrowing authorities will be required to provide bond investors with a guarantee to refund their investment in the event that the agency is unable to for any reason; and
There will be a lead time of several months between committing to borrow and knowing the interest rate payable. Any decision to borrow from the Agency will therefore be the subject of a separate report to Full Council.

Debt rescheduling

The PWLB allows authorities to repay loans before maturity and either pay a premium or receive a discount according to a set formula based on current interest rates. Other lenders may also be prepared to negotiate premature redemption terms. The Council may take advantage of this and replace some loans with new loans, or repay loans without replacement, where this is expected to lead to an overall cost saving or a reduction in risk. Having regard to the new PWLB rules referenced on the previous page, the option to refinance or extend PWLB loans can still be undertaken even if the Council was planning to buy investment assets primarily for yield (which it is not planning to do), provided that the Council does not use them to refinance newly acquired investment assets held primarily for yield. The recent rise in interest rates means that more favourable debt rescheduling opportunities should arise than in previous years.

Any rescheduling will be discussed with the Portfolio Holder for Finance and Benefits and reported to Cabinet, at the earliest meeting following its action.

[1] 100% Council owned subsidiary

Investment Strategy

Introduction

CIPFA’s Treasury Management Code requires authorities to incorporate non-financial investments within the Capital Strategy. Separately, the Ministry of Housing, Communities and Local Government (MHCLG)[1] updated its Statutory Guidance on Local Authority Investments in 2018[2], which sets out disclosures and reporting requirements in relation to investments.

The Council holds significant invested funds, representing income received in advance of expenditure plus balances and reserves held. In the past 12 months, the Council’s treasury investment balance has ranged between £60 and £109 million (the higher figure being largely due to the funding received from Government to distribute to business as a result of the Covid-19 pandemic). It is anticipated that the levels of investment for the forthcoming year will be towards the lower end of the range seen in the last 12 months.

Objectives

The CIPFA Code requires the Council to invest its treasury funds prudently, and to have regard to the security and liquidity of its investments before seeking the highest rate of return, or yield. The Council’s objective when investing money is to strike an appropriate balance between risk and return, minimising the risk of incurring losses from defaults and the risk of receiving unsuitably low investment income. Where balances are expected to be invested for more than one year, the Council will aim to achieve a total return that is equal or higher than the prevailing rate of inflation, in order to maintain the spending power of the sum invested. The Council aims to be a responsible investor and will consider environmental, social and governance (“ESG”) issues when investing

Strategy

As demonstrated by the liability benchmark above, the Council expects to be a long-term borrower and new treasury investments will therefore be made primarily to manage day-to-day cash flows using short-term low risk instruments. The existing portfolio of strategic pooled funds will be maintained to diversify risk into different sectors and boost investment income.

The CIPFA Code does not permit local authorities to both borrow and invest long-term for cash flow management. But the Council may make long-term investments for treasury risk management purposes, including to manage interest rate risk by investing sums borrowed in advance for the capital programme for up to three years; to manage inflation risk by investing usable reserves in instruments whose value rises with inflation; and to manage price risk by adding diversification to the strategic pooled fund portfolio.

ESG policy

Environmental, social and governance (“ESG”) considerations are increasingly a factor in global investors’ decision making, but the framework for evaluating investment opportunities is still developing and therefore the Council’s ESG policy does not currently include ESG scoring or other real-time ESG criteria at an individual investment level. When investing in banks and funds, the Council will prioritise banks that are signatories to the UN Principles for Responsible Banking and funds operated by managers that are signatories to the UN Principles for Responsible Investment, the Net Zero Asset Managers Alliance and/or the UK Stewardship Code.

Business Model

Under the accounting standard IFRS 9 Financial Instruments, the accounting for certain investments depends on the Council’s “business model” for managing them. The Council aims to achieve value from its treasury investments by a business model of collecting the contractual cash flows and therefore, where other criteria are also met, these investments will continue to be accounted for at amortised cost.

Approved Counterparties

The Council may invest its surplus funds with any of the counterparty types in the table below, subject to the cash limits (per counterparty) and the time limits shown.

