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Report to: |
Cabinet |
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Date: |
24 June 2025 |
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By: |
Chief Executive |
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Title of report: |
Reconciling Policy, Performance and Resources (RPPR) – State of the County |
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Purpose of report: |
To update Members on the issues which need to be taken into account in the priority and budget setting process for 2026/27 and beyond |
RECOMMENDATIONS:
Cabinet is recommended to:
1) note the evidence base on demographics (Appendix 1) and the national and local policy outlook (Appendix 2);
2) review the priority outcomes and delivery outcomes (Appendix 3) and agree these as the basis of the Council’s business and financial planning;
3) agree officers update the Medium Term Financial Plan as the basis for financial planning when more information is available, as set out in paragraph 5;
4) agree officers identify areas of search for further savings as set out in paragraph 5;
5) agree officers update the Capital Strategy and programme (Appendix 4) as set out in paragraph 6; and
6) receive reports on more detailed plans for 2026/27 and beyond in the autumn when there is more information about future resources.
1. Background
1.1 The State of the County report is a key annual milestone in the County Council’s Reconciling Policy, Performance and Resources (RPPR) process, our integrated business and financial planning cycle. The report provides an overview of the current operating context for the Council to begin the process of more detailed planning for 2026/27 and beyond. Alongside the 2024/25 year end monitoring report earlier on this Cabinet agenda, it reflects on our achievements over the last year and the challenges we expect in the year ahead arising from both local and national factors. This analysis helps us start to refine our plans and to guide our business planning and budget setting processes.
1.2 The County Council continues to play a vital role in the quality of life for people across East Sussex. The essential services we provide and commission, and the work we do in partnership with public, voluntary and business sector partners, contribute significantly to improving health and wellbeing, independence, prosperity, connectivity and community across the county. The reach of our services is significant. In the past year our Adult Social Care services have supported over 30,000 people, our Children’s Services have been in contact with over 48,000 children and young people, we maintained over 2,000 miles of road, including repairing over 23,000 potholes in our roads and pavements, issued over two million items through our libraries and dealt with a quarter of a million tonnes of waste. The Council employs 9,912 people (approximately half of these in schools) and spends £382m (60%) with local suppliers, a significant influence in the county’s economy.
1.3 We have a strong track record of focusing, within the Council and with our partners, on making best possible use of the collective resources available for the benefit of local people. Over the past year we have been able to invest in extra support for families facing challenges to help them stay together wherever possible, further develop the integration of community health and social care services, and work with partners to publish the Economic Prosperity Strategy for the county and to create new jobs through business support programmes, all of which benefit our residents and communities.
1.4 These valued partnerships and services provide a firm foundation as we approach a period of both sustained challenge for the Council and the most significant change to local government in a generation. The potential devolution of powers from national Government to Sussex and election of a new Mayor in 2026, alongside the proposed reorganisation of local council structures from 2028, would represent reform on a scale not seen since East Sussex County Council (ESCC) came into being. The change on the horizon is considerable and will be a key factor in our planning for the future, but there remain a number of uncertainties, and the future landscape is not yet clearly in our sights. Whilst we anticipate new opportunities in the medium term to progress further transformation and integration of local public services, in the short term it is vital to maintain our focus on the immediate and growing pressures on ESCC services and resources. The financial challenge facing the County Council in the next two years is, once again, unprecedented in its scale as costs have continued to build beyond the resources available to respond. Securing the ability to maintain our statutory duties and continuing to meet the needs of East Sussex residents, particularly the most vulnerable, remain our most pressing priorities.
1.5 As well as significant achievements, the past year has seen the Council forced to take difficult decisions which impact on individuals, communities and partners in order to meet our legal duty to set a balanced budget. Pressures on services have continued to grow as the needs in our communities increase and become more complex, costs have escalated due to national factors beyond our control, and the funding we receive from Government and can generate locally has not kept pace. We expect these pressures to be ongoing in the coming months and years and have a significant impact on planning for the future. The evidence base set out in this report shows how changing demography, needs and national reforms will continue drive future demand for services and support. The gap between the funding we have and the cost of providing statutory services has now grown unsustainably and we have been realistic and honest about the substantial challenges this creates. As always, we will be transparent about the choices we face, including what this may mean for services and the people they support, and we will continue to approach our planning with a sharp focus on what the Council wants to achieve for East Sussex with the limited resources we have.
