Medium Term Financial Strategy (MTFS) 2026/27 - 2030/31

1.1 Aims and Purpose of the Medium Term Financial Strategy

The Medium Term Financial Strategy (MTFS) sets the framework for understanding the challenges and forecasted future financial position of the council. The MTFS supports the council's aims and objectives and encourages discussions about the allocation of resources, helping the council to understand its financial resilience.

The MTFS has three main objectives:

• consider the scale of any financial challenges over the medium term to enable appropriate actions and interventions to achieve financial sustainability
• ensure the council aligns its resources to its priorities

and

• enable the prioritisation of investment based on the deliverability of outcomes

With the ultimate objective of maintaining the council's financial sustainability over the short, medium and long term.

1.2 Principles

The principles underlying the MTFS 2026/27 to 2030/31 are as follows:

• council resources will be directed to the delivery of the Corporate Plan and the Thrive agenda framework
• prudent assessment of future resources and unfunded cost pressures
• financial sustainability will be achieved and maintained through targeted investment, demand management, interventions, income generation and more efficient ways of working
• the MTFS assumptions will be reviewed on an annual basis
• the council will maintain its general reserve at a minimum of 3% of the net revenue budget to cover any major unforeseen expenditure
• the council will aim to balance its revenue budget without relying on the use of the general reserve over the period of the MTFS
  
  and
• the council will maintain earmarked reserves for specific purposes which are consistent with achieving its key priorities. The use and level of earmarked reserves will be reviewed at least annually

1.3 Governance

The MTFS process is an integral part of the council's financial planning process. The development of the MTFS is iterative and must be reviewed to ensure that it reflects the most up to date information and issues.

The MTFS is not the council's formal budget. The formal budget is approved annually by full Council. The MTFS is the high level financial plan which sets the context and the parameters in which the detailed budget planning can commence. As budget proposals develop, engagement is extended to a wide range of stakeholders including residents, scrutiny committees, staff, schools and trade unions. This consultation is considered as part of the budget setting process.

The MTFS is formally reported annually to Cabinet and Council.

1.4 MTFS overview

In the Spending Review 2025 the Government stated their intention to allocate funding according to need. In June 2025, the Government released a consultation on Fair Funding Review 2.0 reiterating the Government's intention to redistribute funding according to need, deprivation and ability of a council to raise income locally. However, there is currently insufficient information available from early exemplifications of the needs funding formulae to determine whether the outcome of this review will be positive for Gateshead. Therefore, the MTFS has been created using current funding estimates. The MTFS estimates a budget gap of £42.054m over the period 2026/27 to 2030/31.

The 'budget gap' is the term used to describe the difference between the funding that the council expects to receive and the estimated cost of delivering the services that the council expects to provide.

Implications for financial planning

The financial projections indicate that the council faces a budget funding gap of over £42m over the next five years.

2.1 Council priorities

In July 2025, the Deputy Prime Minister announced plans for a Local Government Outcomes Framework. The framework will clarify the key outcomes that the Government expects local authorities to achieve for local people and communities. The framework will provide outcome-based performance measures against key national outcomes and is due to become operational from April 2026. This framework will be a key consideration for the allocation of resources through the MTFS to enable the council to achieve these outcomes.

The Corporate Plan sets out the ambitions of the council and how these ambitions will be achieved. The key priorities are summarised below:

People Gateshead - putting people and families at the heart of everything we do

• giving all children the best start in life
• thinking long-term and adopting a preventative approach
• empowering good health outcomes across the life cycle
• providing integrated and targeted family support where it is needed and reducing the risks of harm to young people
• ensuring people start life well, live fulfilling lives and enjoy later life in good health
  
  and
• providing information and advice which promotes independence through enablement and technology; is based on strength base practice and encourages a home first approach

Fair Gateshead - tackling inequalities so people have a fair chance

• tackling inequalities so that people have a fair chance
• tackling the actions set out in the Health and Wellbeing strategy, ensuring a healthy standard of living for all
• championing and supporting the delivery of high quality, inclusive education for Gateshead's children
• reducing the need for children and young people to come into care
• ensuring all children and young people in care have the best care and stable homes
  
  and
• improving outcomes for children with SEND

Communities Gateshead - supporting communities to support themselves and each other

