Committee: Cabinet
Date: 27 January 2026
Title of Report: Reconciling Policy, Performance and Resources (RPPR): Draft Council Plan 2026/27, Revenue Budget and Capital Programme
By: Chief Executive
Purpose of Report: To ask Cabinet to approve the draft Council Plan, Council Tax levels, Revenue Budget and Capital Programme for recommendation to the County Council.
RECOMMENDATIONS:
Cabinet is recommended to:
1) recommend the County Council to:
i) approve in principle the draft Council Plan 2026/27 at Appendix 1 and authorise the Chief Executive to finalise the Plan in consultation with the relevant Lead Members;
ii) increase Council Tax by 2.99% in 2026/27;
iii) increase the Adult Social Care Precept by 2% in 2026/27;
iv) issue precepts to be paid by borough and district councils in accordance with the agreed schedule of instalments at Appendix 5 (draft);
v) approve the net Revenue Budget estimate of £693.2m for 2026/27 set out in Appendix 2 (Medium Term Financial Plan) and Appendix 3 (draft) (Budget Summary) and authorise the Chief Executive, in consultation with the Chief Finance Officer, Leader and Deputy Leader, to make adjustments to the presentation of the Budget Summary to reflect the final settlement and final budget decisions;
vi) note that the Council has written to Government to request Exceptional Financial Support in the form of a £70m capitalisation direction to support the budget in 2026/27;
vii) amend the Treasury Management Strategy, as set out separately on the agenda, to allow borrowing to fund the revenue budget;
viii) note the comments of the Chief Finance Officer on budget risks and robustness, as set out in Appendix 6;
ix) agree the Reserves Policy set out in Appendix 6;
x) approve the Capital Strategy and Programme at Appendix 8;
xi) note progress with the Council Plan and Budget 2025/26 since quarter 2 set out in section 4;
xii) note the Medium Term Financial Plan forecast for 2026/27 to 2028/29, set out in Appendix 2;
xiii) note the comments from engagement exercises set out in Appendix 7; and
xiv) note the schedule of fees and charges that have increased above 4% at Appendix 9.
2) agree to continue lobbying as strongly as possible for sustainable funding to meet the needs of East Sussex residents, using all available avenues.
3) approve the Highways investment in advance as set out in section 10.
1 Introduction
1.1 This report marks an important, if unwelcome, milestone in this Council’s relentless drive to meet local needs as effectively as possible with inadequate resources. Despite a solid foundation of sound and prudent financial management over many years, as endorsed by multiple external assessments, and taking very difficult decisions to reduce services over time to manage within increasingly limited resources, we will now need to rely on borrowing to balance the budget for the coming year.For the first time, we are not able to present a balanced budget drawing on our own resources and the proposed revenue budget for 2026/27 presented in this report is contingent on Government’s agreement to additional support in the form of exceptional permission to borrow to fund day to day services.
1.2 The past year has seen the Council rise to significant new challenges, as well as continuing to deliver the effective services local people need and deserve, despite considerable pressures and resource constraints. The vital difference our services make for residents and communities has been recognised in a range of external reviews. From the positive assessment of our adult social care provision by the Care Quality Commission, to Ofsted’s praise for work on child protection and the Chartered Institute of Public Finance and Accountancy’s (CIPFA) endorsement of the organisation’s strong financial management and governance, time and again independent evaluations clearly demonstrate that we are doing all we can to make the best possible use of our resources for the benefit of East Sussex residents. The commitment of Members, staff and strong East Sussex partnerships is vital in delivering these achievements and continuing to progress our priorities, which are based on the evidenced needs of the county’s diverse communities.
1.3 We have also experienced growing demands on the organisation during this time as local needs continue to evolve and funding to meet those needs has come under ever greater strain. Demands on the statutory, need-led services for vulnerable children and adults which account for around three quarters of our budget, combined with ongoing cost increases across the Council, mean that the expenditure required to maintain services has grown further. These local trends are in line with national developments, but the impacts are especially stark here in East Sussex due to the demographic make-up of our population, the challenges in the local economy and the actions we have already had to take over many years to respond within increasingly stretched resources. These factors, combined with funding mechanisms which do not accurately reflect the level of need, particularly affect places like East Sussex, with high demand for social care from a much older than average population and significant areas of deprivation.
1.4 On top of these sustained pressures in our major service areas we have responded, at pace and in partnership, to Government’s reforms to the overall structure of local government, ensuring that we are in pole position to secure maximum benefits for our residents. Within one year of intensive activity, the groundwork has been laid for both local government reorganisation and devolution and the opportunities they will bring to the county. We and our local partners have done all that has been asked of us to map out a positive future direction for the county and we will continue to do all we can to secure the best possible outcomes for local people from these developments as they progress.
1.5 Changes to the structure of local government will not, however, address the basic mismatch between the level of demand for support and the resources we have available locally to provide it. The growing costs the Council faces have not been offset by sufficient additional income. The Government’s Fair Funding Review 2.0, whilst recognising an increased level of need in East Sussex, has resulted in a significant loss of funding, worsening our already substantial budget gap. Despite extensive lobbying by the County Council, with partners and across the local government sector, the Autumn Budget Statement provided no additional funding for local authorities and included updates which further increase our costs. The provisional Local Government Finance Settlement confirmed the impact of the significant changes to the way funding is allocated to councils. Independent modelling confirms a loss of almost £17m funding to East Sussex over the next three years compared to what the Council would have received under previous funding formulae. This translates to a cash loss of over £12m over the next three years, failing to fairly reflect the increasing costs and demand for statutory services which we need to meet locally.
