Uncertainty and risk

The Council faces significant unprecedented financial risk and uncertainty in 2025/26 due to the current and cumulative impact of the economic climate and increasing levels and complexity of demand. The level of financial risk and the uncertainty through funding and changes in legislation continues to be a significant challenge which must be managed.

The Medium Term Financial Strategy currently set aside growth funding of £11.988m to support demographic and specific known pressures in 2025/26.  Based on current forecasts at May 2025/Period 2 it suggests an additional £2.894mm growth above the allocation is included in forecasts reflecting the continued demand led pressures experienced across multiple services

Inflation is expected to peak at 3.7% at the end of Quarter 2 as a result of smaller reductions in household costs such as energy and water bills. However, recent interest rate cuts form part of a broader monetary policy response aimed at easing inflationary pressures. Stabilising global energy and commodity prices are also expected to lessen cost-driven inflation. Moreover, the Bank of England remains committed to its 2% inflation target, which continues to shape its policy decisions. Together, these factors are expected to contribute to a gradual reduction in inflation after the second quarter.

The impacts of the high inflation seen in the last three years are still impacting the Council in different ways and based on current forecasts at Period 2 2025/26 it shows an inflation pressure of £3.115m. Such pressures materialise in a number of different ways including:

• affecting the spending power of residents and particularly for those on lower incomes, their ability to pay for services, spending on discretionary services such as leisure, travel and house improvements and their ability to pay Council Tax, reducing our collection rates. This, in turn, could lead to an increase in the level of debt owed to the Council
• a potential increase in the number of people falling into the Council Tax Reduction Scheme. This would increase the financial pressure on the Council and reduce Council Tax collection.
• where contracts are coming up for retendering or renewal there is a very high risk that the inflation required will be greater than the current assumptions over the medium term
• there are payments for children’s carers and other in-house areas of increased inflation not covered by the inflation set aside. There is also an increased risk for those existing contracts that include inflation clauses linked to CPI or RPI, which will impact on contract negotiations adding to the financial pressure faced by the Council
• construction Industry – Build cost inflation has seen unprecedented increases recently as a result of the unique external factors such as the pandemic, increases in the cost of both materials and labour, together with a sharp rise in consumption. This has led to supply chain issues and delays to imported goods, all of which have made construction more expensive. Construction industry inflation peaked earlier this year and are now near zero whilst supply chain issues are also easing. This has seen a rebound in the construction industry generally with activity levels rising at the highest rate for over a year

The Council provides a bad debt provision against outstanding debt levels on an assumption they may not be collected in full. This moved adversely by £1.059m at the end of the 2024/25 financial year.

Collection rates for debt - Council Tax and Business Rates net collection was 95.05% and 97.07% at the end of March 2025 and has not returned to pre-pandemic levels. In addition, other income streams such as parking, commercial rent, and tenancy rents for former tenants in temporary accommodation clients continue to  present challenges and will continue for the medium term, as spending power is reduced by residents and businesses.

Recruitment and Retention – The Council continues to experience a shortage of suitably qualified and experienced candidates across local authorities in London, the South East and more widely.

Income Targets – The Council is reliant on income of circa £54m through a combination of sales, fees and charges and commercial rents income. The general economic conditions and challenging operating environment alongside the squeeze on household income due to the increased cost of living mean that people are spending less on goods and services that presents challenges to the Council.

Learning and Enterprise College Bexley – The College is funded through a combination of grants and enrolment fees. The grants are predominately funded on a payment by results basis. The College is also continuing to pursue income-generating opportunities and closely scrutinising the financial viability of its courses. The College achieved a surplus in 2024/25, a position which it aims to maintain in future years.

External Environment

Factors in the external environment that may influence the Medium Term Financial Strategy include anticipated government expenditure announcements. A thorough examination of these factors is provided below:

The withdrawal of winter fuel allowance affected health and social care for pensioners, who struggled to heat their homes over the winter of 2024/25. The Chancellors announcement on 09 June 2025, revealed that throughout the winter of 2025/26, all individuals over State Pension age in England and Wales with an income of £35,000 or below will receive a Winter Fuel Payment, benefiting around 9 million pensioners. Payments of £200 or £300 for households with someone over 80 will be made automatically, with no action required from pensioners. Those above the income threshold will have the payment collected via PAYE or Self-Assessment. The changes aim to ensure timely payments and better targeting of support for lower and middle-income pensioners, this will dramatically reduce the unprecedented increase in demand, particularly in social care and housing.