• ensuring that people are safe and feel safe
• strengthening the support provided by the voluntary, community and social enterprise sector
• recognising the support of Gateshead's caregivers
• working with communities to ensure there are high-quality homes for children who need care
  
  and
• supporting and investing in the development of stronger and more resilient communities

Prosperous Gateshead - investing in the local economy to provide sustainable opportunities for employment, innovation and growth

• attracting and supporting investment in the local economy
• tackling unemployment and ensuring residents have the skills and qualifications to enable them to access opportunities
• supporting regeneration and development opportunities
• creating a fairer, green and more resilient economy
  
  and
• maximising the visitor and rural offer along with the opportunities that devolution for the North East provides

Future Gateshead - working together and fighting for a better Gateshead

• ensuring there is a broad range of homes available for residents
• improving connectivity to enable residents to travel for both work and pleasure
• protecting the environment by reducing borough wide carbon emissions
  
  and
• fostering civic pride, where diversity is embraced and people are proud of their community

The Corporate Plan is reviewed and refreshed regularly and will ensure that the priorities of the council align with the Local Government Outcomes Framework. The priorities and objectives of the Corporate Plan feed into the group and service plans to ensure that every department is working towards the shared goals of the council.

The council's priorities are important for the council's budget, MTFS, Capital and Treasury Management strategies to ensure that resources are spent in line with council priorities and support the long-term sustainability of the council.

Implications for financial planning

The MTFS needs to reflect the revenue funding required to support the corporate priorities and outcomes. This could mean that resources are redirected, there is growth for specific service delivery or there is capital investment to enable service delivery.

Any increase to revenue expenditure may require interventions and/or additional income to ensure that the associated increase in budget gap is addressed.

The MTFS links council priorities to the requirements of the budget.

2.2 Gateshead demographics

Population

As of mid-2024, Gateshead had an estimated population of 202,7601. It is predicted that the Gateshead population, as a whole, will decrease during the period of the MTFS. In terms of age profiles, it is estimated that the age ranges of 0-15 and 50-64 will reduce by 4-6% and over 65 years will increase by 4-6%. This potentially means an increased pressure on school budgets due to a reduction in pupil numbers and an increased pressure on adult social care budgets due to an aging population.

Implications for financial planning

A reducing borough population places greater pressure on funding. This is because population projections are used by the Government in their funding formula for the allocation of the Revenue Support Grant. A reducing population would reduce the council's share of need as it suggests a reducing need for funding.

A reducing school-age population puts more schools under pressure in terms of funding and sustainability and means potentially supporting schools in deficit positions.

An increasingly ageing population potentially puts more demand on adult social care services.

A static working age population potentially leads to increased budget pressure due to a lack of economic growth.

Potential capital investment is required in housing to attract and retain residents. An increasing population within the borough will increase both direct income (Council Tax receipts) and indirect income (Government funding). A MTFS in financial balance will be supported by an increased population.

Housing

The Government target for house building in Gateshead is 811 per annum. This is a significant target and work on the joint local plan with Newcastle City Council is being undertaken to update housing requirements. Housing development will come from range of sources such as private developers, the Gateshead Regeneration Partnership and the Housing Revenue Account (HRA). The council has an ambitious Housing Strategy to build affordable, high quality, energy-efficient homes.

Implications for financial planning

The financing costs of the council's house building programme are captured in the HRA business plan (as the HRA is a ring-fenced account.) From a general fund perspective, planned growth in housing will mean that new communities will exist. These will need the support of council services, such as waste collection and schools. Demand for these services will require careful modelling, including the extent to which costs may be offset by additional Council Tax. There is a need to gauge how demand for services in new communities, including school places, might affect demand in other parts of the borough.

Employment

Gateshead's economy is fairly static. The number of active businesses in 2023 was down by 55 compared to 2022 according the ONS Government statistics. The gross median weekly pay is also just below the average compared to other authorities at £563 in 2023.

According to the Living Wage Foundation's 2024 report 17.3% of employee jobs were paid below the Real Living Wage in April 2024. The Real Living Wage is an independently calculated hourly rate of pay set to cover basic costs of living.

Implications for financial planning

Financial forecasts will need to consider future National Living Wage rates, both as an employer and commissioner or procurer of services within the borough.
Increased numbers of better-paid jobs within Gateshead will have a positive benefit to the local economy.

