Pay and price inflation
The council continues to face significant budget pressures as a result of cost increases arising from the national living wage (NLW), general pay and price inflation, and changes to Employer National Insurance rates and thresholds from April 2025.
Annual UK headline consumer price inflation (CPI) has trended downwards from its very high 2023 peak of 10.4% in February 2023. In November 2024, the latest month for which data is currently available, CPI was 2.6%, although the lowest point of 1.7% occurred in September 2024. CPI inflation is forecast to peak at 2.6% during 2025 and then gradually fall back to the target 2%, but there remains a high degree of uncertainty and likely inflation pressures in excess of CPI in some areas.
Departmental pay and price inflation £27.642 million
Recognising that prices have risen significantly and continue to rise, there will be a direct increase to departmental budgets of £27.642 million to support departments with the specific ongoing inflationary pressures as set out later and summarised in the following table.
2025-2026 departmental inflation ongoing price pressures
| Departmental ongoing pay and price inflation | £ million |
|---|
Contract fees paid to care providers (PVI) increases
Due to the increase in the National Living Wage (NLW) each year, there is a forecast significant increase in the contract fees the council pays to care providers, to acknowledge the additional cost pressures on the providers. For 2025-2026, the NLW will increase by 6.7%, from £11.44 to £12.21, for those aged 21 and over. In addition, these contract fees are impacted by the increase in employer National Insurance contributions (NICs) from April 2025. |
21.187 |
Other inflation
This is additional funding set aside to support departments with ongoing inflationary pressures as set out later. |
6.455 |
| Total departmental inflation ongoing price pressures |
27.642 |
Corporate contingency pay pressures £7.467 million
(£19.610 million pressure mitigated by £12.143 million Risk Management Budget)
The council maintains a contingency budget which is used to help manage pay and any price increases over which there is more uncertainty. The total pressure set aside to cover estimated pay inflation in 2025-2026 is £19.61 million as set out in the following table. This gross pressure is being reduced by a balance brought forward on the Risk Management Budget due to the 2024-2025 pay award cost to the council being lower than originally estimated, along with additional ongoing funding and unallocated contingency budget.
2025-26 Corporate Contingency Pay Pressures
| 2025-2026 corporate contingency pay pressure | £ million |
|---|
| Pay award - salary and allowance |
2025-2026 Basic pay salary increases |
10.937 |
|---|
| 2025-2026 Additional hours |
0.247 |
| 2025-2026 Relief hours |
0.371 |
| 2025-2026 Pay based allowances |
0.572 |
| 2025-2026 Fixed based allowances |
0.051 |
| Pay award - other pay increases |
2025-2026 Increases for social worker growth, Soulbury Pay Scale workers, coroners, Members' allowances and Apprenticeship Levy |
0.515 |
|---|
| 2024-2025 Soulbury Pay Scale workers, coroners and Members' allowances (not yet finalised) |
0.174 |
| Total pay award pressures |
12.867 |
| Employer National Insurance Increase |
2025-2026 Increases for employer National Insurance for employees and Members on the council's payroll |
6.284 |
|---|
| Employer pension contributions equated rate |
Adjustment to estimated rate to cover fixed amount due |
0.459 |
|---|
| Total contingency for pay pressures |
19.610 |
Salaries and allowances £12.867 million
The Contingency Budget includes an amount for the pay award of £12.867 million, which reflects the amount that it is forecast to cost the council's Revenue Budget for increases in pay and allowances. Other areas that are funded through specific grants, for example, the Dedicated Schools Grant (DSG) will also be impacted by the pay award.
The autumn budget announced that the National Living Wage (NLW) would increase by 6.7% for 2025-2026, from £11.44 to £12.21 an hour, for those aged 21 and over. The Low Pay Commission's (LPC) recommendations meet the government's remit, with NLW expected to equal two-thirds of median earnings.
The last council FYFP assumed a general pay award of 5% for 2025-2026. The unions have yet to submit a 2025-2026 pay claim to the national employers, which means that local authority negotiations have yet to commence.