1.6 This will involve progressing the savings described within the budget set by Council in February which we know are all difficult choices which will have further impacts on our residents, staff and partners. It will mean continuing our focus on approaches which help people stay independent, or avoid the need for more intensive statutory support from ESCC services, wherever we can. We know that the best investment is in the upstream, preventative services which improve outcomes and ultimately make better use of resources and we will continue to make and evidence this argument. However, we do not have sufficient funding to scale up or even maintain these services to the level we would want, or to invest as we would like in the infrastructure and economy of East Sussex for the future. We will also maintain our tight controls on day to day spending and costs. But it is clear that these actions will not be enough to bridge the gap and we will need to consider the further steps needed as we work towards a balanced budget for the coming year.
1.7 This State of the County report contains the usual elements: the demographic evidence base; the national and local policy outlook; and updates on the Medium Term Financial Plan and capital programme. It provides our latest understanding of how we will need to continue to respond to the wide range of policy, demographic and financial drivers which influence the outlook for the Council in the short and longer term.
1.9 Together with the high level of financial uncertainty, we continue to see locally the ongoing impact of the Covid pandemic and increased cost of living translate into growing need for the statutory, demand-led services for vulnerable children and adults which account for around three quarters of our budget. This, combined with ongoing escalation in costs right across the Council, including in other major statutory services such as highways and transport, have significantly increased the expenditure required to maintain core services. This picture reflects national trends following Covid and cost of living shocks to the economy and society, but has been pronounced here in East Sussex due to demographic make-up and needs of our population, the nature of the local economy and the steps we have already had to take over many years to respond within reduced resources.
1.11 These national and local factors are also impacting on the Council’s key partners, particularly in local government, health and the voluntary, community and social enterprise (VCSE) sectors. For district and borough councils the impact of increased homelessness and the spiralling costs of temporary accommodation has a major impact on resources, and national reforms to planning, housing and waste are significant. For the local NHS, demographic changes and increased complexity of need, coupled with the Covid legacy and major national reforms, impact demand and resources, with implications for working with Adult Social Care and Children’s Services. For VCSE partners increased vulnerability in our communities and stretched public services mean more local people seeking support, alongside increased funding challenges as a result of higher costs. In this context, working together to target resources and sustain support as effectively as possible is more important than ever.
1.12 Taking every step we can locally to manage demand and reduce costs continues to be an ongoing discipline. However, the scope for more efficiency gains is now very limited and national support is vital. This report sets out our approach to proactive lobbying and communications to ensure that the Government is aware of the needs of our county, the urgent requirement for sustainable funding that appropriately reflects local need, and the case for fundamental national reform in key areas to enable more flexible and targeted use of the resources we have.
1.13 It continues to be critical that we focus ESCC resources, in partnership with others, in the most effective way to support our priorities and the provision of statutory services. The Council spends over £1.1bn gross each year (in the region of £580m net) on services for the county’s residents and businesses. We continue to use our robust RPPR process to ensure our financial and other resources are aligned to delivery of our priority outcomes and that we are informed by a clear understanding of our effectiveness. This report describes the range of action we are already taking and outlines further steps we will need to take to bridge the financial gap if additional national support is not forthcoming.
2. Current Position
2.1 A range of national factors have continued to impact on the county over the past year, leading to ongoing pressures on households. The heightened cost of living has persisted, with a disproportionate impact on the most vulnerable, the complexity of need amongst vulnerable children, families and adults has continued to grow, and population changes have also led to increased need. These pressures have manifested locally in ongoing growth in demand for County Council services, reinforcing the importance of the role the Council plays for the residents, communities and businesses of East Sussex. Our assessments of the impact of the national and local operating context on future levels of service demand continue to be refined and the latest modelling will be built into our planning.