Deprivation

In 2019 Gateshead ranked 47th most income deprived of 316 councils across England. There is wide disparity across the borough in terms of deprivation which can impact on life expectancy. There is a 10.8 year gap in life expectancy between those children born in the most deprived areas of Gateshead to those in the least deprived areas. This is not just isolated to Gateshead. Residents in the South of England can expect to live on average 13 years more than residents in the North East of England.

Implications for financial planning

Policies to tackle poverty and create healthy communities will need consideration in financial planning. This may include ensuring there is sufficient resources within the budget to create clean environments, good quality education, sustainable employment opportunities and warm safe homes. These policies will have revenue and capital implications. For example, the provision of affordable housing (HRA), growing Gateshead with a continued focus on education and regeneration to create employment. These all take time to implement so resources may be required in the short term to tackle homelessness, exclusions and repairs.

2.3 Economic and financial outlook

UK context

On 7 August 2025, The Bank of England's Monetary Policy Committee (MPC) announced the base rate would be reduced to 4.0%. The MPC's forward guidance suggests further rate cuts will be dependent on evidence of waning inflationary pressures, with markets expecting the next cut to 3.75% by October 2026. The Committee noted that monetary policy would need to continue to remain restrictive for sufficiently long until the risks to inflation returning sustainably to the 2% target in the medium term had dissipated further.

As at 21 May 2025, the Office for Budget Responsibility estimated that the consumer price index (CPI), which is the indicator for inflation, would be 3.3% for September 2025 compared to 1.7% in September 2024. CPI is not expected to fall to the target 2% until Autumn 2026.

Market analysts estimate the economy will grow by 1.0% in 2025. This is down from the 2% estimate in October 2024.

Implications for financial planning

In theory, relatively stable forecasts of inflation should provide a degree of planning certainty. General wage growth and the easing of restraints on public sector pay awards will mean additional financial pressure for the council, both in terms of its own workforce and external spending, as the council procures services from suppliers.

Public sector net borrowing

The level of public sector net borrowing (PSNB) influences Government spending policy. Higher debt interest payments and lower than expected receipts to Government means that Government policies are only achieved if there are reductions to day-to-day department spending. This was the reason for the years of austerity; trying to target a reduction in PSNB. Public sector net borrowing is expected to fall each year to 2028/29 to reach £74.0bn or 2.1% of GDP, meaning that day-to-day spending in Government departments is not expected to increase.

Implications for financial planning

The Spending Review in June 2025 suggested growth in grant funding for Local Government of £0.8bn over three years to 2028/29 and assumed £9.2bn of growth for Local Government from local taxation increases.

The Government is committed to multi-year settlements and the redistribution of funding to those areas of greatest need. However, there will be a requirement for a period of transition to reduce instability for some Councils.

The Local Government Finance Settlement will provide clarity on grants that are rolled into the Settlement Funding Assessment (SFA) and will be published before the end of 2025.

The implications for individual local authorities like Gateshead are currently unclear.

2.4 Government funding

The 2025/26 Local Government Finance Settlement was a one year settlement and, on the whole, was more positive than anticipated. At +7.8%, Gateshead's increase was slightly above the England average of +6.0%. The following chart models the RSG since 20215-16.

Whilst settlements in recent years have seen marginal increases, often the benefit has been eroded by the inclusion of new responsibilities within the overall funding envelope. This means at least part of the additional funding came with additional responsibilities or the funding was ring-fenced to particular areas.

In June 2025, the Government launched a consultation on the Fair Funding Review 2.0. The Government's aim for the review was to move away from wasteful bidding pots and create a new transparent method of funding which would align relative need, cost and resources to enable the targeting of funding to where it is most needed.

Credible expert modelling has taken place based on the information contained within the consultation document which suggests that early indications are that following transition arrangements the Local Government Settlement will not address the funding issues faced by Gateshead Council.

This MTFS does not include any changes related to the Fair Funding Review due to the lack of information available at this time. The MTFS prudently assumes some Government funding will end and/or remain cash flat.

If the Local Government Settlement Funding is worse than the planning assumptions contained within this MTFS, there may be a need to identify significant additional budget cuts at short notice. This could pose a material risk to the council's financial resilience, as the achievability risk associated with such savings is likely to be high. In order to address this risk, the council has a contingency base budget. It is used to invest in priority areas, but that investment must be one-off and decided afresh each year. This means that the budget is used proactively, but could be deleted without affecting day-to-day services if required.