1.7 We have done everything possible over the past decade and a half to live within our means, including making tough decisions to deliver over £156m in savings and service reductions since 2010. On top of this we have implemented strict spending controls, with senior management approval required for recruitment and all significant purchasing, and worked hard to transform services. As signalled in December, this report sets out a further £3.5m savings proposals, representing more difficult choices to be made over the next three years. But the scope for savings is now very limited and, having drawn on reserves in recent years to balance the books, those remaining cannot come close to bridging the funding gap. Council Tax would need to increase by over 19% to cover the coming year’s gap, and well beyond that in future years, which would require a referendum, and even if passed would place a significant burden on residents. Whilst we will maintain all our discipline in managing resources and containing spend, ultimately it is essential that national funding accurately recognises the real need for services in East Sussex, and the true cost of delivering them. Funding reforms have redistributed available funding, to the detriment of East Sussex, and there continues to be an urgent requirement for additional overall resources for local government to meet growing demands. We will continue, with determination and evidence, to make this case to Ministers on behalf of local people who ultimately bear the impact of sustained underfunding in their day to day lives.
1.8 Our latest assessment of our financial and operating context underpins our planning for 2026/27 and beyond, and our detailed Council Plan which covers what we will do and the specific targets we will use to judge our performance. Through our robust business planning process, Reconciling Policy, Performance and Resources (RPPR), the Council Plan, revenue budget and capital programme are fully integrated. In the context of the significant financial and service delivery challenges we are responding to, a clear and ongoing focus on our four priority outcomes and their supporting delivery outcomes is vital.These remain consistent, and our ability to deliver against these within the current context has been factored into the service and financial plans presented in this report, but is dependent on additional funding. We are maintaining our ambition for the county whilst also being realistic about matching our delivery plans with the resources we have. RPPR also ensures we have the demographic trends and performance information to monitor our progress throughout the year.
1.9 As well as relying on Government granting Exceptional Financial Support, the budget proposed in this report reflects the continued national reliance on Council Tax to fund ongoing pressures from rising demand, particularly in social care. Council Tax represents over 60% of our net budget. Government has continued the approach of expecting local authorities to apply an Adult Social Care Precept on bills to provide essential funding for care services. The level of Council Tax flexibility has also been maintained, and it is assumed in Government funding calculations that this will be taken by all councils. It is also expected that authorities requesting exceptional support will maximise local resources, including the full allowable Council Tax increase, first. Without additional Council Tax income we would see a reduction in our Core Spending Power (CSP) of almost 6% in the next three years. Even assuming Council Tax income at the maximum allowable level, spending power would increase by only 11% in that time, well below the national average of 15% and well behind the pace of demand and cost increases expected.
1.10 Given the financial position we face in the coming year and beyond, we do need to apply the allowable Council Tax increase as part of delivering a balanced budget. We have long highlighted to Government that individual authorities’ ability to raise Council Tax is unrelated to need for services and is particularly problematic for areas such as East Sussex with high need for social care services, but where capacity for local people to pay more to support these services is limited. Further detail on the revenue budget position is provided at section 5.
1.12 Although the year ahead will undoubtedly have many challenges, we continue to be hugely optimistic about the capacity of the people, communities and organisations in East Sussex to work together to find the best possible way forward. The coming months will also bring some certainty about structural change. We will have significant opportunities to help shape future democratically-led organisations which reflect the unique needs, assets and aspirations of this vibrant county. Through this once in a generation change we will continue to press Government, individually and through our networks and partnerships, to make the fundamental reforms needed to put more control and choice in the hands of local people and leaders and enable better use of the resources available locally. We will also continue to highlight the consequences of funding shortfalls, now and in the future, for people, communities and businesses in the county, and for the delivery of national priorities.
1.13 This report sets out:
2 National and Local Context
2.1 Since the last report to Cabinet in December there have been further national policy developments we need to take into account in our planning for the coming year and beyond:
2.2 National economic outlook and Government spending plans: Since the Autumn Budget Statement on 26 November, which was accompanied by new national economic forecasts from The Office for Budget Responsibility (OBR), there have been further developments in the economic outlook. Latest figures from the Office for National Statistics showed that the economy grew by 0.3% in November 2025, driven by an increase in industrial output and services and increased certainty following the national Budget. Inflation, as measured by the Consumer Prices Index (CPI) fell further than expected to 3.2% in the year to November 2025, down from 3.6% in October. The Bank of England cut interest rates from 4% to 3.75% in December, the lowest level since February 2023, following the sharper than expected fall in inflation, but indicated that any further reductions were likely to be gradual. The Chancellor has set 3 March 2026 as the date of the Spring Budget Statement and has commissioned updated OBR forecasts to be released alongside it.
2.3 Local government funding: The provisional Local Government Finance Settlement, received on 17 December, provided the first multi-year settlement for councils in a decade. The settlement translated the policy intentions outlined in November’s finance policy statement and Fair Funding Review (FFR) 2.0 consultation response into detailed funding allocations for individual authorities, confirming for the first time exactly how specific councils are impacted by significant changes to the distribution of funding. Overall, the provisional settlement indicated that Core Spending Power (CSP) would increase by an average 15% for local authorities in England over the three year period, based on the presumption that all councils will levy the maximum increase in Council Tax. As previously indicated, the Council Tax referendum limit was maintained at 3% and the Adult Social Care precept at 2% and this is the intention throughout the settlement period. Total CSP for local government in 2026/27 was confirmed as £77.7bn, up from £73.5bn in 2025/26, including Council Tax income. Grant funding was allocated largely in line with the FFR 2.0 methodology with the exception of a small number of specific grants, transitional arrangements and the continuation of the Recovery Grant. The FFR 2.0’s significant negative impact on funding for East Sussex was confirmed, with well below average increases in CSP despite the high levels of need for services in significant parts of the county and growing demand which is not reflected in the allocations the Council received. We have responded robustly to the Ministry of Housing, Communities and Local Government’s (MHCLG) consultation on the provisional settlement which closed earlier in January. The detailed implications of the provisional finance settlement announcements for the Council’s MTFP are set out in section 5.
