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:
| MTFS assumes 2.3% average |
Inflation | -2% | -1% | +1% | +2% | +3% |
Addition / (reduction) to the cumulative gap | (1.816) | (0.920) | 0.945 | 1.916 | 2.912 |
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:
| MTFS assumes 2.99% |
| -2.99% | -2% | -1.99% | -1.00% | -0.99% |
Addition / (reduction) to the cumulative gap | 22.540 | 15.364 | 15.290 | 7.830 | 7.753 |
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:
| MTFS assumes 2.3% average |
| -2% | -1% | +1% | +2% | +3% |
Addition / (reduction) to the cumulative gap | 7.978 | 4.069 | (4.232) | (8.635) | (13.211) |
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:
Funding | Worse than predicted financial settlements: - the potential falling away of specific grants - especially those supporting core activity
- challenges in relation to capital funding and the associated implications for revenue budgets. These include the impact of additional borrowing beyond that reflected in the current programme
|
Demand | A demographic profile that suggests ongoing demand in Social Services and Education: - the difficulty of modelling the complexity of demand
- welfare reform
- the difficulty in modelling increased demand for services
- homelessness
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Macro economy | - inflation - cost and pay pressure
- interest rates - increases resulting from tackling inflation could impact the cost of borrowing and impact affordability of capital programme
- economic growth - weak growth / recession may mean lower government receipts leading to reduced Local Government Settlements
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Financial resilience | The medium-term budget gap, particularly when viewed in the context of historic savings levels: - the shape of the council's budget
- planned use of reserves to support the budget, which will need to be kept under review
- the difficulties associated with predicting the cash impact of preventative strategies
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PESTEL analysis
Political | - change in Government policy direction and regulation including social care and NHS can impact on social care models and shared funding arrangements. Without adequate funding these can be an added pressure
- labour laws/National Living Wage can impact on legal views and costs
- environmental laws impact on planning, council buildings and costs
- stability of political parties will ensure policies do not change regularly
- national infrastructure and transport links decisions can impact on local economy
- Public Works Loan Board (PWLB) rates can have a significant impact on capital projects and affordability
- welfare reform/housing demands/Universal Credit - Government's changes are likely to have an impact in relation to potential bad debt of Council Tax income and housing rents and the services needed by residents
- Local Government Funding Reform - the aim to making councils more self-sufficient and less reliance on grants
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Economic | - national and local economic growth rates
- energy prices increasing or decreasing
- price pressures/supply chain pressures
- labour market availability and shifts
- exchange rates
- levels of inflation
- interest rates on investments, borrowing and debt
- national and local unemployment rates
- the council plays a strong role in ensuring a strong and vibrant local economy which can in turn lead to better jobs and skilled local people
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Socio-cultural | - local health indices
- deprivation levels
- local population demographics - having a young, healthy workforce or aging population with complex needs changes service needs
- child poverty can influence the levels of looked after children and family support
- health of local workforce
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Technology | - pace of change impacts on upgrades to systems and customer expectations for accessing services
- level of digital skills locally will determine who can access online services and who need more support such as telephone or face-to-face service provision
- appetite for innovation can influence service adaptation to customer needs
- new technology improves ability to introduce/improve agile working
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Environmental | - weather and impacts
- local climate change agendas
- Government climate change aspirations
- local pollution
- aspirations to be environmentally friendly
- environmental impacts ripple through everything the council does and as such all reports to Cabinet must consider these implications
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Legal | - discrimination law
- consumer law
- employment law
- health and safety laws
- changes in regulation and legislation in relation to local government
- licenses and permits
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