Merthyr Council Plugging Budget Gap with Reserves

Merthyr Tydfil Council is using £1.5m in reserves to plug its budget gap for next year due to its commitment to protect schools, to have an acceptable level of council tax increase, and avoid significant service cuts, councillors have been told.

Director of finance Craig Flynn was commenting on the latest council budget proposals for 2025-26 at a special combined governance and audit and joint scrutiny committee on Wednesday, February 19.

The proposals say no decision has yet been made but council tax is currently budgeted at 5% for next year with every 1% increase to the budgeted tax increase giving the council a net increase of £300,000.

The provisional Welsh Government settlement resulted in a funding increase of 5.1% (£6.42m) for Merthyr Tydfil next year with £3.09m of previously specific grants transferred into the settlement.

The council was previously looking at an £8.77m budget gap but this has been reduced to £5.27m.

The council’s net spend for next year is set to be £172.48m which is made up of:

Education: £68.59m
Social services: £51.44m
Economy and public protection: £10.34m
Neighbourhood services: £12.87m
Governance and resources: £9.46m
Corporate authority: £25.31m
Transformation programme: -£350,000
Non-general fund allocations: -£935,000
Discretionary non domestic rates relief: £44,000
Collection fund surplus: -£850,000
Corporate vacancy factor: -£1m
Use of budget reserves: -£1.5m
Contribution to general fund reserves: £350,000
HMRC employers national insurance contributions: – £1.56m
Pension strain: £247,000
The net income is set to be £172.33m including £133.14m from the settlement, £39.27m from council tax and the council tax base adjustment costing £95,000, leaving a remaining budget gap of £153,000.

The budget proposals include the use of £1.5m of earmarked reserves from an underspend in the 2023-24 revenue budget.

The report said that, under the current economic circumstances, the use of £1.5m of reserves was considered a necessary “one-off” budget contribution for 2025-26 but unsustainable over the medium term.

In response to a question from Councillor Andrew Barry, Mr Flynn said: “Considering the commitment to protect schools in 2025-26 and also having an acceptable level of council tax increase the only additional opportunity we have without making significant service cuts would be to look at drawing reserves.”

He said they are mindful that this is an unsustainable position going forward and throughout the transformation agenda they will look then for all opportunities to how they will be able to have a financially sustainable and resilient organisation going forward.

Mr Flynn said everything will be considered to replenish the £1.5m of reserves being used and they’ve identified a transformation programme saving of £350,000 to be delivered in-year.