Table 3. Treasury Investment Counterparties and Limits
Sector	Time limit	Counterparty limit	Sector limit
The UK Government	50 years	Unlimited	n/a
Local authorities & other government entities	25 years	£7 million	Unlimited
Secured investments *	25 years	£5 million	Unlimited
Banks (unsecured) *	13 months	£3 million	Unlimited
Building societies (unsecured) *	13 months	£3 million	£6 million
Registered providers (unsecured) *	5 years	£3 million	£6 million
Money market funds *	n/a	£7 million	Unlimited
Strategic pooled funds	n/a	£10 million	£30 million
Real estate investment trusts	n/a	£5 million	£10 million
Other investments *	5 years	£5 million	£5 million

This table must be read in conjunction with the notes below.

Minimum credit rating

Treasury investments in the sectors marked with an asterisk [*] will only be made with entities whose lowest published long-term credit rating is no lower than [A-]. Where available, the credit rating relevant to the specific investment or class of investment is used, otherwise the counterparty credit rating is used. However, investment decisions are never made solely based on credit ratings, and all other relevant factors including external advice will be taken into account.

For entities without published credit ratings, investments may be made where external advice indicates the entity to be of similar credit quality.

Government

These include loans to, and bonds and bills issued or guaranteed by, national governments, regional and local authorities and multilateral development banks. These investments are not subject to bail-in, and there is generally a lower risk of insolvency, although they are not zero risk. Investments with the UK Government are deemed to be zero credit risk due to its ability to create additional currency and therefore may be made in unlimited amounts for up to 50 years.

Secured investments

Investments secured on the borrower’s assets, which limits the potential losses in the event of insolvency. The amount and quality of the security will be a key factor in the investment decision. Covered bonds and reverse repurchase agreements with banks and building societies are exempt from bail-in. Where there is no investment specific credit rating, but the collateral upon which the investment is secured has a credit rating, the higher of the collateral credit rating and the counterparty credit rating will be used. The combined secured and unsecured investments with any one counterparty will not exceed the cash limit for secured investments.

Banks and building societies (unsecured)

These include accounts, deposits, certificates of deposit and senior unsecured bonds with banks and building societies, other than multilateral development banks. These investments are subject to the risk of credit loss via a bail-in should the regulator determine that the bank is failing or likely to fail. See below for arrangements relating to operational bank accounts.

Registered providers (unsecured)

Loans to, and bonds issued or guaranteed by, registered providers of social housing or registered social landlords, formerly known as housing associations. These bodies are regulated by the Regulator of Social Housing (in England), the Scottish Housing Regulator, the Welsh Government and the Department for Communities (in Northern Ireland). As providers of public services, they retain the likelihood of receiving government support if needed.

Money market funds

Pooled funds that offer same-day or short notice liquidity and very low or no price volatility by investing in short-term money markets. They have the advantage over bank accounts of providing wide diversification of investment risks, coupled with the services of a professional fund manager in return for a small fee. Although no sector limit applies to money market funds, the Council will take care to diversify its liquid investments over a variety of providers to ensure access to cash at all times.

Strategic pooled funds

Bond, equity and property funds that offer enhanced returns over the longer term but are more volatile in the short term. These allow the Council to diversify into asset classes other than cash without the need to own and manage the underlying investments. These funds have no defined maturity date, but are available for withdrawal after a notice period, therefore their performance and continued suitability in meeting the Council’s investment objectives will be monitored regularly.

Real estate investment trusts

Shares in companies that invest mainly in real estate and pay the majority of their rental income to investors in a similar manner to pooled property funds. As with property funds, Real estate investment trusts (“REITs”) offer enhanced returns over the longer term, but are more volatile especially as the share price reflects changing demand for the shares as well as changes in the value of the underlying properties.

Other investments

This category covers treasury investments not listed above, for example unsecured corporate bonds and company loans. Non-bank companies cannot be bailed-in but can become insolvent placing the Council’s investment at risk.

Operational bank accounts

The Council may incur operational exposures, for example though current accounts, collection accounts and merchant acquiring services, to any UK bank with credit ratings no lower than BBB- and with assets greater than £25 billion. These are not classed as investments but are still subject to the risk of a bank bail-in. The balances that the Council can keep in these accounts is unlimited however the aim is to generally keep balances below £25 million per bank. The Bank of England has stated that in the event of failure, banks with assets greater than £25 billion are more likely to be bailed-in than made insolvent, increasing the chance of the Council maintaining operational continuity.

