Consultation on our budget proposals for 2025/26 and Medium Term Financial Plan 2026-2029

Our performance

We are a well performing council, and regularly measure ourselves against similar councils as a regional, national and statistical level. Organisations such as Ofsted and the Care Quality Commission (CQC) have rated our services as Good. We also have a strong track record of delivering value for money over many years, something our external auditors agree with. A review by The Chartered Institute of Public Finance and Accountancy (CIPFA) also checked that our finances were well looked after. 

You can read more in our Productivity Plan and the Audit Committee agenda and minutes 29 February 2024.

The economic and local context

We continue to work in a time of significant uncertainty and change. For next year and across the next four years, our budget setting process will continue to be more difficult than it has been previously due to a range of external factors that are outside our control, including significant increases in inflation and an increase in the demand for services.

This is made worse by interest rate rises, expected pay settlements, and the continued uncertainty about future government funding. The new government has offered no assurances about increasing funding to local government or how funding will be given out. It is therefore very difficult for us to plan ahead with any certainty at this time and the challenge in balancing the budget in the coming years could get worse if any further costs arise, or if the government's funding for councils is reduced. 

County Durham has lower average earnings and higher levels of poverty compared to some other areas. This puts increased demand on our services and reduces the ability for the public to pay for services such as adult social care. It also means that we have more properties in the lower and lowest Council Tax bands, making us a low tax base council. As such, we cannot raise sufficient income from Council Tax to fund the spending pressures we face - every 1% increase in Council Tax in County Durham generates significantly less funding than in a council in a wealthier area, yet we face significantly more demand for our services.

How this affects our costs

Across our services, some of the biggest impacts are:

•  Over 60% of our spending is on adult and children's services, with 47% being spent on caring for the most vulnerable. An increasing demand for these services, wage increases in the care industry, and inflation, have led to an increase in the cost of this care.
• There continues to be an increase in demand for children in care services, with more children needing support or being taken into care, such as fostering, as well as some children having more complex needs. These are some of the largest budgets we have, which are spent on a small part of the population.
• The National Living Wage is expected to increase, adding significant costs, particularly in adult social care. It will also mean higher pay awards for our staff, as this is part of a national pay agreement and outside our control.
• High and rising inflation levels and increases in interest rates are adding to the costs of our regeneration projects and making it more expensive for us to borrow money.

The diagram below shows the expenditure on our services during the current financial year.

Pie chart showing net expenditure budgets 2024/25: Adult and health (£159.46 million), Children and young people (£194.22 million), Neighbourhoods and climate change (£177.42 million), Regeneration Economy and Growth (£59.03 million), other (£34.75 million).

Impact on our budget

These rising costs are continuing to have a big impact on our budget.

For many years, government grant funding has not increased in line with the inflation that councils have been facing, which means that in reality, our funding has been cut. The new government is facing a number of economic and departmental challenges and has not committed to providing additional funding to local councils, nor to reform how we receive our funding. As a result, local councils are lobbying the new government to clearly set out how this will work. Although we expect to receive a £7.3 million increase in government funding this year, some of this is specific funding for specific purposes. Overall, the funding we will receive will not cover the spending we are faced with. We predict that we will still face a funding gap of £21.7 million in 2025/26 and £64.1 million over the next four years.

Since 2010, our need to find savings has led us to become much more efficient in what we do. We have made £270 million in savings, largely by increasing or introducing new charges, reducing staff levels and making significant savings to management and back office functions wherever we can. It is becoming increasingly hard to make savings in this way and going forward it will be extremely difficult to avoid affecting front line service delivery. We will therefore need to make some difficult decisions for next year's budget and beyond.

Further savings have been set out as part our Medium Term Financial Plan which was approved by our Cabinet - see Cabinet agenda and minutes - 18 September 2024.