The 2025-2026 pay assumption has been revised to a 2.5% bottom-loaded increase, with a 2% differential, assuming that the minimum pay point increases by 4.5%. This equates to an additional forecast cost of £12.178 million for 2025-2026 basic pay award salary and allowances increases, which is equivalent to 4.55% of September 2024 payroll, excluding separately funded areas outside of the council's Revenue Budget, such as those funded by the DSG.
The additional total forecast cost of 2025-2026 pay pressures will be held in the council's contingency budget, until such time that a final agreement has been made, when the budget will be allocated to departments. If the pay award is agreed at a level above this, the additional cost will have to be found from within existing budgets or managed using reserves in 2025-2026.
Employer National Insurance £6.284 million
The autumn budget in October 2024 announced increases to the rate of Employer National Insurance Contributions (NICs) from 13.8% to 15%, and reduced the Secondary Threshold (the amount of earnings after which the employer becomes liable to pay NICs) from £9,100 to £5,000 a year. These changes will increase the amount of NICs payable by the council from April 2025 by an estimated amount of £6.284 million. This additional cost will be partly funded by an Employer National Insurance Contributions Increase Funding Grant, however the amount of funding is not yet confirmed. The council's allocation will be included in the final settlement expected in late January or early February 2025.
Risk management budget (£12.143 million) mitigation
The 2024-2025 pay award for Local Government Service Employees (effective from 1 April 2024) was agreed in October 2024, after the 2024-2025 revenue budget was approved.
The 2024-2025 pay award cost to the council of £10.734 million was lower than originally estimated and resulted in an ongoing base budget surplus of £5.250 million. This surplus in base budget is available through a balance brought forward on the 2025-2026 Risk Management Budget, along with further surpluses of £6.205 million in respect of 2024-2025 additional funding confirmed after the budget was approved, and £0.454 million in respect of unallocated Contingency Budget from 2024-2025. The resulting £12.143 million balance has been used to offset some of the estimated pay pressures in 2025-2026, resulting in the net pressure of £7.467 million.
Departmental other non-inflation service pressures £59.673 million
A number of other, non-inflation, service pressures have been identified by departments. Service pressures originally identified by departments have been reduced to the position shown, following extensive senior cross-departmental review and challenge. Ongoing departmental non-inflation service pressures of £57.968 million will be allocated to departmental base budgets, in addition to the pay and price inflation summarised.
One-off support of £1.705 million will be allocated from one-off savings/reserves for one-off departmental service pressures. Details of this one-off support are set out later.
Departmental and corporate pressures identified for 2025-2026 and departmental pressures are detailed in the following tables and accompanying paragraphs.
Departmental and corporate service pressures summary
| Department | Pay and price inflation | Other pressure | Other funding changes | Total |
|---|
| Adult social care and health |
21.187 |
36.87 |
4.271 |
62.328 |
| Children's services |
5.198 |
18.8 |
0 |
23.998 |
| Place |
1.226 |
1.303 |
0 |
2.529 |
| Corporate services and transformation |
0.031 |
2.700 |
0 |
2.731 |
| Total departmental pressures |
27.642 |
59.673 |
4.271 |
91.586 |
| Corporate budgets and contingencies |
7.467 |
4.173 |
0 |
11.64 |
| Total pressures |
35.109 |
63.846 |
4.271 |
103.226 |
Adult social care and health (ASCH) 2025-2026 service pressures
| Pressure | 2025-2026 Ongoing pressures
£ million | 2025-2026 One-off pressures
£ million | 2025-2026 Total pressures
£ million |
|---|
| ASCH inflation pressures |
Care Provider NLW and Employer NI Annual Fee Uplifts |
21.187 |
0 |
21.187 |
|---|
| Total ASCH inflation pressures |
21.187 |
0 |
21.187 |
| Other ASCH pressures |
Rebase budget - social work teams care packages |
22 |
0 |
22 |
|---|
| Demographic growth/demand 65+ |
0.653 |
0 |
0.653 |
| Demographic growth/demand working age |
3.555 |
0 |
3.555 |
| ASCH savings implementation costs |
0 |
0.402 |
0.402 |
| Discharge Grant rolled into Local Authority Better Care Grant |
8.349 |
0 |
8.349 |
| Domestic abuse grant rolled into general grants |
1.911 |
0 |
1.911 |
| Total ASCH other pressures |
36.468 |
0.402 |
36.87 |
| Total ASCH pressures |
57.655 |
0.402 |
58.057 |
| Other funding changes |
4.271 |
0 |
4.271 |
| Total 2025-2026 ASCH pressures |
61.926 |
0.402 |
62.328 |
Inflation - Care Provider NLW and Employer NI Annual Fee Uplifts £21.187 million inflation ongoing
The council is required to annually review its contract fee rates paid to external care providers to ensure that they are set at a level which allows for a sustainable care market. This review needs to take account of the cost pressures facing care providers - generally a mix of wage and price inflation. The National Living Wage has been announced as £12.21 per hour from April 2025 (an increase of 6.7%). In addition, there is an increase in employer National Insurance contributions (NICs) from April 2025. Inflation pressures are also reflected into the annual fee uplift.