Risk assessment and credit ratings

Credit ratings are obtained and monitored by the Council’s treasury advisers, who will notify changes in ratings as they occur. The credit rating agencies in current use are listed in the Treasury Management Practices document.

Where an entity has its credit rating downgraded so that it fails to meet the approved investment criteria then:

No new investments will be made;
Any existing investments that can be recalled or sold at no cost; and
Full consideration will be given to the recall or sale of all other existing investments with the affected counterparty.

Where a credit rating agency announces that a credit rating is on review for possible downgrade (also known as “negative watch”) so that it may fall below the approved rating criteria, then only investments that can be withdrawn on the next working day will be made with that organisation until the outcome of the review is announced. This policy will not apply to negative outlooks, which indicate a long-term direction of travel rather than an imminent change of rating.

Other information on the security of investments

The Council understands that credit ratings are good, but not perfect, predictors of investment default. Full regard will therefore be given to other available information on the credit quality of the organisations in which it invests, including credit default swap prices, financial statements, information on potential government support, reports in the quality financial press and analysis and advice from the Council’s treasury management adviser. No investments will be made with an organisation if there are substantive doubts about its credit quality, even though it may otherwise meet the above criteria.

When deteriorating financial market conditions affect the creditworthiness of all organisations, as happened in 2008 and 2020, this is not generally reflected in credit ratings, but can be seen in other market measures. In these circumstances, the Council will restrict its investments to those organisations of higher credit quality and reduce the maximum duration of its investments to maintain the required level of security. The extent of these restrictions will be in line with prevailing financial market conditions. If these restrictions mean that insufficient commercial organisations of high credit quality are available to invest the Council’s cash balances, then the surplus will be deposited with the UK Government, or with other local authorities. This will cause investment returns to fall but will protect the principal sum invested.

Investment limits

The Council’s revenue reserves available to cover investment losses are forecast to be £43.598 million on 31st March 2023 and £35.346 million on 31st March 2024. In order that no more than 20% of available reserves will be put at risk in the case of a single default, the maximum that will be lent to any one organisation (other than Local authorities & other government entities, and the Council’s current bankers) will be £5 million. A group of entities under the same ownership will be treated as a single organisation for limit purposes.

Credit risk exposures arising from non-treasury investments, financial derivatives and balances greater than £30 million in operational bank accounts count against the relevant investment limits.

Limits are also placed on fund managers, investments in brokers’ nominee accounts and foreign countries as in the table below. Investments in pooled funds and multilateral development banks do not count against the limit for any single foreign country, since the risk is diversified over many countries.

Table 4. Additional Investment Limits
	Cash limit
Any group of pooled funds under the same management	£10 million per manager
Negotiable instruments held in a broker’s nominee account	£5 million per broker
Foreign countries	£3 million per country

Liquidity management

The Council uses detailed cash flow forecasting analysis to determine the maximum period for which funds may prudently be committed. The forecast is compiled on a prudent basis to minimise the risk of the Council being forced to borrow on unfavourable terms to meet its financial commitments. Limits on long-term investments are set by reference to the Council’s medium-term financial plan and cash flow forecast.

The Council will spread its liquid cash over at least three providers (e.g. bank accounts and money market funds) to ensure that access to cash is maintained in the event of operational difficulties at any one provider.

[1] With effect from 20 September 2021, MHCLG was renamed Department for Levelling Up, Housing and Communities (“DLUHC”).

[2] Statutory Guidance on Local Government Investments (3rd Addition).

Prudential Indicators

Treasury Indicators

The Council is required to comply with CIPFA’s Prudential Code for Capital Finance (the ‘Prudential Code’) when assessing the affordability, prudence and sustainability of its capital investment plans. To demonstrate that the Council has fulfilled these objectives, the Prudential Code sets out the following indicators that must be set and monitored each year.

To demonstrate that the Council has fulfilled these objectives, the prudential indicators for the period 2023/24 to 2025/26 set by the Council are detailed in Appendix 2[1]. This Appendix includes further explanation as to the indicators’ meaning. The indicators relating to 2023/24 estimate will be monitored and reported during 2023/24.

It should be noted that the indicators relating to non-treasury management (see below) are included in the Council’s Capital Strategy:

Estimates of Capital Expenditure

The level of capital expenditure incurred and likely to be incurred in future years. This is based on an accruals basis and on the definition of capital expenditure.

