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

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