Rebase Revenue Budget - social work teams care packages £22 million ongoing
The revenue budget for social work teams care packages is not reflective of the underlying current cost of the service resulting from service pressures. The position has previously been offset by the one-off use of reserves, contributions from public health, one-off resources and the draw down of provisions.
Demographic growth/demand 65+ £0.653 million ongoing
Underlying demographic growth pressures remain in adult care. Predictive factors for these pressures include projected increases in the 75+ population, people living alone, in poor housing, with relative financial deprivation, with one or more health conditions or with dementia. However, demand for services is also affected by charging policies. The expectation that the council's revised charging policy for non-residential care from July 2024 will partially reduce this demand, with more customers making their own arrangements for care at home, is reflected in the pressure.
Demographic growth/demand working age £3.555 million ongoing
Projected increases in adults with disabilities accessing services, together with increases in the complexity of cases, including for young adults transitioning from children's services to adult care, are reflected in this pressure.
ASCH savings implementation costs £0.402 million one-off
One-off cost of implementing savings proposals.
Discharge Grant rolled into Better Care Fund £8.349 million ongoing
Funding for Discharge Grant rolled into the Settlement Local Authority Better Care Grant (no impact on overall council budget).
Domestic Abuse Grant rolled into General Grants £1.911 million ongoing
Funding for Domestic Abuse Grant rolled into Settlement General Grants (no impact on overall council budget).
Other funding changes £4.271 million ongoing
This funding change is required to replace one off funding provided in 2024-2025. This is to help provide an ongoing sustainable budget. This is represented as an ongoing departmental funding change in the Revenue Budget 2025-2026.
This adjustment for prior year unachieved savings is an exceptional response to acknowledge that it had not been possible for the department to achieve certain allocated prior year savings targets (allocated prior to 2024-2025). Departments must fulfil their obligations each year to deliver on the level of savings allocated to them and must provide and deliver on alternative savings proposals in the same year if they subsequently prove to be undeliverable.
Children's services (CS) 2025-26 service pressures
| Pressure | 2025-2026 Ongoing pressures
£ million | 2025-2026 One-off contingency pressures
£ million | 2025-2026 Total pressures
£ million |
|---|
| Children's services inflation pressures |
SEND home to school transport |
1.64 |
0 |
1.64 |
|---|
| Children's social care |
3.225 |
0 |
3.225 |
| Historic pensions |
0.333 |
0 |
0.333 |
| Total children's services inflation Pressures |
5.198 |
0 |
5.198 |
| Children's services contingency pressures |
Children's social care demography |
14.8 |
0 |
14.8 |
|---|
| SEND home to school transport demand |
4 |
0 |
4 |
| Total children's services contingency pressures |
18.8 |
0 |
18.8 |
| Total 2025-2026 children's services pressures |
23.998 |
0 |
23.998 |
Inflation - special educational needs (SEND) home to school transport £1.640 million inflation ongoing
The fund SEND home to school transport inflation pressures relating to the rising cost of bus and taxi contracts as a result of inflation and other changes within the transport market.
Inflation - children's social care £3.225 million inflation ongoing
To fund inflationary uplifts in allowances paid to carers, placement fees and other support services.
