The Resources and Performance Select Committee met to discuss the draft budget for 2026-27, the workforce challenges related to local government reorganisation¹ (LGR), and the council's investment strategy. The committee expressed concern about the potential impact of fair funding reform on Surrey's financial position and requested assurance that the budget makes adequate provision for the implementation costs of LGR. The committee also agreed to add a standing item to future meetings to cover LGR.

Draft Budget 2026-27

The committee scrutinised the draft budget for 2026-27, focusing on the impact of fair funding reform, budget risks, and the deliverability of efficiency savings. Rachel Wigley, Director of Finance and Deputy Section 151 Officer, explained that the council is awaiting the local government finance settlement, expected in late December, to determine the exact figures involved.

The draft budget assumes a 2.99% increase in council tax, but the council could increase it by up to 4.99% without a referendum. Each 1% increase in council tax would generate between £9 and £9.5 million. Councillor Lewis stated that the council is seeking suggestions from select committees, residents, and other organisations on alternative ways to generate efficiencies and close the budget gap.

Nicky O'Connor, Assistant Director of Finance for Corporate, noted that the funding position for 2026-27 is heavily influenced by fair funding reform. While the changes to the formulas being proposed within the fair funding reforms actually increases the council's perceived relative need, the council is expecting a significant loss of government funding due to council tax equalisation. This could result in a loss of over £100 million in government support, spread across three years due to transitional arrangements.

The committee expressed concern regarding the risk profile of the proposed budget and its practical deliverability. They noted that the reliance on achieving significant new efficiencies is highly challenging, particularly given the substantial efficiencies already delivered in recent years. There was also concern that underpinning estimates and assumptions, such as pay awards and inflation, may prove optimistic. These challenges are further compounded by the additional pressures arising from the implementation of LGR alongside the need to maintain business as usual operations.

The committee requested that the council communicate to residents that the reason council tax is being increased year on year is because of grant cuts.

Workforce Challenges Related to LGR

The committee discussed the workforce challenges identified in the lead-up to LGR. Sheila, whose role was not specified, summarised the main challenges as:

• Continuing to recruit a motivated and engaged workforce.
• Ensuring staff are transferred into one of the new unitary authorities.

The Leader of the Council, whose name was not specified, acknowledged that this is a challenging time for staff due to the uncertainty they face in terms of their future roles. They reassured members that staff will be transferred into one of the unitaries, and that there are ongoing discussions to determine which unitary each staff member will be transferred to.

Sarah, whose role was not specified, explained that the council is working to keep staff informed through various channels, including chief executive webinars, directorate webinars, and a new staff board.

David Harmer raised concerns about who would be managing staff in the new environment, and how that uncertainty could drive good people away. Sarah responded that as part of the disaggregation process, staff will be allocated a line manager, and that information will be provided as part of the communication to them.

Nick Darby asked about IT issues related to staff, particularly regarding payroll and management systems. Sarah responded that the council is exploring various options, but expects that they will continue operating key success factors from day one of those new organisations moving forward.

Andy Burton asked about the provisions within the £50 million that's going to be passed on to the two unitaries to cover software and systems. The Leader of the Council clarified that the £50 million was an estimate of the cost, and that the unitaries will have to find the funding to do it.

The committee requested assurance from cabinet that the budget makes adequate provision for the implementation costs of LGR, particularly in the area of corporate support (HR, IT, legal, and communications). This must ensure adequate resourcing to manage the significant additional demands on staff and enable Surrey to plan, prepare, and program manage an effective transition and disaggregation of services and staff to the new unitary authorities.

Council's Investment Strategy

The committee discussed the council's investment strategy, focusing on the rationale behind recent government changes and the adaptation of the investment strategy in light of LGR. Matt Marsden, Assistant Director Finance Strategy and Innovation, explained that the changes were made to strengthen oversight of investments, clarify decision-making responsibilities, and ensure alignment with the council's strategic objectives.

Lance Spencer asked how the council is adapting its investment strategy. Matt Marsden responded that the council is holding its companies to account on delivering their business plans, and that the business plans set out what is expected of those companies between now and vesting day².

Hazel Watson asked what the most sensible approach is for the portfolio and trading companies. Andy Burton responded that his advice would be that wherever the county council owned investment property sits geographically, it makes sense for that unitary to take on that asset. He stated that the logical aspect is a 50-50 split of the ownership of the company and a fair split in terms of the governance arrangements.

David Harmer suggested that the split should be based on population splits rather than geographical location. Nick Darby added that the income from the properties should also be taken into account.