We continue to look for ways to make further savings which will hopefully not affect front line services, including changes to the structure of services and staffing reviews, including Finance and Commercial Services, Digital Services and Customer Services. In these reviews, we will consider the structure and staffing, and how best to use these resources to achieve better value for money. This includes how we can save money through the use of technology and new ideas.

We'll also review Children Support Services and look at how we can work a more efficient, automated way, and simplify systems.

We will also continue our review of our catering to make sure it does not cost more to run than the income it makes. We will also look at reducing the running and maintenance costs for our council staff offices.

We are looking at ways to raise extra income and reduce the amount of contributions we make to others. We propose to:

• increase community protection fees and charges, as well as bring in new charges where possible
• review fees and charges across children and young people's services
• review what we charge for domestic and commercial pest control
• increase fees and charges for environmental services such as refuse and recycling, Fixed Penalty Notices (fines) and crematoria
• increase income for community cleaning services, saving money for street cleaning and using perennial plants that are longer lasting
• increase rental income on commercial properties managed by Business Durham
• look at commercial opportunities, opening hours, and levels of service within catering, cleaning and building management
• look at ways to reduce maintenance costs and the possibility of increasing fees for our allotment sites

We have also consulted with Town and Parish Councils about reducing the grant support we provide to some local councils by 50% over a three year period. We are one of a few councils across the country, and the only one in the northeast, that still pays a grant to Town and Parish Councils.

We will continue to explore ways to deliver services in different, and more effective and efficient ways, to help better meet your needs. Where appropriate, we will involve you in further conversations to get your feedback in more detail. Proposals outlined so far, which would be subject to further conversations, information sharing, or consultation with service users and/or the public are:

• Early help: using technology to provide some online services rather than face to face.
• Early Years Services: looking at staff resources and non-council funding sources that could support activities.
• Learning Disability Services: a review of high cost care provision.
• Adult Social Care: a review of how we buy-in care for some customers
• Direct Payments: helping more people to be more independent using direct payments to pay for and arrange their care.
• Adult Learning Service: making sure the service fits with the future direction of education, employment and training opportunities for disadvantage young people.
• Community engagement: continuing to restructure our Area Action Partnerships (AAPs) into Local Networks and taking into account the ongoing Boundary Commission review of our county councillor boundaries
• Music Service for Schools: a review of how this service is delivered, considering its costs, pricing and accommodation, to see where savings can be made.
• Community Protection Service: a restructure of this service to make it more efficient.

We also expect the number of county councillors to reduce from May 2025. After reviewing councillors' allowances, it is expected that a saving will be made from councillor related budgets.

As in previous years, to try and reduce the effect of cuts to services and the possible effect our most vulnerable residents, we also propose an increase in Council Tax.

Our proposed savings are based on including an increase in Council Tax by 2.99% next year. The proposed increase is the maximum increase the Government allows us to make without holding a referendum and asking local residents to approve this proposed increase. If we do not increase Council Tax in line with government expectations, our funding gap will increase by £2.8 million for every 1% it is below the expected level. Therefore, if we increase Council Tax by less than this, we would need to find more savings elsewhere.

A 2.99% increase in our Council Tax is equal to an annual £57.83 increase on a Band D property which is around £1.11 a week. However, in County Durham, 57% of Council Tax payers live in a Band A property and 84% of all properties are in Bands A to C, which means that the majority of people will be charged less than this. For example, those living in a Band A property would be charged £38.55 more next year, or 74p per week. The average Council Tax charged per household in County Durham is £1,459. This is £209 (12.5%) below the national average.

From 1 April 2025, we are introducing an additional 100% Council Tax premium on Second Homes, and we think this will generate an extra £0.7 million. We will therefore closely watch the impact of this.

The new government may also let local councils raise Council Tax by a larger amount without the need to hold a referendum. We expect to be able to confirm whether this is the case by December 2024 and if so, we will consider the views from this consultation before we make a bigger increase.