2.5 Children’s Services: In December the Department for Education (DfE) announced investment of £3bn to fund an expansion of specialist places in mainstream schools for children with special educational needs and disabilities (SEND) across the country, with allocations to local areas for 2026/27 to be made in the spring. This comes ahead of the Schools White Paper, due in early 2026, which is expected to set out significant reforms to the SEND system with a focus on inclusion in mainstream settings. All local authorities are being provided with advisers to support the application of learning from national SEND support programmes. Government has also confirmed community-based early intervention for SEND support through Family Hubs. Councils are being tasked with recruiting a dedicated SEND practitioner in every hub to provide direct, family-facing support. The Budget announced that from 2028/29 the Government would cover the costs of SEND incurred from that financial year and beyond. However, there was no funding announced to support the current SEND deficit position. By the end of the financial year 2027/28, the national SEND deficit is estimated to be in the region of £14bn, which it is currently expected by Government that local government will need to address. The financial risk for SEND remains.
2.6 DfE has also launched a consultation on the powers and structure of a new national Child Protection Authority (CPA), intended to provide national leadership and oversight as part of a shift towards a more proactive multi-agency child protection system, linked to the significant social care reforms being introduced through the Children’s Wellbeing and Schools Bill. The CPA is expected to use data and intelligence to identify risks early, advise on policy at local and national level, and spread good practice, and it will absorb the work of the Child Safeguarding Practice Review Panel. The Department for Culture, Media and Sport has launched a National Youth Strategy, a 10 year plan outlining cross-Government support for young people aged 10 to 21, and up to 25 years for those with SEND. The strategy includes £500m investment in youth facilities and activities, with a focus on deprived or under-served areas, and to widen access to youth workers and other trusted adults. It also includes plans to strengthen youth services through improving local partnerships, better information sharing, and digital infrastructure.
2.7 Adult Social Care and Health: A National Plan to End Homelessness was published in December by MHCLG, setting out a cross-Government approach to preventing and addressing homelessness and rough sleeping. The strategy sets out roles and responsibilities across central and local government and wider public services, including services such as public health, the NHS, adult and children’s social care, the police, jobcentres, prisons and immigration services. Every council with housing responsibilities will be required to publish an action plan to accompany their local homelessness strategy, which should include local targets aligned with the metrics in the new Local Outcomes Framework. In addition, new legal duties will be placed on key public services to identify, act and collaborate to prevent and address homelessness. In relation to social care support, Government intends to review and update the relevant areas of the Care Act 2014 statutory guidance, particularly in relation to councils’ safeguarding responsibilities and how they should act on these to support people at risk of homelessness and rough sleeping. The strategy also commits that, by summer 2026, a cross-government action plan will be developed to reduce the proportion of care leavers under 25 experiencing homelessness. The East Sussex Housing Partnership recently developed a shared housing strategy, which reflects the priorities in the national plan. The partnership is now developing an action plan for the next 12 months, which will support the implementation of the national plan locally.
2.8 As part of a new Violence Against Women and Girls (VAWG) Strategy, launched in December, Government announced an uplift of £19m to national funding for councils to support delivery of the Domestic Abuse Safe Accommodation Duty. The VAWG Strategy focuses on prevention and tackling the root causes of abuse, including new approaches to education, additional support for young people at higher risk and a review of the legal framework for domestic abuse to ensure it properly represents adolescents’ experiences.
2.9 Transport and environment: Allocations of active travel funding from a £626m national package announced as part of the Government's Spending Review in June were confirmed by Active Travel England in December.East Sussex County Council (ESCC) has been allocated £3.38m for active travel over the next 4 years. Allocations of road maintenance funding for 2026/27 were confirmed in December. ESCC was allocated funding of £21.7m, in line with our previous planning assumptions, with a further £25.3m in 2027/28 and £27.4m in 2028/29. This has been included within the grant funding available to support our planned highways capital programme. The funding allocations were issued in a format aligned with the new Combined County Authority (CCA), and the implications of this approach for future funding and governance will need to be fully understood.
2.10 The Planning and Infrastructure Act gained Royal Assent in December. MHCLG has also launched a consultation on proposed significant further changes to the National Planning Policy Framework (NPPF) which aim to support delivery of the Government’s house building targets. The proposed changes aim to optimise land use through well-designed, higher-density development, simplify biodiversity rules for smaller sites and fast-track housing projects that meet national standards for energy efficiency. The revised NPPF separates out policies for plan-making and decision-making. The changes are designed to make planning policy easier to use, underpin the development of faster and simpler local plans, and be more directive of decision-making in support of both appropriate housing and commercial development.
2.11 Looking ahead, the coming year is likely to see further significant policy developments and reforms affecting ESCC services. Implications for the Council will continue to be factored into our ongoing planning through RPPR.
3 Council Plan
3.1 The draft Council Plan is attached at Appendix 1. The Council Plan continues to be built on the Council’s four overarching priority outcomes: driving sustainable economic growth; keeping vulnerable people safe; helping people help themselves; and making best use of resources now and for the future. Making best use of resources now and for the future is the priority test through which any activity must pass. The remaining three priority outcomes guide our activities, direct our resources and are reflected in our Council Plan activities and targets. The priority outcomes are supported by 21 delivery outcomes which were agreed by Cabinet as part of the June State of the County report.
3.2 The Council Plan is aligned to the MTFP and covers the same three-year period of 2026/27-2028/29. The Council Plan includes details of the key activity that we need to take forward over this period to support the delivery of the priority outcomes. Business planning for this period is particularly challenging as we need to respond to national policy reforms at a time when we are facing both an increase in demand for services and a real-term reduction in funding. There are also likely to be changes in how services are delivered resulting from the creation of the Sussex and Brighton Combined County Authority and local government reorganisation over this period. We have reviewed and updated the activity in the Council Plan based on the latest information. The plan reflects the changes that we expect to take place and will continue to be updated ahead of publication based on the latest available information. It should be noted that the Council Plan only includes planned activity for 2028/29 that will continue under any new unitary authority.