A further mitigation is the increased emphasis on planning for interventions within group plans over the medium term.

The Government also announced its intention to reset the business rates retention model in 2026/27 to create a new baseline for each authority. Again, no assumptions have been made for the changes in the business rates system due to insufficient information at this time. This position will be kept under review.

2.5 Council financial context

Over the years the financial challenges have impacted on the shape of the council's budgets.

Some groups have contracted, and some have grown.

Demand and price pressures have been acute in areas such as social care, services to schools and temporary accommodation. The council has a strong track record of delivering to budget and has a stable reserves position.

The council had a positive outturn for 2024/25. The overall provisional 2024/25 revenue outturn position for the council, including non-service budgets and financing, results in the delivery of the budget for the year with an overall positive revenue balance of £4.735m. The positive year-end position is a testament to the collective approach taken by groups and services that kept pressures under review within the financial year and ensured that action was taken in a timely manner to outturn within budget.

Although the overall outturn is positive, the position masks overspends in some services, such as children's social care. The positive outturn remains a significant achievement given the financial pressures faced by the services and enables the council's sound financial position to be maintained.

On 20 February 2025 Council agreed a revenue budget for 2025/26 of £328.629 which was balanced through the planned use of £8.500m of reserves. This approach was in line with Cabinet agreement and the MTFS approach to use reserves to allow time for the identification of budget cuts and efficiencies.

Implications for financial planning

The assumption for the MTFS is that all budgets will be spent in full with no under or over spends. This is a prudent assumption given that the council has a strong record of delivering to budget.

The MTFS assumes that the planned use of reserves to balance the budget will end in 2026/27 and reserves will start to be replenished from 2027/28 onwards, provided that in year budgets are delivered successfully.

The MTFS is in balance without the use of the financial sustainability reserve from 2027/28 if budgets are delivered.

3.1 Budget gap

The estimated cumulative budget gap for the period 2026/27-2030/31 is set out below:

This is the gap after assuming increases in Council Tax and the adult social care precept in line with Government's assumptions, which are 2.99% for Council Tax and 2% for the social care precept. This gap will need to be addressed through a combination of interventions, income generation and cuts.

3.2 Council Tax

Council Tax accounts for 35% of the council's general funding. This means that in order to generate a 1% increase in overall funding, Council Tax would have to increase by almost 3%. This is called the gearing of the tax. The council has little control over the majority of its funding, which is through Government grant. The variables that must be considered when setting Council Tax include:

• the Council Tax base of the authority
• Council Tax Support budgets
• the level of the Council Tax
• collection rates

Council Tax Base

The Council Tax Base is the number of Band D equivalent properties in the borough. In simple terms, it reflects the number and type of dwellings in the borough and takes into account if the dwellings may be eligible for Council Tax discounts or exemptions. Local authorities use the Council Tax Base to calculate how much Council Tax is expected to be generated. Whilst other factors affect the Council Tax Base, broadly speaking, property development in an area usually means that the Council Tax Base will increase, generating more Council Tax income.

The MTFS assumes the following growth in the Council Tax yield over the medium term given anticipated housing development in the borough.

Council Tax Support

The council allocates Council Tax support to eligible recipients under the Local Council Tax Support Scheme (LCTS). The MTFS does not assume any reduction in the Council Tax Base as a result of the LCTS scheme and assumes no changes to the eligibility of residents.

The council is undertaking a fundamental review of its LCTS scheme and this will be considered by Cabinet and Council.

The level of the Council Tax and Adult Social Care Precept

In the Spending Review 2025, the Government assumes that all councils will increase Council Tax by the maximum allowable prior to triggering a referendum and uses this assumption in the calculation of the funding allocations. Therefore, in line with the Government assumptions, the MTFS assumes that Council Tax and the Adult Social Care Precept will increase by 4.99% per annum. This assumption is a planning assumption and it is not fixed. The actual level of Council Tax is agreed by Council on an annual basis.

As mentioned previously, the gap provided in section 3.1 is after assuming an increase. The table below shows how the budget gap would increase if either of the following scenarios were to occur:

• Council Tax and the precept were not increased over the MTFS period
  
  and
• only the Adult Social Care Precept was increased

Implications for financial planning

The level of Council Tax and Adult Social Care Precept increases are decisions for Full Council and are agreed annually as part of the budget setting process. The agreed increase has a significant impact on the overall level of funding available for the council and there is an expectation from Government that over the spending-review period the portion of the council's budget funded from local taxation will increase.