Financial support for households

We offer Support to help you pay your Council Tax to our most vulnerable households who may be struggling to pay and are proposing to extend our local Council Tax Reduction scheme in its existing form for another year. This scheme offers a Council Tax discount to eligible residents on low incomes whether in work, unemployed or retired. This scheme provides Council Tax discounts of up to 100% to eligible households.

We are one of the few local councils in the country to provide this level of support. 81.4% of all eligible (financially vulnerable) working age households (around 33,400) in County Durham currently receive 100% support and have no bill to pay.

You can also find out about a range of other financial help available to residents.

These budgets make up 74% of our overall gross expenditure, and we have limited flexibility to reduce spending on them and savings in these areas will not meet the amount needed. In total, 47% of our budget is spent on social care, providing support to just 2.5% of the population.

Furthermore, our options for savings in areas such as social care, are generally limited due to the statutory nature of the services. In other areas we are limited in the savings we can make because we have fixed costs, such as in waste disposal. It is therefore becoming more difficult to find other areas where savings can be found.

In previous years we have used reserves to help us reduce the gap. For example, in 2024/25, we used £3.7 million of reserves to balance the budget, which will have to be addressed in 2025/26. Using reserves is not a financially sustainable position, and any further use of our reserves to support the budget should be considered carefully as reserves are held for a number of reasons including:

• to help cushion the impact of any uneven cash flows, for example, delays in expected income or funding
• to avoid unnecessary temporary borrowing, especially important given rising interest rates
• to deal with the impact of any unexpected events or emergencies, for example flooding, and other exceptional weather (general reserve)
• as a means of building up funds for known or predicted future liabilities (these are known as earmarked reserves)

By the end of the 2025/26 financial year our reserves will have reduced by £73 million since 1 April 2022 and our general reserve will be only 5% of our Net Expenditure.

Where is makes sense to do so, we are considering working with our partners, residents and community groups to provide services that meet levels of demand and need as communities become more self-sufficient and independent. More details on these proposals, and the potential value of savings, will be provided in future Cabinet reports.

For this consultation, so we can set our budget, we have created a list of front-line services where we could make further savings. This would help close the current budget gap, which would only get bigger if we do not also increase Council Tax as we have proposed. We want to again gather your views on these areas to understand where you would continue to prioritise savings. It is important to remember that savings in these areas will still be difficult to achieve and could have a significant impact.

• Community safety and protection - environmental health, trading standards, taxis and events, neighbourhood wardens, emergency planning, road safety and school crossing patrol services
• Council Tax, benefits and other processing - processing of Housing Benefit, Council Tax Benefit and other Council Tax and business rates account changes 
• Culture - council owned museums and theatres, libraries and support to cultural events
• Customer access and customer services - customer access points, call handling and contact arrangements to report issues / access services
• Economic development - support for businesses, projects and support services to improve the county's economy, creating jobs and wealth
• Environment and climate change - reduction of carbon emissions for the council, residents, and business, to tackle pollution and nature conservation
• Housing services - homelessness, home adaptations for vulnerable people and housing advice​
• Leisure and wellbeing - leisure centres, parks, play areas, playing pitches and allotments and associated activity programmes
• Local community projects - support for community development including Area Action Partnerships (AAPs) and the voluntary sector
• Local council tax support - provided to working age people. We could cap or cut the current level of support in future years
• Planning services - provision of planning and building control services
• Preventative services - community-based early intervention support for vulnerable people with their mental and physical wellbeing to maintain their quality of life and independent living, thus helping to reduce future statutory social care spending
• Roads and transport - road and footpath maintenance, pothole repairs, gully cleaning, street lighting, winter maintenance, parking services, subsidised transport e.g. bus routes and bus passes
• Street cleaning and grounds maintenance - including parks, cemeteries and open spaces, litter picking, fly tipping, dog fouling, grass cutting, flower beds and trees 
• Waste collection, disposal and recycling - household and business bin collections and recycling centres
• Welfare assistance and advice - advice and financial support provided to vulnerable people to help address poverty especially during the cost of living crisis