3.3 Clearly defining the outcomes we wish to achieve and monitoring our success in delivering these outcomes for the county’s residents, communities and businesses is critical. The Council Plan contains the targets and milestones used to judge our performance against our priority outcomes. The Cabinet and County Council actively consider performance during the year and may decide to adjust targets to reflect any changed circumstances. We have reviewed and updated our targets where necessary, ensuring these are both realistic and reflect the best performance we can deliver with the resources available to us. We also keep track of a wide range of key data about East Sussex and related to our priority outcomes. These help us to assess our impact more fully and respond appropriately when we need to do so. Key data will be monitored annually as part of the State of the County report.
3.4 The Council Plan is still a work in progress until final budget allocations are made and firm targets can be set. It will be published in March 2026 and refreshed in July when final performance outturn figures for 2025/26 are available. Authorisation is sought for the Chief Executive to make final changes pre and post publication in consultation with Lead Members as appropriate.
4 Progress with Council Plan and Budget 2025/26 since quarter 2
4.2 Average Attainment 8 score for state funded schools – provisional results for the academic year 2024/25 have been released and these suggest that the final result may be below target for the year. The provisional result for East Sussex is 43.0, against our target of 44.0. The provisional result for England is 45.9. This measure will be reported as amber in quarter 3. Final data for this measure will be issued by the Department for Education early in 2026 and reported in the quarter 4 monitoring report.
4.3 The average Attainment 8 score for disadvantaged pupils – provisional results for the academic year 2024/25 have been released and these suggest that the results may be below the target for the year. The provisional result for East Sussex is 30.3 against our target of 30.5. The provisional result for England is 34.9. This measure will also be reported as amber in quarter 3. Final data for this measure will be issued by the Department for Education early in 2026 and reported in the quarter 4 monitoring report.
4.4 There is an increasing complexity of need amongst people accessing support, with demand for services exceeding pre-pandemic levels and continuing to increase. Some examples include:
· There has been a 6.9% increase in assessments (Care Act, Carers, Continuing Health Care, Occupational Therapy and Sensory) completed between January and November 2025 compared to the same period in 2024, and a 22.2% increase compared to the same period in 2019 (pre-Covid).
· Safeguarding enquiries for adults (S42) have increased by 2.2% when comparing January to November 2025 to the same period in 2024. Safeguarding enquiries completed have increased by 80.6% when compared to the same period in 2019.
· Contacts to our Health and Social Care Connect Access are continuing to increase, with a 3.5% increase when comparing January to November 2025 to the same period in 2024, and a 23% increase when compared to January to November 2019 (17,284 more contacts).
· There has been a 3.8% increase in people receiving Long Term Support when comparing a snapshot on 30 November 2025 to the same point in 2024, and a 11.5% increase compared to the pre-pandemic snapshot on 30 November 2019.
4.5 There is currently no significant change to the projected quarter 2 revenue budget forecast.
5 Revenue Budget, Pressures and Savings 2026/27
5.1 The provisional Local Government Finance Settlement published on 17 December 2025 has confirmed the assumptions in our initial modelling of the Fair Funding Review 2.0 (FFR 2.0). As anticipated, the changes to formulae have significantly reduced the Council’s share of settlement funding, now known as the Fair Funding Assessment (FFA), which will reduce by £12.6m over the settlement period. As a result, the Council’s non-Council Tax Core Spending Power (CSP) will reduce by 5.8% by 2028/29. The change in grant funding from 2025/26 to 2026/27 is cash neutral, but with inflation currently between 3% to 4%, represents a significant reduction in real terms.
5.2 This loss of funding is driven by several key factors in the new funding methodology: the impact of council tax equalisation; the absence of a metric that reflects the significant proportion of residents aged over 85; the limitations of using median wages as a proxy for the labour costs borne by the Council; and the Government’s decision, announced with the Policy Statement, that rurality was to be removed as a factor from all but the ASC needs formulae. This is compounded by the continuation of the Recovery Grant (which has been top-sliced form the overall quantum to be paid to qualifying authorities). These changes fail to capture the true cost pressures in delivering statutory services in a county with high social care demand and a dispersed population, with limited opportunities to raise income locally.
5.3 When including Council Tax, CSP increases by 11.0% from 2025/26 to 2028/29. This is significantly below the national average of 15.1% and far short of the scale of cost increases that the Council has incurred in recent years. For example, the net budgets for ASC and Children’s Services increased by 40% and 54% respectively in the three-year period between 2022/23 and 2025/26.
5.4 The impact of the settlement on the Council’s CSP is set out in the table below:
|
Core Spending Power – ESCC |
2025/26 (£m) |
2026/27 (£m) |
2027/28 (£m) |
2028/29 (£m) |
|
Revenue Support Grant (RSG) |
103.5 |
94.3 |
113.0 |
105.7 |
|
Baseline Funding |
81.4 |
87.6 |
89.6 |
91.4 |
|
Local Authority Better Care Grant |
26.9 |
26.9 |
0.0 |
0.0 |
|
Fair Funding Assessment |
211.8 |
208.8 |
202.6 |
197.1 |
|
Families First Partnership (within Children, Families and Youth Grant) |
3.5 |
6.7 |
6.7 |
5.7 |
|
Homelessness, Rough Sleeping and Domestic Abuse Grant |
1.4 |
1.4 |
1.4 |
1.4 |
|
Total non-Council Tax (CT) Core Spending Power |
216.8 |
216.8 |
210.7 |
204.2 |
|
Council Tax Requirement* |
394.5 |
419.4 |
445.9 |
474.1 |
|
Total Core Spending Power |
611.2 |
636.2 |
656.6 |
678.2 |
|
Cumulative non-CT Core Spending Power (% Change) |
- |
0.0% |
-2.8% |
-5.8% |
|
Cumulative Council Tax Requirement (% Change) |
- |
6.3% |
13.0% |
20.2% |
|
Cumulative Total Core Spending Power (% Change) |
- |
4.1% |
7.4% |
11.0% |
*N.B. Figures are from MHCLG’s settlement publication so there will be roundings. Council Tax Requirement shown will differ slightly from figures in the ESCC MTFP due to local projections.