Inflation - historic pensions £0.333 million inflation ongoing
To fund Consumer Price Inflation (CPI) increases applied from April 2025 to historic pension commitments and for previous CPI increases for which budget growth has not been received, reduced by an adjustment for the projected reduction in claimants.
Children's social care demography £14.8 million ongoing
The demand pressures on the council's budgets and the financial pressures associated with this have been highlighted throughout this report. Children's social care, in particular, has experienced significant rising demographic demand for its services in recent years. Children's services has plans to mitigate some of the cost of the additional demographic demand it has experienced in 2024-2025, over and above that provided in the 2024-2025 budget. This funding is to meet the projected unmitigated pressure of both 2024-2025 demand and forecast 2025-2026 demand.
Corporate services and transformation (CST) 2025-2026 service pressures
| Type of pressure | 2025-26 Ongoing pressures
£ million | 2025-26 One-off pressures
£ million | 2025-26 Total pressures
£ million |
|---|
| CST inflation pressures |
Business rates |
0.031 |
0 |
0.031 |
|---|
| Total CST inflation pressures |
0.031 |
0 |
0.031 |
| Other CST pressures |
Property services structural budget deficit |
1.4 |
0 |
1.4 |
|---|
| Digital services applications funding gap |
1.3 |
0 |
1.3 |
| Total CST other pressures |
2.7 |
0 |
2.7 |
| Total 2025-2026 CST pressures |
2.731 |
0 |
2.731 |
Inflation - Business Rates £0.031 million inflation ongoing
To increase the property business rates budget to reflect the 2025-2026 increase in the Business Rates Multiplier, which is used to increase business rates.
Rebase Revenue Budget - property services £1.4 million ongoing
The revenue budget for property services is not reflective of the underlying current cost of the service. This has previously been mitigated using underspends arising from other areas of CST.
Rebase Revenue Budget - digital services applications £1.3 million ongoing
The revenue budget for digital services applications is not reflective of the underlying current cost of all applications under contract for business as usual services. This has previously been partially mitigated by the use of significant underspends on staffing budgets arising from unfilled vacancies.
Corporate budgets other pressures £4.173 million
There are a number of changes to the corporate budgets which result in a net pressure of £4.173 million. These changes are summarised in the following table and explained further in the following narrative.
Other changes to corporate budgets
| Corporate budget area | Changes
£ million |
|---|
| Contingency for demand pressures |
5 |
| Other corporate contingency budgets |
0.999 |
| Elections |
2.35 |
| Other corporate budgets |
2.639 |
| External debt charges and minimum revenue provision |
(7.835) |
| Interest and dividend income |
1.02 |
| Total net pressure |
4.173 |
Contingency for demand pressures £5 million one-off contingency
The 2025-2026 Revenue Budget includes a one-off £5,000,000 contingency budget, to be funded from reserves, which may only be requested by a department in exceptional circumstances, should demand pressures experienced be unmanageable within the context of the 2025-2026 budget. In such circumstances, the department will be required to request the funding and provide evidence to demonstrate mitigation progress and results. The head of paid service and director of finance will be responsible for making the decision on the allocation of budgets.
Other corporate contingency budgets £0.999 million ongoing pressure
This represents a corporate contingent budget, which is being centrally held in the event that current income within the corporate services and transformation department ceases at some point in 2025-2026, following a corporate decision which has already been made. The timing of this is not yet determined. The amount of budget awarded to the department will be dependent on the timing of the loss of income.
Elections £2.350 million one-off pressure
The cost of elections is not part of the base budget due to elections taking place every 4 years. The estimated cost of elections in May 2025 will be funded from one-off savings/reserves.
Other corporate budgets - other pressures £2.639 million ongoing pressure
This mainly represents base budget required to reflect annual interest due on school balances held by the council, and also minor increases to corporate levies and precepts, along with other technical corporate budget adjustments. The pressure relating to school balances is offset by increased income from these balances.
External debt charges and minimum revenue provision (£7.835 million)
This represents the interest payable on the council's outstanding debt. The council has paid off a number of loans in recent years, which were used to support the council's Capital Programme, and has not undertaken further borrowing.