Capital Financing Requirement Projections

The Capital Financing Requirement measures the Council’s underlying need to borrow or use other long-term liabilities to pay for capital expenditure. The CFR reflects the cumulative balance of borrowing needed to fund the capital programme after first allowing for the use of grants funding, revenue contributions and capital receipts – it reflects total new borrowing (internal or external) needed to fund capital less any minimum revenue or voluntary payments of debt.

Proportion of Financing Costs to Net Revenue Stream

Local indicators

The Council measures and manages its exposures to treasury management risks using the following indicators.

Security – The Council has adopted a voluntary measure of its exposure to credit risk by monitoring the value-weighted average credit rating of its investment portfolio. This is calculated by applying a score to each investment (AAA=1, AA+=2, etc.) and taking the arithmetic average, weighted by the size of each investment. Unrated investments are assigned a score based on their perceived risk. The credit risk indicator is shown in Appendix 2.

Liquidity – The Council has adopted a voluntary measure of its exposure to liquidity risk by monitoring the amount of cash available to meet unexpected payments within a rolling three month period, without additional borrowing. The liquidity risk indicator is shown in Appendix 2.

HRA Prudential Limit – In October 2018 the Government announced the removal of the HRA borrowing cap and issued local authorities with determinations to confirm that the removal of the cap was to take effect from 1 April 2018.

The Council can set its own prudential limit for the HRA and the limit proposed is set out in Appendix 2. This has been proposed after careful assessment of affordability and sustainability in line with the 30-year HRA Business Plan. As with all borrowing decisions, the Council will still need to take into account the affordability of borrowing against available revenue streams.

[1] Includes for 2020/21 actual and 2021/22 forecast where relevant.

Related Matters

The Council is required by the CIPFA Code to include the following in its Treasury Management Strategy.

Financial Derivatives

Local authorities have previously made use of financial derivatives embedded into loans and investments both to reduce interest rate risk (e.g. interest rate collars and forward deals) and to reduce costs or increase income at the expense of greater risk (e.g. LOBO loans and callable deposits). The general power of competence in Section 1 of the Localism Act 2011 removes much of the uncertainty over local authorities’ use of standalone financial derivatives (i.e. those that are not embedded into a loan or investment).

The Council’s policy is that it will only use standalone financial derivatives (such as swaps, forwards, futures and options) where they can be clearly demonstrated to reduce the overall level of the financial risks that the Council is exposed to. Additional risks presented, such as credit exposure to derivative counterparties, will be taken into account when determining the overall level of risk. Embedded derivatives, including those present in pooled funds and forward starting transactions, will not be subject to this policy, although the risks they present will be managed in line with the overall treasury risk management strategy.

Financial derivative transactions may be arranged with any organisation that meets the approved investment criteria, assessed using the appropriate credit rating for derivative exposures. An allowance for credit risk calculated using the methodology in the Treasury Management Practices document will count against the counterparty credit limit and the relevant foreign country limit.

In line with the CIPFA Code, the Council will seek external advice and will consider that advice before entering into financial derivatives to ensure that it fully understands the implications.

Housing Revenue Account

New long-term loans borrowed will be assigned in their entirety to either the General Fund or the HRA as relevant. This means the Council will manage external borrowing as two pools effectively – HRA and General Fund. Interest payable and other costs/income arising from long-term loans (e.g. premiums and discounts on early redemption) will be charged/credited to the respective revenue account. Differences between the value of the HRA loans pool and the HRA’s underlying need to borrow (adjusted for HRA balance sheet resources available for investment) will result in a notional cash balance which may be positive or negative. This balance will be measured and interest transferred between the General Fund and HRA annually at the Council’s average interest rate on investments, adjusted for credit risk.

Markets in Financial Instruments Directive (MiFID)

The Council has opted up to professional client status with its providers of financial services, including advisors, banks, brokers and fund managers, allowing it access to a greater range of services but without the greater regulatory protections afforded to individuals and small companies. Given the size and range of the Council’s treasury management activities, the Head of Finance (S151 Officer) believes this to be the most appropriate status.