3.3 Interventions

The MTFS projections around actions to close the budget funding gap are as follows:

In addressing the gap there will be a need to:

• capture the full financial benefits of early intervention and preventative work ongoing across the council, in order to manage the pattern of future demand for Council services
• consider the level at which it is affordable to continue to subsidise services of a more discretionary nature
• continue to maximise income streams and explore the potential for new income streams, particularly where services are not universal
• continue to target efficiencies, including baseline efficiencies for all services
• continue to undertake service reviews and to identify cross-group savings in areas such as corporate landlord functions and transport
• identify opportunities to work across groups and in partnership with other organisations
• target productivity savings to ensure that optimum value for money is achieved within scarce resources, including making best use of digital technology
• consider how targeted capital investment may deliver revenue savings
  
  and
• implement the corporate reviews to provide efficiencies and smarter ways of working

In developing detailed budget-cut proposals for the medium term, there will be a need to work across group boundaries to review all elements of expenditure that the council is able to influence. The corporate reviews are one of the processes being implemented to enable this cross-cutting look and the reviews aim to deliver smarter ways of working along with efficiencies.

Further work on developing a fully defined set of proposals for potential cuts to the budget in 2026/27 will take place over the coming months in order to inform the 2026/27 budget setting.

Social care interventions are captured in group and service plans. Going forward, all group and service plans will incorporate future years' pressures and intervention plans which can then be fed into the MTFS process.

3.4 Capital financing

Any capital investment that is funded by prudential borrowing creates a revenue charge to the budget which is to provide for the repayment of the borrowing. In order to close the gap, the capital programme could be reduced thereby reducing the additional charge to revenue or allocations within the programme can be redirected towards those projects that generate future savings and/or income.

Alternatively, the council funding gap can be closed over the medium term by targeting of capital investment into areas that will benefit the borough and increases council funding or income.

Implications for financial planning

Capital investment increases the charge to revenue when expenditure is funded by prudential borrowing. However, targeted and planned capital investment can change working practices, regenerate areas, create new homes, boost the local economy and reduce reliance on fossil fuels which all generate income and savings in the future.

4.1 Purpose of reserves

Reserves are used to strengthen the financial position of a council so that the council is protected against uncertainties or unforeseen events without impacting key services and delivery outcomes. The council maintains a general fund reserve to act as a contingency and allows the council to meet any unforeseen expenditure. The general fund reserve MTFS principle is that the reserve should be a minimum of 3% of the net revenue budget.

Some reserves are agreed by Council to be earmarked and held for specific strategic purposes. This may be to help achieve key priorities or held for specific purposes such as mitigating against unforeseen events or risks. Other reserves are ring fenced and committed to be used for specific projects or activities, usually prescribed by Government, and cannot be used to support the general Council budget. These reserves include the schools reserves, developer contributions and the Public Health reserve. Cash in reserves is not idle; it generates investment income in line with the Treasury Management Strategy and avoids the need for short-term borrowing.

Reserves can only be used once and are therefore not a sustainable source of financing without placing the council's financial position at risk. This is an area of interest to External Audit who will look at both how the council has planned to use and has actually used its reserves.

4.2 Reserves Policy

The council's policy on reserves is as follows:

• the council will maintain its general reserve at a minimum of 3% of the net revenue budget to cover any major unforeseen expenditure. The council will aim to balance its revenue budget over the period of the MTFS without reliance on the use of the general reserve
• the council will maintain earmarked reserves for specific purposes which are consistent with achieving its key priorities. The use and level of earmarked reserves will be reviewed annually
• the council's general reserve is available to support budget setting over the period of the MTFS and usage should be linked to maintaining financial sustainability over the medium term

4.3 Reserve balances

A breakdown of each reserve available to support the budget, and the balances as at 31 March 2025 and forecast to 31 March 2026 after planned budget use are outlined below:

5.1 Sensitivity analysis

Current MTFS assumptions are based on best available information. However, there is always a risk of change. The tables below set out areas of sensitivity and their potential impacts.