The Minimum Revenue Provision (MRP), is a prudent amount of revenue set aside to contribute towards capital expenditure which has been financed by borrowing or credit arrangements. The council's updated MRP Policy is included in the Capital Programme Approvals, Treasury Management and Capital Strategies for 2025-2026 report to this meeting. Changes to the MRP policy are proposed which will result in a reduction in the annual MRP charge in 2025-2026.
The council will continue to review its MRP Policy annually, to ensure in future years that adequate and prudent provision is still being made.
Given the significant cuts to public expenditure, and in particular to local government funding compared to service pressures, the council's borrowing strategy continues to address the key issue of affordability without compromising the longer-term stability of the debt portfolio. With short-term interest rates much lower than long-term rates in recent years, it has been more cost effective in the short-term to either use internal resources, or to borrow short-term loans instead. By doing so, the council has been able to reduce net borrowing costs and reduce overall treasury risk.
Using available cash for capital schemes is known as 'internal borrowing'. Whilst ever internal borrowing is possible, the benefits of continuing to do so will continue to be monitored regularly against the potential for incurring additional costs by deferring borrowing into future years when long-term borrowing rates are forecast to continue to rise.
The council will monitor this 'cost of carry' and breakeven analysis. However, there is the likelihood that cash reserves will run low in the next 12 months and the council will have to consider additional borrowing. Borrowing at current long-term fixed rates could cause additional cost in the long-term as interest rates are currently forecast to continue to fall along with inflation.
The council may borrow short-term to cover cash flow shortages where it is advantageous to do so.
The council's debt charges budget is currently forecast to be overspent by £0.821 million in 2024-2025, of which £1.8 million is in respect of interest payable on loans; this is offset by a £1 million underspend related to the Minimum Revenue Provision (MRP) for the repayment of debt principal. Forecast interest payable on loans is higher than budgeted, as additional borrowing has been required to maintain working capital than was expected when the budget was set. The forecast includes interest payable to East Midlands Combined County Authority (EMCCA) on funds received for, and being held on behalf of, EMCCA. Forecast MRP is lower as a result of an updated profile of the borrowing required to fund the capital programme, since the budget was set. This forecast has not yet been adjusted for proposed amendments to the MRP Policy effective from 2024-2025, which are included in the Capital Programme Approvals, Treasury Management and Capital Strategies for 2025-2026 report. The proposed changes are expected to reduce MRP in 2024-2025 by around £8 million.
The council's 2025-2026 budget reflects a decrease in the budget for external debt charges and MRP of £7.835 million, to £39.875 million.
Interest and dividend income £1.02 million
With headline inflation lower, the Bank of England (BoE) cut its official Bank Rate from 5.25% to 5% at its August 2024 Monetary Policy Committee (MPC) meeting and then again, to 4.75%, at its November 2024 meeting. Inflation which is resistant to change remained a concern among policymakers. Monetary policy will need to be sufficiently restrictive in both quantum and period to return inflation to the 2% target sustainably in the medium term, in line with the committee's remit. This means that the Bank Rate could remain relatively high for some time to come.
The council's interest and dividend income is currently forecast to exceed budget by £8.467 million in 2024-2025, of which £5.3 million relates to interest from short-term investments in money market funds and loans to the debt management officer (DMO) and £1.7 million relates to bank interest. Favourable variances from these 2 income streams are because of better than forecast working capital balances and interest income earned on funds held on behalf of EMCCA; this interest income is offset by interest which will be payable to EMCCA on release of these funds, recognised in the Debt Charges budget. As at 30 November 2024, £61.5 million was held for and on behalf of EMCCA. These funds are forecast to be released at the end of February 2025. An additional £0.3 million of dividend income from pooled funds is forecast compared to budgeted income.
The council's interest and dividend income budget for 2025-2026 assumes that the council will continue to earn some additional income, by utilising a range of risk assessed investment vehicles to increase its income from external investments, where cashflow balances permit. However, as a result of the council using its cash balances for 'internal borrowing' and also using its cash-backed available reserves to support the Revenue Budget in recent years, the council has a decreasing level of cash on which to earn interest and dividend income. The 2025-2026 budget reflects a small adjustment in the budget for interest and dividend income, with an increase of £0.097 million, to £3.719 million, following an assessment of forecast balances and income returns compared to base budget.