5.5 In addition, the settlement introduces a consolidation of several specific grants into new, simplified funding streams which, while simplifying administration, creates uncertainty over future allocations and flexibility. A detailed comparison of the grants rolled into the Fair Funding Assessment and Consolidated Grants is set out in Annex 2 of Appendix 2.
5.6 Despite the challenge of ongoing service pressures, particularly in social care, and a growing deficit, compounded by the impact of FFR 2.0, the Council continues to make necessary investments to meet residents’ needs. Following an increase of £54.9m in 2025/26, a further £71.7m investment is planned for 2026/27, against additional funding of just £21.2m and savings of £6.3m, leaving an annual unfunded deficit of £44.2m and an underlying deficit of £55.6m after accounting for the one-off reserves in 2025/26. Departments have been asked to identify savings and efficiencies to help close this gap, but the scope for reductions is extremely limited after more than a decade of sustained cuts to services:
|
Summary of Budget Growth and Funding 2025/26 and 2026/27 |
2025/26 |
2026/27 |
|
(£m) |
(£m) |
|
|
Non-Pay Inflation |
25.1 |
19.5 |
|
Pay Awards |
6.4 |
5.9 |
|
Service Investment: |
|
|
|
Adult Social Care |
7.5 |
18.9 |
|
Children’s Services |
9.4 |
22.8 |
|
Other service budgets |
4.9 |
3.8 |
|
Other corporate budgets |
1.6 |
0.8 |
|
Total Budget Growth |
54.9 |
71.7 |
|
Council Tax |
(25.8) |
(21.5) |
|
Business Rates (within the Fair Funding Assessment from 2026/27) |
(0.5) |
0.0 |
|
Government Grants (within the Fair Funding Assessment from 2026/27) |
(15.3) |
0.0 |
|
Impact of FFR 2.0 on non-Council Tax CSP |
0.0 |
0.3 |
|
Total Additional Funding |
(41.6) |
(21.2) |
|
Savings |
(16.2) |
(6.3) |
|
Annual Budget Deficit |
(2.9) |
44.2 |
|
Deficit carried forward from previous year |
14.3 |
11.4 |
|
Total Budget Deficit |
11.4 |
55.6 |
|
One-off use of reserves |
(11.4) |
0.0 |
|
Budget Deficit |
0.0 |
55.6 |
Savings
5.7 As set out to Cabinet in December 2025, in light of the serious financial position, departments have undertaken work to identify how any further savings could be delivered as part of work to address the funding gap and to put the Council in a position to set a balanced budget for 2026/27. The approach taken by each department was outlined in more detail in the December report and recognised the limited scope for further service reductions after a decade and a half of savings which have removed or scaled back most discretionary functions and reduced supporting services to a minimum. After many years of service reductions, transformation and efficiencies, and with ongoing growth in demand for support, there is very limited opportunity to make further savings whilst still meeting our statutory duties and basic operating requirements. There will also be considerable demands on the organisation over the coming year to deliver major national reforms.
5.8 In total, potential further reductions of £3.5m have been identified across all departments. Added to those set out earlier last year this means a total of £8.0m savings have been identified for the period 2026/27-2028/29, with £6.3m proposed for delivery in 2026/27. The detailed proposals are set out at Appendix 4a. The provisional Local Government Finance Settlement has not removed or reduced the requirement to identify savings wherever we can, given the legal requirement to balance the budget. Given the hard decisions already made, and current pressures on services, additional savings are expected to have further significant impacts on our residents, partners and staff, as well as affecting the organisation’s capacity to respond to new demands and transform services. These are not proposals we would wish to make, but at this point there are no desirable options.
5.9 It is not the purpose of the budget setting meeting to take decisions on proposed savings. Full Council sets the budget for the Council, and in so doing determines the allocation of resources to each of the Council’s service areas and essentially sets financial limits within which the Council must operate. The budget does not determine how particular services are delivered and, in setting the budget, Full Council does not take decisions on specific proposals and cannot direct or require the Executive to expend money in a particular way.
5.10 All savings proposals identified will be taken forward through our usual governance, decision making and HR processes. Progressing potential savings will entail consultations, in some cases with the public, and in others with our staff on restructures and potential redundancies. In some instances it has been necessary to begin these processes already in order to be in a position to implement agreed changes ahead of the new financial year and deliver a full year saving to support the budget position. Decisions will be taken as required on individual savings following consideration of the results of any consultations and all other relevant considerations.
5.11 The proposals set out, if implemented, go only a small way towards closing the substantial funding gap but make an important contribution to the Council’s financial sustainability. As reported to Members throughout 2025/26, the Council continues to face significant cost and demand pressures, resulting in a large projected in-year service overspend which will require a further unplanned draw from very depleted reserves. In an effort to mitigate the overspend and to enable the Council to balance its budget for the year ahead, measures have been taken in year to reduce spend. These have been, and will continue to be, taken in accordance with the Council’s decision-making framework.
5.12 Across all departments any opportunities to maximise income are considered on a regular basis. This includes pursuing opportunities to realise income from our assets, however planned income from the disposal of any surplus assets is already factored into the capital programme. We will continue to maximise these returns and minimise the costs of office and other accommodation and to review all other sources of income.