Pay

Employee costs are the largest area of council spend so pay awards can have a significant impact on the council's resources. The MTFS assumes an average 2.3% increase. Each 1% increase/decrease impacts on the MTFS gap in the following ways:

Council Tax (core element)

The MTFS assumes a Council Tax core increase of 2.99% plus 2% for ASC precept in line with Government assumptions. Each 1% per annum decrease impacts on the MTFS gap in the following ways:

Funding

The MTFS assumes an average CPI increase of 2.3% on some Government funding. Each 1% increase/decrease per annum impacts on the MTFS gap in the following ways:

It is unlikely that all variables would shift unfavourably, but the scale of the impact if they did highlights the importance of regularly reviewing the assumptions.

5.2 Key risks

The key risks associated with the MTFS are recapped below:

PESTEL analysis

The MTFS 2026/27 to 2030/31 has been developed:

• to reflect the funding required to support the corporate priorities and outcomes which are documented in the Corporate Plan and filtered down through group and service plans. Group and service plans will continue to evolve to include interventions and horizon scanning to enable resources to be directed appropriately for the delivery of council objectives
• to take into account the increasing demands for adult social care as a consequence of an increasingly aging population
• to take into account estimated increases in house building which will increase the population size of Gateshead, thereby increasing Council Tax revenue and supporting the financial stability of schools
• to take into account increases in the capital programme where investment in regeneration projects should boost the economy, housing and road networks
• by using prudent estimates of income and expenditure based on economic indicators such as inflation and net public sector borrowing as well as Government releases following the spending review

As previously stated, the MTFS is not a budget, it is the high-level financial plan which sets the context and the parameters in which the detailed budget planning can commence.

Therefore any, and all, assumptions contained within the MTFS will be reassessed and revised continuously with some assumptions, such as the level of Council Tax and adult social care precept increases, being the responsibility of Full Council and so therefore will not be decided until the budget setting in February.

7.1 Cost pressures - key assumptions detail

Employee costs

Pay awards

This cost pressure relates to the cost of pay awards agreed for employees of the council as well as social care fees. Local authority pay awards are determined through the national bargaining process rather than being mandated by Government. Pay awards and National Living Wage (NLW) increases are unfunded from Government and must be met from settlement funding, which puts additional pressure on the council's budget. The MTFS assumes that the pay award each year will be CPI and assumptions are included within the social care demand calculations for the NLW increases.

National Insurance

No significant changes are anticipated with respect to the National insurance rates or thresholds. The MTFS assumes that the Government funding received in 2025/26 for the employer national insurance contributions will not continue. This position will be kept under review.

Superannuation contributions

The triennial valuations are due to take place in 2025 and 2028 which could impact on the budgets in 2026/27 and 2029/30. The 2025 triennial valuation is not expected to increase employer contribution rates but the result of the 2028 valuation may affect the MTFS. An unfavourable valuation could result in increased employer contributions to the pension fund which would increase pressure on the council's budgets. Conversely a favourable valuation may reduce employer contributions. At this stage it is reasonable to assume no changes to employer contribution rates for either valuation.

The Teachers' Pension Scheme (TPS) is an unfunded public service pension scheme. At present no changes to the employer contribution rates have been incorporated however this will be kept under review.

Incremental pay progression

Forecast pay pressures include an allowance for staff pay progression. Estimates reduce in recognition that over time budgets should be sufficient to cover the top of each pay grade.

Apprenticeship Levy

Forecast pay pressures allow for increases in the apprenticeship levy at the rate of inflation.

Inflation

Higher levels of inflation increase costs for the council for the provision of services as it has a wide impact on the macro environment. Higher inflation risks households falling into financial difficulties, businesses falling into financial difficulties, worsening health and poverty and puts pressure on the council to support the residents dealing with these pressures. The council risks reduced Council Tax income, business rate income and increased demand for services as well as increased costs of delivery due to higher pay awards.

Inflation has been particularly challenging in recent years and makes forecasting difficult over the medium term. The MTFS uses the inflation predictions made by the Office for Budget Responsibility (OBR) and these are assumed as follows:

The council's budgetary policy is that groups should manage price inflation within their existing resources, except in exceptional circumstances. These may relate to the scale of the increase, or the number of budgets impacted.

Areas deemed to be exceptional include the PFI waste contract, levies and commissioning contracts. Where appropriate, forecast increases are in line with the OBR's estimate for CPI. However, consideration is also given to other key cost drivers in the services being commissioned.