2.2 As we develop our medium and longer term plans we will also need to factor in the broader context in which we will be working. As it approaches the end of its first year in office, the Government is pursuing a wide range of fundamental reforms to key services with more anticipated in the coming months. Many of these reforms have major impacts for our services, requiring a significant policy and operational response at a time of limited resources and uncertainty about the funding available to support change and transition. The national and local context includes:
• The developing national and international economic outlook, including considerable economic uncertainty. Inflation has fallen from previous heights but has recently increased and remains above target, impacts from the increased cost of living persist, economic growth remains limited and public finances continue to be strained. The ongoing pressures on households are likely to continue to influence demand for our services and the costs of providing services will also continue to increase.
• Potential further changes to arrangements for driving economic growth locally as some functions currently undertaken by upper tier authorities could transition to a Sussex MCCA, along with additional powers devolved from Government. Harnessing the benefits of additional investment and opportunities for the county through these developments, Levelling Up Partnerships and the Plan for Neighbourhoods will be vital.
• Major national reforms in children’s social care and education requiring a significant local response from the Council and partners, alongside ongoing work to respond to increasing complexity of need and challenges in securing suitable care placements. Significant reforms to the special educational needs and disabilities system are also anticipated in the coming months.
• Uncertainty in relation to plans to reform the Adult Social Care system, particularly future funding arrangements which remain unclear. Significant national reforms in the NHS are also impacting local health partners and have implications for how we work together. We are also continuing to respond to a range of significant local pressures in health and social care and taking forward a range of work to manage demand and improve outcomes.
• Significant national policy developments related to planning, infrastructure and transport, including the reintroduction of strategic spatial planning, potential changes to transport planning under proposed devolution arrangements and significant reforms to public transport. We are also taking forward our agreed Local Transport Plan and its supporting plans, the next stages of our Bus Service Improvement Plan, and a number of local infrastructure projects.
• Delivering new duties arising from the Environment Act, including in relation to biodiversity, nature recovery, waste and recycling. We will also look for opportunities to draw investment into East Sussex through Government plans in areas such as clean energy, and to define the current and future role for local authorities in Sussex in addressing climate change, to work most effectively alongside new national and local structures that are emerging.
• Ongoing challenges in the labour market, including the impact of workforce shortages and recruitment and retention challenges, ongoing pay negotiations and the need for our workforce to adapt to service reforms. We will also need to consider the impact of significant national employment reforms. Alongside this, the need to take advantage of new opportunities from rapidly developing advances in technology and artificial intelligence which may support capacity and efficiency.
• The ongoing need to respond to a complex picture of migration in light of global conflicts, increased numbers of people seeking asylum, including unaccompanied children, and developments in national policy on immigration.
• Renewing work with our voluntary, community and social enterprise Sector (VCSE) partners to maximise capacity to build community health, wellbeing and resilience as part of our ongoing activity to help people help themselves.
• The ongoing importance of all our partnerships in harnessing the collective resources and assets available within the county for the benefit of our communities, particularly in the context of financial pressures.
2.3 The local and national policy outlook at Appendix 2 sets out the latest position on these and other current issues, and plans will continue to develop over the summer and autumn as more information emerges. As always, Members will continue to be updated on policy developments throughout the RPPR cycle.
2.4 To address the unsustainable financial position we have taken every possible step including instituting strict spending and recruitment controls, reprioritising spend, reducing our office estate and maximising income. We have reviewed and reduced our capital programme to minimise the need for borrowing, which means we are not able to invest to the level we would want in other important areas, such as the roads which support the county’s economy and communities and our response to the climate emergency. Without the capacity in the budget to support borrowing to invest for the future, we have been forced to scale back our plans in these and other areas to match only the grant funding we receive. We have reviewed the value for money our services provide, ensuring they perform well against our nearest comparator authorities and that we adopt good practice elsewhere where we can. External assessment has confirmed that the Council continues to provide good value for money, is efficient and well-run. We are introducing and testing further digital and artificial intelligence approaches and systems which benefit both service delivery and capacity.