• safety valve  - The main cost pressure within the Dedicated Schools Grant relates to the High Needs Block which funds services for children and young people with special educational needs. In common with most other local authorities, Bexley has a significant deficit accumulated from past year’s High Needs overspends. Bexley is managing the financial pressures in this area through a Safety Valve agreement, approved by the Department for Education in March 2023.
  
  Subject to meeting conditions, the Safety Valve agreement will bring additional funding of £29.890m between March 2023 and March 2029, enabling additional investment in early intervention and contributing towards reduction of the accumulated deficit. The deficit at March 2025 was £12.991m. There was a faster than expected growth in demand in numbers of Education Health and Care Plans, together with unprecedented levels of expenditure on children not attending school, this has resulted in a higher level of deficit on the Dedicated Schools Grant than envisaged in Bexley’s Safety Valve agreement with the DfE. The accumulated deficit will reach around £23.884m by March 2026. If the current Statutory Override is not extended beyond that date the Council will not be able to fund the deficit, resulting in the need to apply for Exceptional Financial Support
• SEND - The spending review 11 June 2025 has stipulated that there will be an additional £760m to reform the SEND system - details will be set out in a schools White Paper in the autumn. Related funding matters (e.g. DSG override) will be incorporated into the local government funding reforms consultation
• the Department for Education is currently advising local authorities to assume a 3% yearly increase in High Needs Block funding from 2026/27 onwards. This rate of increase is likely only to cover inflation pressures. Demand is however anticipated to continue to rise rapidly, with the number of children and young people having a statutory Education Health and Care Plan expected to grow by around 10% a year under current regulations. The implication is continuing in-year deficits, likely to accumulate to around £51.350m by the end of the Safety Valve agreement in March 2029, despite attempts to limit increases through development of new mitigations. The deficit is expected to continue to grow in later years, potentially more quickly once there is no extra funding from the Department for Education, reaching £66.868m by March 2030
• on this basis the Dedicated Schools Grant presents a continuing challenge to the financial stability of Bexley and of the local government sector generally. Against this background, the Council awaits the outcome of the government’s promised reforms to the Special Educational Needs system
• the following table provides an overview of the projected accumulated deficit on the Dedicated Schools Grant. Projections are subject to continuing review of demand trends and impact of new mitigations under development, as well as any impact of the government’s pending reforms

Dedicated schools grant deficits (cumulative)

Weekly Food Waste Collections - As reported to Public Cabinet in January 2024, weekly food waste collections will come into effect for households from 1 April 2026, as required under s45A of the Environmental Protection Act 1990 (introduced by the Environmental Act 2021). Only 61% of flats and 1% of flats above shops, have a food waste recycling scheme. The Council will need to continue to ensure that all flats and flats above shops have access to a food recycling scheme by 1 April 2026. Central Government funding for the financial year 2025/26 will be provided by early summer 2025. This funding will be used to cover the recruitment of additional staff who will be deployed to assist with the transition to food waste collection from blocks of flats and flats above shops.

Extended Producer Responsibility (EPR) - Bexley received a provisional notice for an estimated EPR payment of £3.956m for financial year 2025/26. 

• from 2026, eco-modulated fees will be introduced that increase the cost for hard-to-recycle materials and packaging with greater environmental impacts to help local authorities find responsible solutions for the undesirable materials, for example investments in advanced recycling facilities
• deposit Return Scheme (DRS) -  The aim of the reform is to introduce a deposit on single-use drinks containers, which is refunded upon return of the container. The UK government has recently issued a policy statement and has agreed to a revised timeline to launch DRS in October 2027
• the Emissions Trading Scheme (ETS) - Will apply to Energy from Waste (EfW) facilities from 2028 and there will be a two-year phase-in period from 2026 to 2028. This additional tax will lead to an increase in the waste disposal cost across the industry as the cost which is not yet known will be passed from the waste processor on to local authorities and experts in the industry suggest that it will be substantial. The UK ETS will apply only to the processing of the fossil content of waste and will focus almost exclusively on CO2 emissions

Simpler Recycling in England - It is a requirement that Local Authorities in England must have in place by 31 March 2027 the service provision to collect soft plastics  packaging at the kerbside. As Bexley does not currently collect these materials and further investigation is required into how these can be collected, there will be additional costs associated with the collection and disposal and to investigate the impact and deliver the project. It is a requirement that Local Authorities in England must have in place by 31 March 2027 the service provision to collect soft plastics  packaging at the kerbside.