6 Robustness and Reserves
6.2 The current reserves position is summarised in the table below. Total service and strategic reserves are projected to be £28.9m on 1 April 2026 and reflect draws to balance the budget and mitigate the overspend in 2025/26. This compares with a deficit of £55.6m in 2026/27. The projected balances at 1 April 2029 reflect further projected draws from reserves but do not assume any further reserves will be used for budget stabilisation:
|
Reserves Balance (£m) |
Balance at 1 Apr 2025 |
Estimated balance at 1 Apr 2026 |
Estimated balance at 1 Apr 2030 |
|
£m |
£m |
£m |
|
|
Earmarked Reserves: |
|
|
|
|
Held on behalf of others or statutorily ringfenced |
25.5 |
21.2 |
19.9 |
|
Named Service Reserves |
|
|
|
|
Waste Reserve |
19.8 |
14.7 |
7.4 |
|
Capital Programme Reserve |
9.1 |
- |
- |
|
Insurance Reserve |
7.7 |
3.7 |
3.5 |
|
Subtotal named service reserves |
36.6 |
18.4 |
10.9 |
|
Strategic Reserves |
|
|
|
|
Priority Outcomes and Transformation |
5.2 |
4.4 |
1.9 |
|
Financial Management |
11.3 |
6.1 |
3.3 |
|
Subtotal strategic reserves |
16.5 |
10.5 |
5.2 |
|
Total Earmarked Reserves |
78.6 |
50.1 |
36.0 |
|
|
|
|
|
|
General Fund Balance |
10.0 |
10.0 |
10.0 |
|
|
|
|
|
|
TOTAL RESERVES |
88.6 |
60.1 |
46.0 |
6.3 In recent years, the use of reserves to cover budget deficits and overspends (which includes a further projected £12.2m to cover the in-year 2025/26 overspend reported at Quarter 2), means the Council has had to abandon its usual approach of maintaining reserves to help future proof Council services from unforeseen risks. The forecast balance of £10.5m remaining in strategic reserves at 1 April 2026 is the only flexibility the council will have left to mitigate in year pressures or volatile expenditure.
6.4 In addition to reserves, there is also a General Fund (unallocated reserve) balance of £10.0m, aligned to CIPFA best practice, plus a general contingency within the base revenue budget equal to £6.7m for 2026/27, to cushion the impact of unexpected events and emergencies in year. This general contingency is set at 1% of net revenue expenditure (NRE) less Treasury Management. For 2026/27, the General Fund and contingency total £16.7m, which represents 2.41% of NRE.
6.5 In addition to the reserves position set out above, Members should note the significant accumulated deficit in the Dedicated Schools Grant (DSG) relating to SEND. This deficit is currently subject to a statutory override, meaning it does not appear in the Council’s usable reserves and is therefore not reflected in the figures presented above. However, the liability is real and represents a substantial future financial risk. The SEND deficit is forecast to be £20.1m on 1 April 2026, rising to £76.5m by 1 April 2028, when the statutory override is due to end. At that point, the Council will be required to recognise the full deficit on its balance sheet. While benchmarking shows that ESCC is in a better position than most authorities with SEND responsibilities, this will still have serious implications for the Council’s financial position and borrowing requirement, as the deficit will need to be funded alongside existing pressures.
6.6 In accordance with Section 25 of the Local Government Act 2003, the Chief Finance Officer (CFO) has a legal duty to report on the adequacy of reserves and the robustness of estimates when setting the budget. Given the current financial position and the significant depletion of service and strategic reserves, the CFO considers the remaining reserves to be at the absolute minimum level required to safeguard the Council against unforeseen risks and volatility. Any further draw on reserves to support the planned revenue budget would compromise the adequacy of reserves and leave the Council exposed to an unacceptable level of financial risk. Consequently, no additional use of reserves can be recommended to bridge the budget gap for 2026/27, so the only recommended option to set a balanced budget will be the flexibility granted under the government’s Exceptional Financial Support (EFS) framework.
6.7 Details of the reserves held, and the CFO Statement on Reserves and Budget Robustness, are set out in Appendix 6.
7 Balancing the budget and Exceptional Financial Support
7.1 The Council is legally required to set a balanced budget under the Local Government Finance Act 1992. This requires the Council to make estimates of gross revenue expenditure and anticipated income, leading to a calculation of a budget requirement and the setting of an overall budget and Council Tax. The amount of the budget requirement must be sufficient to meet the Council’s legal and financial obligations, ensure the proper discharge of its statutory duties, and lead to a balanced budget. The Council should be satisfied that the proposals put forward are a reasonably prudent use of resources in both the short and long term, and that the interests of both Council Taxpayers and ratepayers on the one hand and the users of Council services on the other are both taken into account. Failure to set a balanced budget would oblige the Section 151 Officer (the CFO) to issue a Section 114 report.
7.2 The Government’s November 2025 policy statement confirmed that the EFS framework remains available to councils facing exceptional financial pressures and to avoid the need for the CFO to issue a Section 114 report. EFS provides flexibility through capitalisation directions, allowing specified revenue expenditure to be treated as capital. This enables councils to use borrowing or capital receipts to meet immediate pressures without breaching statutory requirements to set a balanced budget. The removal of the previous 1% borrowing premium improves the affordability of such directives. Councils must demonstrate a credible plan for financial sustainability and safeguard any community and heritage assets.
7.3 For 2026/27 the Council is facing an unfunded revenue gap of £55.6m. Whilst the Council has some reserves, the use of these at this stage would expose the Council to an unacceptable level of financial risk. Therefore, to address this position, the Council has submitted an indicative request for up to £70m of capitalisation to MHCLG. This includes a £12.5m contingency, which has been earmarked to cover emergent financial pressures, as well as investment aimed at bringing the Council back into financial balance over the MTFP period. Any use of this fund will be subject to robust internal controls and be supported by a robust business case demonstrating a clear and measurable return on investment that contributes to financial recovery and long-term sustainability. This approach ensures compliance with the principles of the EFS framework, safeguarding resources while prioritising investments that strengthen the Council’s financial position.