2.5 Where it is feasible within available resources we have pursued preventative or upstream approaches which improve outcomes and manage demand, supporting people and communities to be independent wherever possible. This includes a transformation programme in Children’s Services focused on securing the right placements for children and delivering national reforms to social care support for families, and the further integration of community health and care services and development of a prevention strategy in Adult Social Care and Health. The delivery of additional patching, drainage and lining works through Cabinet’s previous additional investment in highways maintenance has supported the future resilience of the roads which the local economy and our communities depend on. However, there is a lack of funding for the scale of investment required in preventative work across a range of areas which would reduce the need for more intensive support in the future. As resources for this work have become increasingly constrained over time, services have become necessarily focused on responding to the most critical needs, creating a negative cycle of growing demand and increased costs.
2.6 We have taken the additional and significant steps of bringing forward further difficult service reductions and drawing on service reserves to balance the budget. However, despite all the action we have taken, fundamentally there remains a large gap between the income we currently expect to receive in the coming years and the costs of providing services. Without further Government support, changes to the statutory requirements local authorities are expected to fulfil, or more funding for the county as a result of reform of local government finances we will not have the funding we need for the future. Further detail on the financial outlook and proposed next steps is provided at paragraph 5.
2.7 In all our activities, and in planning for the future, the County Council will continue to work to our guiding principles that:
3. Demographic, Economic and Demand Changes
3.1 Appendix 1 sets out the key factors affecting the county in relation to demography, deprivation, health, housing, the environment and economy, and the impact these are having on demand for our services. This contains more detail on the issues outlined in paragraph 2. Appendix 1 highlights some of the longer-term challenges we face related to the nature of our population and our geography alongside emerging issues. While some factors impact on residents across the county, such as the ongoing challenges around cost of living, each local area is different and some are impacted more by particular issues. In addition, some of our communities are impacted by multiple systemic issues that require additional support to address. This has been recognised by the awarding of Levelling Up funding to these areas, and more recently being identified as eligible places for Plan for Neighbourhoods funding.
3.2 The main factors highlighted by the report are:
4. Council Priority Outcomes
4.1 The Council’s business and financial planning is underpinned by our four priority outcomes, which provide a clear focus for decisions about spending and savings and direct activity across the Council.
4.2 The current four priority outcomes are:
The priority outcome that the Council makes the “best use of resources now and for the future” is a test that is applied to all activities to ensure sustainability of our resources, both in terms of money and environmental assets. It ensures that the future impact of the choices we make about using resources is actively considered across all that we do, as well as the here and now.
4.3 The priority outcomes, and their subsidiary delivery outcomes, are reviewed annually to ensure they continue to reflect the current context. Updates have been made in recent years to ensure the priorities we are working to deliver, and the way we measure the performance of our activities and services, reflect the current operating context. Following these recent updates, it is considered that the current priority and delivery outcomes, as set out at Appendix 3, remain appropriate and Cabinet is recommended to agree these as the basis for future business and financial planning.
5. Medium Term Financial Plan
5.1 When the 2025/26 balanced budget was approved by Full Council on 11 February 2025, the deficit on the Medium Term Financial Plan (MTFP) to 2027/28 was £56.2m. Updating the MTFP for normal factors (such as the latest inflation rates and an additional year), the position is an increased deficit by 2028/29 of £70.8m.
5.2 On 11 June the Chancellor published the Government’s Comprehensive Spending Review (CSR) – the first spending review of the current Parliament. The CSR announced a 2.6% real terms increase in local government core spending power, although this largely comes from increased Council Tax, which will retain the 3% core referendum principle and 2% for the Adult Social Care precept. The CSR did not publish any information on likely allocations, which will be subject to the outcome of the Government’s funding reform consultation. The Government’s intention to use funding reform to target funding based on deprivation creates risks that redistribution will impact negatively on the Council’s future financial position.