Key Policy and Legislative Changes – other legislative changes are in Appendix B.

Elements that could impact the Medium Term Financial Strategy include potential government policies and changes in legislation as set out below and in Appendix B.

Children's Wellbeing Bill  - This Bill is intended to cover children's wellbeing and the education system. It will:

• require free breakfast clubs in every primary school
• require local authorities to create, maintain and publish a register of all children (currently around 92,000) who are not in school (that is, educated at home or not educated full-time in school). Local authorities will also be required to provide support to home-educating parents
• require all schools to co-operate with the relevant local authority on school’s admissions, SEND inclusion and place planning
• require all schools (including academies) to teach the national curriculum
• bring multi-academy trusts (which run over 45% of state schools) into the inspection system to ensure greater transparency and fairness

The aim is creating a system which:

• works with the whole family so more children and young people can thrive in their family
• prioritises kinship care for children who cannot live safely with their parents
• supports children in care and care leavers to live healthy and happy lives
• provides a high quality of care, which all children deserve
• takes action to end excessive profit-making by care providers
• works effectively across agencies and empowers professionals working within

Resetting the Business Rates Retention System - The government confirmed in the policy statement, published on 28 November 2024 that it plans to reset the business rates retention system in 2026/27, this has been set out in further detail through the Resetting the business rates retention system: technical consultation and has the  potential of impacting Bexley adversely by £1.928m in 2026/27 (a conservative initial estimate) and £2.302m in 2027/28 and £2.687m in 2028/29. Key changes including increased business rates multipliers and the first reset since 2013, along with a revaluation in 2026. 

Changes proposed in the new system include:

• the move from two to five business rates multipliers - the government announced at Budget 2024 proposals to introduce more multipliers
• reduced and standard multipliers for Retail, Hospitality & Leisure, and a higher multiplier to fund this
• it has also announced an intention that this is revenue neutral for local government, anticipated to be like a Revaluation
• the turbulence from the reset itself, particularly as it will be the first reset since the system was set up in 2013

All of these pose significant risks and add to the difficulty of understanding the complex proposals in this consultation, the other reforms, and their impact on local authorities of all sizes. It is important that all future consultations set out the impact of proposals on individual local authorities and properties including high streets and designated areas such as enterprise zones.

This will take place over three steps, as follows:

• Step one – Use Valuation Office Agency (VOA) rating list to determine the total rateable value across each billing authority area. Each property will have one of five multipliers assigned to it, and this will form a gross rates payable position for each billing authority
• Step Two - Make two types of deductions to the billing authority area Gross rate Payable (GRP) position to reduce measurement of income for baseline purposes
  1. Accounting adjustments: Some rates will be repaid to businesses (appeals), other rates will never be collected (bad debt)
  2. Deductibles: Amounts to be retained by authorities in full which shouldn’t be redistributed
• Step Three - Apply percentage shares to Business Rates Baseline’s (BRBs) to apportion rates between billing authorities and their major preceptors. Major preceptors’ BRBs will be an aggregate of all their BA shares
  1. To note: Under reset proposals, BRBs will not include amounts deducted for business rates reliefs awarded

The Local Authority Funding Reform - A multi-year settlement, updated needs and resources assessments has the potential to significantly impact the Council. Separate to the business rates changes, there is a fundamental review of the needs and resources assessments that underpin the funding allocations to Local Authorities, alongside a review to simplify and reduce funding streams where possible as specified previously in this report. The reforms will have major implications for individual authorities’ funding allocations. More information on specific aspects of the reform that we need to conscious are as follows:

• Housing Formula - For relative needs there is no separate housing formula. Given the unique incidence of spend in London it would be preferable if this were a separate measure. There is a risk that if there is no separate formula for Housing this may result in lower funding for London Boroughs. However, any area that is excluded and favours an area will likely result in lower resources.  But there are so many variables to this e.g. what type of data used, the years used, their weighting and the level of funding attached
• Deprivation - Measures of deprivation that might be used in major formulae (specifically Foundation formula) for relative needs.  Indices of deprivation (IMD) may not accurately reflect deprivation in London, and it would help to include measures that consider living costs, including housing. Relying on IMD could lead to less funding for London Boroughs, and the recovery grant indicates IMD may not be a good measure for London. Using IMD data can create disparities, which will change over time. The key factor is how resources are allocated based on deprivation
• Area Cost Adjustment (ACA) - Significant changes are proposed to the ACA which considers regional differences. The new ACA is taking account of larger geographies greater than the individual local authority which may not reflect appropriate economic geographies. This is likely to negatively impact Bexley as the new formula will water down the previous benefit to London Boroughs. Significant changes to the ACA being implemented with little scrutiny, particularly changes to geography (individual Local Authorities) and down-playing of property cost may pose an unfavourable risk
• Children’s and Young people formula (CYP) - Lack of visibility on how the CYP formula is calculated (without seeing underlying data). London’s share has fallen from 20-25% to just 16% of new CSC prevention grant and of particular concern with regard to the needs assessment is the CYP formula changes that suggest a reduction London wide of c£1bn
• Equalisation - More detail is required on how equalisation will work (the interaction between needs and resources totals) so that we can take a considered view on the impact for Bexley, but for authorities with below average council tax levels or smaller than average tax bases, equalisation updates may see funding reductions.  But the extent of these will be dependent on so many other factors that there is no sight of at present.
• Adult Social Care - Lack of detail on Adult social care formula. A key issue will be weighting between working age and older adults (currently 60:40 older: younger, when spending is 46:54). All authorities face risks around formulae and data change

Contract Inflation

The Council spends a high level of its budget on supplies and services and third party payments (approximately 51.57% on average) as shown in the table below. This high level of expenditure gives rise to a risk for material contract value increases when contracts are due for renewal and inflation needs to be negotiated.

The table below sets out for 2025/26 the budget for expenditure on supplies and services and third party contracts by Directorate.

Budget for Supplies and Services and Third Party Contracts

Most of the Council's contracts for goods and services that span more than one year contain inflation clauses. Latest agreed inflation increases have been higher than current rates of inflation and provision set aside. This is an increasingly difficult position to maintain through the Medium Term Financial Strategy period and is still a risk.

Market conditions for new procurements are increasingly difficult and volatile. The specifications for all contracts coming up for renewal will need to be reviewed, changed and reduced to ensure that contracts can be delivered within the financial budget available. This will include the consideration of reduced requirements, innovative approaches to service provision, monitoring, and inflation such as Consumer Price Index minus a percentage, moving to alternative inflation indices and fixing the contract price with the evaluation based on what tenderers can offer for the available budget.

The Major (contracts with an annual value of between £0.250m to £1m) and Major Plus (contracts with an annual value of over £1m) contracts due to take place over the 2026/27 financial year are set out below. However, not all contracts will be renewed as this is dependent on service requirements.

Major contracts due for renewal in 2026/27 include Insurance Cover (Motor and Personal Accident & Property and Liability), Recycling Streams (Emptying of Bring Banks & Food Waste), Security patrols in parks and Open Spaces.

Major Plus Contracts due for renewal in 2026/27 include Public Health - Substance Misuse - Integrated Treatment System (Adults), ICT Technical Services and Environmental Enforcement.

Costs to the Council have increased as service providers are charging more for their services because of the higher costs they face including the Increase in Employers National Insurance Contributions. Employers are offering higher wages to attract job applicants, and this has resulted in prices for services rising. This will be more evident in some contracts and immediate steps must be taken by service areas to fully consider the effect this may have on individual requirements and to adjust specifications, both to ensure the new requirements are met and to minimise the financial effect it may have on the Council. There is a risk these increased contract costs will continue into the medium term.

The 2025/26 budget sets aside £5.045m for contract inflation, which represents 2.46% of the current budget on expenditure on supplies and services and 3rd party contracts. This budget has been fully allocated to services and at present as reported through Period 2 Budget Monitor, there is a reported inflation pressure of £3.115m

On 1 April 2025, the National Living Wage and National Minimum Wage rates changed as follows:

• National Living Wage – anyone aged 21 and over: £12.21 per hour (up 6.73% from £11.44)
• National Minimum Wage – workers aged 18-20: £10.00 per hour (up 16.20% from £8.60)
• National Minimum Wage – workers aged 16-17: £7.55 per hour (up to 18.00% from £6.40)
• It is unclear, at this time, what the impact will be for the Council, however it is expected that this will add to cost pressures

The Medium Term Financial Strategy currently sets aside contract inflation of £4.797m for 2026/27. There has been no change to the assumptions reported to Public Cabinet in February 2025. The forecasted cumulative impact of contract inflation between 2026/27 to 2029/30 is provided in the table below.