Financial Implications

The budget for investment income in 2023/24 is £2.630 million, this covers interest receivable from investments, HRA interest paid to the general fund on internal borrowing, interest on loans provided to SWH and dividends payable on the shareholding in SWH.

The budget for debt interest payable in 2023/24 is £0.525 million on the General Fund and £2.361 million on the HRA.

If actual levels of investments and borrowing, or actual interest rates, differ from those forecast, performance against budget will be correspondingly different.

Other Options Considered

The CIPFA Code does not prescribe any particular treasury management strategy for local authorities to adopt. The Head of Finance having consulted the Leader, and Governance and Finance Portfolio Holder believes that the above Strategy represents an appropriate balance between risk management and cost effectiveness. Some alternative strategies, with their financial and risk management implications, are listed below.

Alternative	Impact on income and expenditure	Impact on risk management
Invest in a narrower range of counterparties and/or for shorter times	Interest income will be lower	Lower chance of losses from credit related defaults, but any such losses may be greater
Invest in a wider range of counterparties and/or for longer times	Interest income will be higher	Increased risk of losses from credit related defaults, but any such losses may be smaller
Borrow additional sums at long-term fixed interest rates	Debt interest costs will rise; this is unlikely to be offset by higher investment income	Higher investment balance leading to a higher impact in the event of a default; however long-term interest costs may be more certain
Borrow short-term or variable loans instead of long-term fixed rates	Debt interest costs will initially be lower	Increases in debt interest costs will be broadly offset by rising investment income in the medium term, but long-term costs may be less certain
Reduce level of borrowing	Saving on debt interest is likely to exceed lost investment income	Reduced investment balance leading to a lower impact in the event of a default; however long-term interest costs may be less certain

Appendix 1 Borrowing and Investment Portfolio as at 31 December 2022

The following table shows the Council’s borrowing and investment portfolio as at 31 December 2022.

Treasury Portfolio	31/12/2022
	Actual Portfolio	Average Rate
	£m	%
External borrowing
Public Works Loan Board	44.312	3.41
Money Market	10.000	1.50
Total external borrowing	54.312	3.36
Total other long-term liabilities	0.000	–
Total gross external debt	54.312	3.06

Treasury investments:
Banks & building societies (unsecured)	(27.374)	1.44
Government (incl. local authorities)	(32.000)	1.80
Money Market Funds	(35.000)	3.24
Pooled Diversified Income Funds	(15.000)	4.13
Total treasury investments	(109.374)
Net debt	(55.062)

Appendix 2 Prudential and Local Indicators

Prudential Indicators

Pru Indicator (TM) 1. Operational Boundary for External Debt
	2022/23 Limit	2023/24 Limit	2024/25 Limit	2025/26 Limit
	£m	£m	£m	£m
Borrowing	139.000	155.000	144.000	138.000
Leases	0.000	0.000	0.000	0.000
Total Operational Boundary	139.000	155.000	144.000	138.000

The operational boundary is the most likely, prudent view of the level of gross external indebtedness. External debt includes both borrowing and long term liabilities. It encompasses all borrowing, whether for capital or revenue purposes.

Pru Indicator (TM) 2. Authorised Limit for External Debt
	2022/23 Limit	2023/24 Limit	2024/25 Limit	2025/26 Limit
	£m	£m	£m	£m
Borrowing	167.000	186.000	173.000	165.000
Leases	0.000	0.000	0.000	0.000
Total Authorised Limit	167.000	186.000	173.000	165.000

The authorised limit is upper limit on the level of gross external indebtedness, which must not be breached without the relevant approval. It is the worst-case scenario. It reflects the level of borrowing which, while not desired, could be afforded but may not be sustainable. Any breach must be reported to the relevant committee, indicating the reason for the breach and the corrective action undertaken or required to be taken. This limit is a statutory limit required to be set by the Council under Section 3(1) of the Local Government Act 2003.