5.3 The MTFP as set out below assumes continuation of current funding. However, the detail within the Comprehensive Spending Review, funding reform consultation and business rates reset, together with a multi-year settlement are all likely to impact on the future deficit. The Council will be required to set a further two balanced budgets in 2026/27 and 2027/28, prior to Local Government Reorganisation (LGR) in 2028/29.
|
Medium Term Financial Plan |
2026/27 |
2027/28 |
2028/29* |
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|
£m |
£m |
£m |
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Annual Budget Deficit / (Surplus) |
25.089 |
18.084 |
16.175 |
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Carry Forward of 2025/26 Deficit |
11.449 |
- |
- |
|
Annual Budget Deficit / (Surplus) after Carry Forward |
36.538 |
18.084 |
16.175 |
|
|
|||
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Total Budget Deficit / (Surplus) |
36.538 |
54.622 |
70.797 |
*Notional due to LGR
5.4 The Council has recognised ongoing service pressures in Adult Social Care and Children’s Services and invested £51.1m in 2024/25 with a further £54.9m in 2025/26 required when the budgets were set. Whilst the 2025/26 Local Government Financial Settlement saw an increase in grant funding to the Council including a £8.9m increase in the Social Care Grant and a £1.5m allocation of Children’s Social Care Prevention Grant, there was the loss of £0.5m Services Grant, plus the Council did not receive an allocation from the new £600m Recovery Grant, where allocations were specifically targeted to meet need and deprivation, particularly in non-shire authorities. Overall, the additional funding was not at a level sufficient to fund the investment, and the Council still required a significant draw on reserves of £11.4m in 2025/26.
5.5 The use of reserves to mitigate budget deficits is not sustainable as they can only be used once. The current level of reserves is set out in the table below. Total strategic reserves are projected to be £4.5m by 2029, which excludes any additional draws required to balance budgets in 2025/26 or beyond. This compares with a cumulative deficit of £70.8m by 2028/29:
|
Reserves Balances |
1 Apr 2025 |
Estimated 1 Apr 2026 |
Estimated 1 Apr 2029 |
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|
£m |
£m |
£m |
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Earmarked Reserves: |
|
|
|
|
Held on behalf of others or statutorily ringfenced |
25.5 |
22.5 |
21.4 |
|
Named Service Reserves |
|
|
|
|
Waste Reserve |
19.8 |
14.7 |
7.4 |
|
Capital Programme Reserve |
9.1 |
5.2 |
0.0 |
|
Insurance Reserve |
7.7 |
5.7 |
5.5 |
|
Local Government Reorganisation Reserve |
0.0 |
4.2 |
0.0 |
|
Subtotal named service reserves |
36.6 |
29.8 |
12.9 |
|
Strategic Reserves |
|
|
|
|
Priority Outcomes and Transformation |
5.2 |
4.6 |
2.0 |
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Financial Management |
11.3 |
4.6 |
2.5 |
|
Subtotal strategic reserves |
16.5 |
9.1 |
4.5 |
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Total Earmarked Reserves |
78.6 |
61.5 |
38.8 |
|
|
|
|
|
|
General Fund Balance |
10.0 |
10.0 |
10.0 |
|
|
|
|
|
|
TOTAL RESERVES |
88.6 |
71.5 |
48.8 |
5.6 Planning scenarios will be considered which may impact the overall deficit, as set out in the table below.
|
|
2026/27 |
2027/28 |
2028/29* |
Total |
|
£m |
£m |
£m |
£m |
|
|
Revised deficit |
36.538 |
18.084 |
16.175 |
70.797 |
|
Scenarios currently being considered |
|
|
|
|
|
|
|
|
|
|
|
Continuation of Council Tax flexibility: Add a further 3.00% to our current 1.99% assumption to get to 4.99% (2.99% plus 2.00% ASC Precept) for 2026/27 |
(11.894) |
(0.420) |
(0.433) |
(12.747) |
|
Deficit/(surplus) after scenarios |
24.644 |
17.664 |
15.742 |
58.050 |
*Notional due to LGR
5.7 The CSR confirmed that the Council Tax referendum limit would continue to be 5% (a 2% Adult Social Care precept and 3% for other services). If the Council raised Council Tax by 4.99% there would remain a cumulative deficit of £58.1m by 2028/29. With regard to possible funding scenarios, the Government has been clear that deprivation will play a much bigger part in determining the allocation of funding. There is concern that the measures used to define ‘need and deprivation’ will favour urban councils, while shire councils such as ESCC will lose out. This could be particularly challenging for East Sussex, which has higher levels of deprivation and need than neighbouring authorities.