7.4 The statutory basis for capitalisation directions is set out in Section 16(2)(b) of the Local Government Act 2003. Given the unfunded deficit and lack of strategic and service reserves, if MHCLG do not grant the capitalisation request the Council will not be able to balance the 2026/27 budget. This situation, in the absence of other measures, would trigger the duty on the CFO to issue a Section 114 report.
7.5 Capitalisation does not provide additional funding; it is a temporary measure to enable councils to meet statutory duties while implementing sustainable solutions. If financed through borrowing, rather than the use of capital receipts, the financing cost will fall on the revenue budget over a 20-year period starting in 2027/28. For example, a £70 million direction used in full would result in an annual cost of approximately £2.9m in Minimum Revenue Provision (MRP) and £3.7m in interest, totalling £6.6m per annum. Given ESCC’s limited asset base, it is anticipated that the whole capitalisation will need to be financed by borrowing, with any future capital receipts continuing to be used to reduce the borrowing requirement in the Council’s 10-year capital programme, in line with the council’s capital and treasury management strategies.
7.6 Members should note that this proposed budget is therefore contingent upon the Government granting a capitalisation direction of £70m under the EFS framework. This permission is essential to enable the Council to meet its statutory duty to set a balanced budget for 2026/27 without further depletion of reserves, which are already at the minimum level required to safeguard against financial risk.
7.7 The capitalisation request includes provision for a contingency to manage emergent pressures and targeted investment to support financial recovery over the Medium Term Financial Plan (MTFP) period. While this measure provides short-term stability, it does not represent additional funding and will result in future borrowing costs that will need to be managed within the Council’s financial strategy. Members are therefore asked to approve the budget on the basis that this capitalisation direction is secured and to recognise the significant implications on future years.
7.8 The MTFP has been updated for regular calculated adjustments, identified savings, the impact of FFR 2.0, and the additional year of 2028/29, with the movements summarised below. This MTFP is presented as balanced for 2026/27 on the basis the capitalisation directive will be granted. The MTFP is also presented in the context that local government reorganisation will impact from 2028/29. As such, year three of the MTFP is to be taken as indicative at this stage. The full MTFP is provided at Appendix 2:
|
Medium Term Financial Plan Summary |
2026/27 |
2027/28 |
2028/29 |
Total |
|
(£m) |
(£m) |
(£m) |
(£m) |
|
|
Annual |
Annual |
Annual |
Cumulative |
|
|
Council February 2025 DEFICIT |
25.916 |
18.731 |
0.000 |
44.647 |
|
CARRY FORWARD OF 2025/26 DEFICIT |
11.449 |
|
|
11.449 |
|
Total After Carry Forward |
37.365 |
18.731 |
0.000 |
56.096 |
|
Normal Updates |
(14.255) |
(5.602) |
5.444 |
(14.413) |
|
Pressures added to / (removed from) the MTFP |
35.572 |
5.877 |
31.457 |
72.906 |
|
Savings |
(3.051) |
(0.464) |
(0.008) |
(3.523) |
|
BUDGET DEFICIT |
55.631 |
18.542 |
36.893 |
111.066 |
|
Exceptional Financial Support (EFS) |
(70.000) |
70.000 |
|
0.000 |
|
Cost of Financing EFS |
1.833 |
4.714 |
0.058 |
6.605 |
|
Contingency |
12.536 |
(12.536) |
|
0.000 |
|
BUDGET DEFICIT AFTER EFS |
0.000 |
80.720 |
36.951 |
117.671 |
8 2026/27 and beyond
8.2 In the absence of further funding or major statutory reforms, it is anticipated that further EFS will be required in 2027/28 to enable the Council to set a balanced budget. While EFS provides the ability to meet need in the short term, reliance on this mechanism in future years will increase the Council’s borrowing requirement and result in higher debt financing costs over the MTFP period. In addition, the national requirement to recognise and address the accumulated SEND deficit from April 2028 will add further pressure to the already limited reserves, compounding the financial challenge.
8.3 Local government reorganisation, expected to take effect from 2028/29, is not anticipated to resolve the underlying financial issues facing the Council. While structural changes may deliver efficiencies over the longer term, they will not address the immediate funding gap or the growing demand for services. As such, even with reorganisation, significant financial challenges are expected to continue beyond the current MTFP period.
9 Council Tax requirement
9.1 The provisional Local Government Finance Settlement provided the ability for the Council to increase Council Tax by a maximum of 5% (3% council tax and 2% social care levy) without a referendum. Considering the financial position, it is proposed that this additional flexibility be included.
9.2 It is therefore proposed that the County Council be asked to consider increasing Council Tax in 2026/27 by 4.99% (2.99% Council Tax plus 2% social care levy). If agreed, the proposed band D charge for 2026/27 would therefore be:
|
Changes in Council Tax |
£ per house at Band D |
|
|
Council Tax Annual |
Council Tax Weekly |
|
|
Band D 2025/26 |
1,867.05 |
35.90 |
|
Council Tax increase* |
93.24 |
1.80 |
|
Indicative Band D 2026/27* |
1,960.29 |
37.70 |
* Council Tax is rounded to allow all bands to be calculated in whole pounds and pence.
9.3 The formal precept notices for issue to the district and borough councils will follow the formal recommendation by County Council. The current position is subject to change following final figures on Collection Fund and Business Rates provided by borough and district councils at the end of January 2026. The draft precept calculation is therefore set out at Appendix 5.
10 Capital Programme
10.2 The current approved programme has now been updated to include normal updates in accordance with Capital Strategy principles and additional investment proposals considered by the Corporate Management Team. The planning horizon has also been extended to 2035/36 to maintain the 10 year programme.
10.3 It is proposed that a capital programme of £331.0m (net of the slippage risk factor) be set over the MTFP period from 2025/26 to 2028/29 (current year plus three), requiring £80.2m of borrowing, with the remaining years to 2035/36 being indicative to represent longer term planning. The update to the capital programme can be found at Appendix 8a.