Pru Indicator (TM) 3. Actual External Debt
	As at 31.12.22
	£m
External borrowing
Public Works Loan Board	44.312
Money Market	10.000
Total external borrowing	54.312
Total other long-term liabilities	0.000
Total gross external debt	54.312

Prud Indicator (TM) 4. Gross External Borrowing and Capital Financing Requirement
	31/03/22 Actual	31/03/23 Forecast	31/03/24 Estimate	31/03/25 Estimate	31/03/26 Estimate
	£m	£m	£m	£m	£m
External Debt (GF and HRA)	54.312	66.001	67.318	68.781	72.054
CFR – (GF and HRA)	92.261	101.363	100.086	100.031	101.879

The level of external borrowing is required to be compared to the Capital Financing Requirement which represents the underlying need to borrow. Statutory guidance is that external debt should remain below the Capital Financing Requirement, except in the short-term for cash flow management purposes. As can be seen from the table above, the level of external debt is significantly below the level of CFR. It should be noted that the majority of external debt relates to the HRA. The General Fund is forecast to undertake new external borrowing in 2022/23 and 2024/25, to fund loans to SWH.

Pru Indicator (TM) 5. Maturity Structure of Borrowing
	Upper Limit	Lower Limit
	Upper Limit	Lower Limit
Under 12 months	25%	0%
12 months to 2 years	50%	0%
2 years to 5 years	75%	0%
5 years to 10 years	100%	0%
10 years to 20 years	100%	0%
20 years to 30 years	100%	0%
30 years and above	100%	0%

Time periods start on the first day of each financial year. The maturity date of borrowing is the earliest date on which the lender can demand repayment.

Pru Indicator (TM) 6. Principal sums invested for greater than one year
	2023/24	2024/25	2025/26	No Fixed Date
	£m	£m	£m	£m
Limit on principal invested beyond year end	6.00	4.00	4.00	40

Long-term treasury management investments – the purpose of this indicator is to control the Council’s exposure to the risk of incurring losses by seeking early repayment of its investments. The limits on the long-term principal sum invested to final maturities beyond the period end are set out in the table above. Long-term investments with no fixed maturity date include strategic pooled funds and real estate investment trusts but exclude money market funds and bank accounts with no fixed maturity date as these are considered short-term.

Local Indicators

Security

Local Indicator (TM) 1.

Credit Risk

Target

Portfolio average credit rating

This indicator measures the average credit rating for the investments held.

Liquidity

Local Indicator (TM) 2.

Liquidity Risk

Target

Total cash available within 3 months

£10 million

This indicator is the amount of investments/cash balances that can be readily accessed for cash.

HRA Prudential Limit

Local Indicator (TM) 4.

HRA External Debt

Target

Maximum level of external debt

£95 million

This is the maximum amount of loans that can be taken out by the HRA.

The Council’s Revenue and Capital Budgets

Medium Term Financial Strategy (MTFS)

2023-24 to 2027-28

Background

Objectives

Local Priorities

National Priorities

Economic and Fiscal Climate

Spending Plans

Spending Pressures

Resources

Bridging the gap

General Fund Revenue Budget and Forecast

Risks to the General Fund Revenue Budget and Forecast

General Fund Capital Priorities

Resources

General Fund Capital Programme

Risks to the General Fund Capital Programme

Housing Revenue Account Business Planning

Spending Plans

Spending Pressures

Resources

Housing Revenue Account Budget and Forecast

Risks to the HRA Budget and Forecast

HRA Capital Priorities

Resources

HRA Capital Programme

Risks to the HRA Capital Programme

2022-23 to 2026-27

Background

Objectives

Local Priorities

Covid-19 Pandemic

Economic and Fiscal Climate

ONS 2018 mid-year estimate

ONS/Inter Departmental Business Register (IDBR) 2019

2021-22 to 2025-26

Background

Objectives

Local Priorities

Communities

Environment

Local economy

Sound business management

National Priorities

Covid-19 Pandemic

INSERT TABLE Pg 29.

Capital Strategy

2023-24

Definition of Capital Expenditure

Governance – Capital Investment

Links with Other Strategies

Capital Programme

Funding

Non-Treasury Indicators

Capital Financing Requirement and Borrowing

Service Investment – Loan and Shares: SWH

Service Investment – Investment and Commercial Properties

Appendix 2 Annual MRP Statement 2023/24

Treasury Management Strategy

2023-24

Economic Background

Credit Outlook

Interest Forecast

Local Context

Introduction

Objectives

Strategy

Sources of Borrowing

Other Sources of Debt Finance

Short Term and Variable Rate Loans

Municipal Bond Agency

Debt rescheduling

Introduction

Objectives

Strategy

ESG policy

Business Model

Approved Counterparties

Minimum credit rating