5.8 Given the forecast level of strategic reserves is £4.5m by March 2029, which excludes any draws necessary to mitigate future deficits, and that all other avenues have been explored, the Council will have to consider balancing the 2026/27 budget from the following options:
5.9 None of the above options are desirable but the Council will have no option but to undertake some combination of the above if it is to maintain financial sustainability and protect services to the residents of East Sussex, as we move towards the reorganisation of local government.
Savings
5.10 The 2025/26 balanced budget and MTFP agreed by Council in February already includes planned savings of £16.2m. Following on from over £140m in savings delivered since 2010, these savings are very challenging to deliver and will have significant impacts on our residents, staff and partners. They also mean that it has not been possible to sustain all services at Core Offer levels - the basic but decent level of services residents should expect. However, in light of the serious financial position the Council faces, and the very limited options remaining, it is recommended that officers explore areas of search for further savings and service reductions across all departments to reduce the financial gap.
5.11 Given the need for any savings to take effect as early as possible to impact on the 2026/27 financial position, areas of search will be brought forward for Member consideration at the earliest opportunity.
6. Capital Programme
6.1 The approved programme has now been updated to reflect the 2024/25 outturn and other approved variations, revising the gross programme to £724.1m to 2033/34. The details are set out in Appendix 4, together with the revised programme.
6.2 The 10 year capital programme to 2034/35 and 20 year Capital Strategy 2025/26 to 2045/46 will be updated as part of the RPPR process over the autumn to add an additional year and ensure continued links into, and support of, the Council’s other strategies.
7. Lobbying and Communications
7.1 This report sets out the range of significant demand, policy and financial issues which must be addressed in our planning for the future. The outlook is highly challenging - we face a significant financial gap and very limited and undesirable options open to the Council in responding to this. There is also continued uncertainty in relation to national reforms in major service areas, ongoing growth in need and a lack of clarity on future funding arrangements. At the same time, similar pressures are affecting many of our key partners, affecting the work we do together to improve outcomes for local people, and we are working with local government partners to plan and deliver major structural change.
7.2 These are substantial risks and planning in this context is very complex. It is clear however, that without further Government support, the financial outlook will require difficult decisions in the short term and that these will not be the decisions we would choose to make to address growing demands or to support transition to future organisations.
7.3 Through our lobbying, we will make clear to the Government the requirement for sustainable funding for local government as a whole, additional support to deliver national reforms and that the specific local needs of East Sussex must be appropriately reflected in new funding arrangements. We will highlight that opportunities for efficiencies and service transformation arising from structural change can only be fully harnessed if underpinned by the robust and sustainable services that East Sussex residents, businesses and communities need. This includes opportunities to continue positive preventative work that could most effectively manage future demand for services.
7.4 We will continue to work with local, regional and national partners to make this case through all available avenues and seek the support of East Sussex MPs in highlighting the needs of our county and the key role the Council has to play in improving the quality of life for local people.
8. Next Steps
8.1 Work will continue over the summer to refine our understanding of the medium term impacts on our services of national reforms, changing demand for services and the financial resources that will be available to us in the coming years. We will also develop proposals for closing the financial gap.
8.2 We will report back to Members in the autumn with an updated assessment of our service demand, funding expectations and proposed actions to inform more detailed business and budget planning for 2026/27 and beyond. We will use our RPPR process to plan for the future as best we can in the context of the considerable uncertainty we face.
8.3 Members will continue to be consulted on plans as they are developed through Cabinet, County Council, Scrutiny Committees, Whole Council Forums and specific engagement sessions throughout the 2025/26 Reconciling Policy, Performance and Resources process.
BECKY SHAW
Chief Executive