The Scrutiny Commission met to discuss the provisional Medium Term Financial Strategy (MTFS) for 2026/27 to 2029/30, considering reports from various departments and the responses of other Overview and Scrutiny Committees. Key discussions focused on the significant financial challenges facing the council, including budget gaps, the need for savings, and the impact of national funding decisions, alongside a review of the Investing in Leicestershire Programme Portfolio Management Strategy.

Provisional Medium Term Financial Strategy 2026/27 - 2029/30

The Scrutiny Commission reviewed the provisional Medium Term Financial Strategy (MTFS) for 2026/27 to 2029/30, which outlines the council's financial plan and projected budget gaps. The strategy highlights a significant shortfall, with a projected gap of £23 million in the first year, rising to £106 million by 2029/30. This gap is attributed to increasing demand for services, particularly in social care and special educational needs (SEN), coupled with insufficient funding increases from the government.

Key points discussed regarding the MTFS include:

• Financial Gap and Savings: The council faces a substantial financial gap, necessitating significant savings. While an efficiency review by Newton Impact is underway, expected to deliver recommendations by March 2026, the exact amount of savings is not yet clear. The Leader of the Council, Mr. D. Harrison CC, expressed confidence in finding savings and a desire to avoid service cuts. Members raised concerns about the lack of detailed savings plans at this stage, with the Cabinet Lead Member for Resources, Mr. H. Fowler CC, acknowledging the need for patience due to the long process involved.
• Council Tax: The MTFS assumes a 2.99% Council Tax increase for illustrative purposes, with the potential for a 4.99% increase (including a 2% adult social care precept) allowed by the government's referendum limit. The decision on the final Council Tax level is crucial for balancing the budget, as the council is legally required to set a balanced budget. The report noted that Leicestershire's Council Tax is currently lower than comparator authorities, contributing to its low funding position.
• Reserves: The council's budget equalisation reserve is only sufficient to support the 2026/27 and part of the 2027/28 financial gaps. Members expressed strong concerns about how future gaps would be filled if this reserve were depleted. It was explained that while this reserve is a last resort and not sustainable long-term, other earmarked reserves exist for specific purposes. The council aims to return to a position where the budget equalisation reserve covers two years of the MTFS.
• Special Educational Needs (SEN) Spend: The forecast for SEN spend significantly exceeds the high needs block funding, with a cumulative deficit projected to exceed £400 million by 2029/30. While the government has indicated it will absorb some SEND costs from 2028/29, the funding for the historic deficit remains unclear. The council is implementing measures to contain growth, including expanding local provision and improving practice.
• Government Funding and Fair Funding Review: Members raised concerns that Leicestershire County Council had not benefited significantly from the government's fair funding review, which aimed to redistribute funding based on updated needs assessments. It was explained that while the draft MTFS included assumptions for funding increases, Leicestershire remains one of the lowest-funded areas. The provisional local government finance settlement for 2026/27 was still awaited, adding to the uncertainty.
• Business Rates: The reset of the Business Rates retention system means the income to the Leicester and Leicestershire Business Rates Pool will reduce, and the pool will be dissolved for 2026/27. This has been factored into the MTFS, with Business Rates income not included for the MTFS period.
• Capital Programme: The draft capital programme totals £456 million over four years, with £129 million planned for 2026/27. This includes significant investment in Children and Family Services (£87 million) for additional school places and SEN provision, and Environment and Transport (£230 million) for highway maintenance and infrastructure. A funding shortfall of £84 million is to be temporarily funded from internal cash balances, with potential for prudential borrowing. Members questioned the appropriateness of investing in the Investing in Leicestershire Programme (IiLP) when council services faced capital funding challenges, but it was emphasized that the programme generates significant annual income.

Investing in Leicestershire Programme Portfolio Management Strategy 2026 - 2030

The Commission also reviewed the draft revised Investing in Leicestershire Programme (IiLP) Portfolio Management Strategy for 2026-2030. This strategy outlines the council's approach to managing and investing in its property and other assets to generate income and support strategic objectives.

Key points regarding the IiLP Strategy include:

• Strategic Alignment: The strategy is aligned with the council's Strategic Plan 2022-26, aiming to contribute to its five key outcomes: Clean and Green, Great Communities, Safe and Well, Improved Opportunities, and Strong Economy, Transport and Infrastructure.
• Investment Criteria: Investments are assessed based on security of principal, contribution to strategic objectives, financial return commensurate with risk, legal considerations, planning risk, potential liabilities, sustainability, whole-life costs, fit with the existing portfolio, and exit strategy. For direct property investments, economic benefit, development potential, tenant viability, location, sector, and building condition are also considered.
• Financial Performance: The medium-term target rate of return for investments is 7% per annum. The portfolio achieved a net revenue income of £8.6 million in 2024/25. The draft 2026-30 capital programme includes £43 million to grow the IiLP to a target of £260 million, with projected annual net income of around £9 million.
• Risk Management: The strategy emphasizes robust governance, independent reviews (most recently by Hymans Robertson in January 2024), and a diverse portfolio to mitigate risks. Direct property investments are subject to detailed appraisal processes, including initial assessment, financial appraisal, and business case development. Non-direct property diversifier investments also undergo a similar appraisal process.
• Environmental, Social, and Governance (ESG): The strategy aims to ensure developments are sustainable, low carbon, and energy efficient, contributing to the council's climate resilience goals. It also considers public health aspects and aims to achieve net biodiversity gain.
• Member and Officer Oversight: The Investing in Leicestershire Programme Board, chaired by the Cabinet Lead Member for Resources, Mr. H. Fowler CC, plays a vital role in assessing proposals and monitoring performance. Regular reports are provided to the Board, Cabinet, and Scrutiny Commission.

Comments from the Commission on the IiLP Strategy included:

• A member suggested removing the Clean and Green section from the strategy, but it was explained that this was part of the broader Strategic Plan approved by the County Council.
• Concerns were raised about the 3.0% net income return, which some members felt was low given the asset size. It was explained that legal restrictions on investments and the inclusion of development sites impacted the immediate yield.
• Suggestions were made to diversify investments beyond property and to prioritize local projects benefiting the community over private debt.

The Commission resolved to note the reports and submit their comments to the Cabinet for consideration.

Other Matters:

The Commission also noted the minutes of previous meetings and received updates on urgent items, including a statement from the Chair regarding social media posts by two County Councillors, which had caused concern. The Chair emphasized the Commission's role in ensuring high standards of conduct and public confidence, and requested a future report on processes for managing reputational risk and standards expectations for members.

The meeting also included discussions on the Chief Executive's Department's revenue budget and capital programme, with specific points raised regarding legal services growth, trading standards capacity, and subscriptions to the Local Government Association and County Councils Network. The Corporate Resources Department's revenue budget and capital programme were also reviewed, with discussions on office space utilization, ICT cyber security, and the Beaumanor Hall future operating model.

The Commission resolved to note the information provided and submit their comments to the Cabinet for consideration.