Commitments

Forecast financial commitments include capital financing costs, increases to levies the council is committed to paying and the future implications of Cabinet and Council decisions.

Capital financing costs

Forecast capital financing costs reflect the period 2025/26 to 2030/31 and previous investment years. They reflect the following assumptions:

• the timing and delivery of expenditure as profiled in the capital programme with an estimate for slippages
• an average interest rate for new borrowing of 4.5%
• the achievement of the capital receipts target
• the timing and management of the borrowing repayments as per the Treasury management strategy

Levies

Forecast financial commitments include estimated increases to levies and contributions. The most significant of these is the North East Mayoral Combined Authority (NECA), with a current Council contribution level of over £12 million.

Adult services

Estimated growth in Adult Social Services takes into account, projected growth in relevant areas of the population. It estimates the impact on commissioning budgets if demand (as a percentage of the overall population) were to remain consistent. In practice, the Integrated Adults and Social Care Services group has preventative strategies, and early intervention work, in place to help manage this demand over the medium term, and this will be reflected as part of the council's strategy to address the budget gap.

The longevity of the population continues to place significant pressure on Adult Social Care budgets. In addition, client expectations and increasing demand to support clients with complex needs, enabling them to maintain independent living, requires reconfigured services and additional investment. The council and its NHS partners are working together informally to integrate health and care and to develop plans collectively to enable the organisations to achieve more than they can individually to improve health and care outcomes and reduce health inequalities in Gateshead.

The following graph shows how demand for social care packages to support hospital discharges have increased significantly since 2011/12, with more people leaving hospital requiring more complex care. This is likely to continue given the national focus on delayed transfers of care and the councils aim to maintain its high level of performance.

The National Living Wage represents a significant cost pressure for local authorities as service providers, particularly in the social care sector, attempt to recover the impact of these increased costs through annual inflationary uplifts to contract prices. Prudent provision has been included within the budget planning in relation to assumed increases.

Children's services

Estimated growth in children's services is more difficult to predict. The number and complexity of care packages for looked after children can vary significantly year on year. The following graph sets out annual increases in looked after children since 2011/12.

(Department for Education Statistics: looked-after children, 2025)

Financial forecasts currently include and average £0.9 million per annum potential growth in children's services. This assumes some flattening of the recent trend line as preventative measures currently being implemented by the group take effect.

Children's services in Gateshead have a combined strategy that addresses a reduction in the overall number of children in the looked-after system alongside a focus on ensuring that when children do need to come into the care system they can live within family units wherever possible and as locally as possible, either within extended family units or with Gateshead's foster carers for as short a time as is in their best interests.

There is a focus on reducing the need for children to come into the care system with a range of strategies and approaches focused on children on the edge of care.

As well as a comprehensive early help offer being delivered via nine locality-based Family hubs there is an enhanced and increased service offer for all families to have the opportunity to be a part of a family group conference. This involves a plan developed by the extended family to support children remaining living with their networks.

Emerging financial pressures

Forecast financial pressures include £2.6 million for the Emissions Trading Scheme (ETS) for waste emissions. In May 2024 the Government consulted on extending the ETS to waste emissions. The ETS is designed to reduce greenhouse gases emitted from the burning of fossil fuels. It is a market-based mechanism which creates a financial incentive to reduce emissions by rewarding those who reduce their emissions and penalising those who don't. However, it requires changes to the processing of waste and this is currently estimated at £2.6m but will be kept under review.

7.2 Funding - key assumptions

Grants

Specific grants must be used for a particular purpose, which is defined by the grant provider. The funding may only be used for that purpose, and the council is audited to ensure compliance. There has been a tendency in recent years for the Government to direct additional funding for Local Government through specific grants. Examples of this have included teachers' pay and support for social services pressures.

From a financial planning perspective, there is a risk that specific grants may reduce in cash or real terms or be discontinued altogether. This risk increases where grants are supporting core activity. Whilst still a challenge where grants support specific initiatives, there is at least an opportunity to review whether those initiatives should continue.

The MTFS reflects anticipated reductions to some grant streams namely, the Employer National Insurance Contributions grant, as nationally the grants are being rolled into the Revenue Support Grant and there is an assumption that the new formula funding will be implemented on a transitional basis.

7.3 Tables - key assumptions