10.4 The Council’s 20-year Capital Strategy recommended for approval can be found at Appendix 8c. The Capital Strategy covers the period 2026/27 to 2046/47 and has been updated to reflect emerging risks, principles and corporate priorities. The strategy has been revised to recognise investment in digital and artificial intelligence (AI) being part of basic need, and confirmation that there will be no change in the approach to using capital receipts in light of EFS.
10.5 Within the Highways programme, several roads scheduled for inclusion in the 2026/27 resurfacing programme are already showing early signs of deterioration and may require intervention before the end of the current financial year. While the extent of this need will depend on winter weather conditions, it is recommended that £1.5m from the 2026/27 capital programme be earmarked for potential early use, ensuring the Council can act promptly should conditions worsen – as is consistent with previous years’ practice. Cabinet is asked to approve this spend in advance.
11 Engagement Feedback
11.1 The views of the Scrutiny Committees are set out in Appendix 7. The views of partners and business ratepayers are also included in the appendix. The outcomes of engagement with Trades Unions and young people will be made available to Members once the meetings have been held and comments recorded.
12 Equality Duty Considerations
12.1 An initial Equality Impact Assessment (EqIA) of each of the revenue savings proposals has been undertaken to identify potential impacts on people sharing legally protected characteristics and is set out in Appendices 4a and 4b. Where a detailed EqIA has been identified as required and completed it is available to Members. Further EqIAs will be undertaken where appropriate when individual proposals are being considered.
12.2 All proposed capital spending has been subject to an initial equalities assessment to identify potential impacts on people sharing legally protected characteristics and to identify whether a detailed EqIA is required (including if one has already been completed or is planned). Where the need for a further equality assessment has been identified, this will be undertaken when individual proposals are being planned in more detail, to enable accurate analysis. A summary of the equality consideration of proposed capital spending is set out in Appendix 8b and where a detailed EqIA has been completed it is available to Members.
12.3 In considering the proposals in this report, Cabinet Members are required to have ‘due regard’ to the duties set out in Section 149 of the Equality Act 2010 (the Public Sector Equality Duty) as summarised in Appendices 4 and 8b. EqIAs are carried out to identify any specific adverse impacts that may arise as a result of proposals for people sharing legally protected characteristics and to identify appropriate mitigations. The full version of relevant completed EqIAs for capital projects and savings proposals are available on the Cabinet pages of the Council’s website. They can be inspected upon request at County Hall. Members must read the full version of the EqIAs and take their findings into consideration when determining these proposals.
12.4 Whilst the Cabinet is being asked to recommend, and subsequently the County Council asked to agree, the revenue budget and capital programme, the budget decision does not constitute final approval of what policies would be or what sums of money will be saved or spent under the service proposals. The recommendations in the report do not commit the Council to implement any specific saving or spending proposal. When the Executive come to make specific decisions on budget reductions or expenditure, where necessary, focussed consultations and the full equalities implications of doing one thing rather than another will be considered in appropriate detail. If it is considered necessary, in light of equalities or other considerations, it will be open to those taking the decisions to spend more on one activity and less on another within the overall resources available to the Council.
13.1 The Chief Finance Officer is delegated to approve all fees and charges and to report to Cabinet and County Council those set at a level above inflation; a reasonable inflation level with regard to the Consumer Price Index (CPI), Retail Price Index (RPI) and pay inflation. The inflation rates applied for 2026/27 are the actual rates at July 2025: 6.8% CPI and 6.5% RPI, and estimated pay inflation for 2026/27 is 2.5%. As such, it has been determined that fees increasing above 4% be reported. Appendix 9 is for noting and shows a schedule of the fees and charges approved at quarter 3 that have increased by more than 4%.
13.2 Within the RPPR process, discretionary fees and charges (as set by the Council) are reviewed by services and Finance to ensure that they are reasonable, comparable with other authorities and seek to cover the costs of service delivery, where possible. Some fees and charges are set by Government, other external bodies or frameworks for which we have no control. Fees and charges can be amended any time in the year, and services seek to maximise income through exploring options for additional fees and charges to be levied.
14 Conclusion
14.1 Factors beyond local control driving increased costs, and national funding reforms which have failed to recognise the growing needs of East Sussex’s population in funding allocations, mean our income is no longer sufficient to meet basic operating requirements. This is the case even after asking local people to continue to contribute through a Council Tax rise in line with Government assumptions. The recommendation to make a further increase is not made lightly, given that many household budgets continue to be under pressure, but it is essential given the funding gap we face. Support will continue to be available through local Council Tax Support Schemes for those residents eligible and we will continue to work with partners to signpost local people to sources of support with the cost of living, including access to benefits they may be entitled to.
14.2 Our tried and tested RPPR process will enable us to direct the substantial budgets we continue to deploy as effectively as possible towards priorities, in particular protecting services for the most vulnerable in our county as far as we can. We continue to invest significantly to maintain vital services and to ensure we capitalise on the opportunities presented by new technologies to get more from the resources we have. We will maintain our strong record of financial discipline and our focus on evidence-based approaches which maximise outcomes and make best use of resources.
14.3 Reliance on Exceptional Financial Support is unsustainable and will embed further costs for the future. In this context, and with significant reforms underway or awaited, our lobbying will continue to be vitally important. We will press for more overall funding for local government and service reforms that address the underlying issues of sustainability and limits on local flexibility, as well as improving outcomes wherever possible. We will ensure the hard choices having to be made, and the impacts these will have on local residents, business and communities, are heard loud and clear. We continue to keep all East Sussex MPs updated on the Council’s position and to seek their ongoing support with our lobbying; the most recent correspondence to MPs is attached at Appendix 10. We will continue to work with our local, regional and national partners to highlight the specific needs of East Sussex and to press for truly fair, sustainable funding that enables us to meet the requirements of our residents for essential support. Until this is delivered our medium term financial position will remain very serious and present significant risk to our ability to meet local needs in the future.
BECKY SHAW
Chief Executive