The contract inflation funding is a cash limit for the Council to stay within for 2026/27. There is still a significant risk that the Council will not be able to stay within the cash limit set, if the Council is unable to negotiate the inflation in the Major and Major Plus contracts as set out above, or other inflation pressures for non-contract spend is not contained. An increase in this provision will require saving, efficiency, and transformational changes to be identified within contracts or service standards to be reduced in year. As this will need to be through negotiation with providers it is not guaranteed this will be achievable.

Contract Inflation provision 2026/27 to 2029/30

To manage the contract inflation risk, contract inflation funding is held centrally and not allocated directly to services. Funding is only transferred to services when evidence is provided that it is required. This provides greater financial control and transparency and ensures the funding is used for the purpose for which it is allocated.

Pay Inflation

The increase in the National Living Wage and Employers National Insurance contributions from 13.80% to 15.00% and a reduction in the threshold from £9,100 a year to £5,000 a year, will impact on Council budgets

The financial impact of the Employments Rights Bill which will affect the council directly.

The Council works in a highly competitive market for the skilled staff that it needs to deliver its services and faces challenges in recruitment and retention across its workforce. For some roles, this market includes competition not only from other local authorities and public sector organisations but also the private sector. Many of these organisations are able to offer higher pay awards than the Council. Any widening of this pay gap or erosion of the Council’s competitiveness in the market, is likely to further impact on the recruitment and retention of key staff in its workforce.

The Council remains part of the National Joint Council (NJC) for Local government Services and the Greater London Provisional Council for negotiating pay award. Pay awards for the majority of the council’s staff at all levels are determined by these negotiations.

On 31 January 2025, the NJC Trade Unions submitted their 2025 pay claim for local government services (‘Green Book’) employees. The 2025 Pay Claim is an increase of at least £3,000 on all spinal column points, alongside other requests such as a clear plan to reach a minimum pay rate of £15 per hour, an extra day of leave and a reduction in the working week of two hours without loss of pay. The 2025/26 budget assumed an increase of approximately 2.60%. If the pay award exceeds this budgetary position this will create a new funding pressure.

The National Employers agreed by a majority to make the following one-year (1 April 2025 to 31 March 2026), full and final offer to the unions representing the main local government NJC workforce:

• with effect from 1 April 2025, an increase of 3.20% to be paid as a consolidated, permanent addition on all NJC pay points 2 to 43 inclusive and on all pay points above the maximum of the pay spine but graded below deputy chief officer
• with effect from 1 April 2025 an increase of 3.20% on all allowances (as listed in the 2024 NJC pay agreement circular dated 22 October 2024)
• with effect from 1 April 2026, the deletion of pay point 2 from the NJC pay spine
• The Medium Term Financial Strategy assumes a 2.60% in 2025/26 reducing to a 2.00% in 2026/27 and 2027/28

Pay Inflation 2026/27 to 2029/30 

As part of the local government finance settlement the Ministry of Housing, Communities and Local (MHCLG) confirmed that £515 million would be distributed to local authorities in 2025/26 to compensate for national insurance employer contribution rate increases Bexley received £1.635m. This covers the additional employers’ national insurance cost for Bexley but it the funding is not expected to continue into 2026/27.

Growth

A number of Council services face significant growth pressures resulting from demographic changes as well as increasing unit costs and despite the Medium Term Financial Strategy setting aside a higher level of demographic growth, the Council continues to see increased levels of demand and in some areas increased complexity of need. Planning assumptions are based on current best estimates but given the volatility of the services concerned seen since 2023/24, it is highly likely that demand will continue to increase and/or income reduce. The planning assumptions for these budgets have been reviewed in light of this and will create a further pressure to the Medium Term Financial Strategy if services are unable to operate within their current approved budgets.

The Medium Term Financial Strategy presented to Public Cabinet in February 2025, currently provides £18.295m of growth for directorates services over the medium term as shown in the table below. Demographic growth will be held centrally as in previous years. If the growth held centrally is not sufficient then funding will be allocated to individual services and the growth pressure held centrally.

There has been no change to the planning assumptions reported to Public Cabinet since February 2025, except for the inclusion of growth of £7.195m for 2029/30 (excluding Service reviews which will take place during the summer).

Cumulative Growth 2026/27 to 2029/30

As detailed in Section 1 above, detailed modelling in a number of areas will be completed during the year and reported to subsequent Public Cabinet meetings during the year.