Council forecasts £8 million budget gap for next financial year

Anthony Lewis, Local democracy reporter

A Welsh council is currently forecasting an £8m budget gap for the next financial year.

Merthyr Tydfil council’s medium-term financial plan (MTFP), which covers from 2026-27 to 2028-30, says there is a projected budget gap of £8.11m in 2027-28 at the moment.

And the cumulative budget gap over the entire four-year period of the plan is currently reported to be £18.74m.

The 2026-27 budget was approved at a special council meeting on February 23.

A report going to cabinet and full council on Tuesday, March 24, says the council faces significant financial challenges over the course of the medium-term and an ongoing programme of transformation will be required to achieve the levels of saving required.

The projections for 2027-28 and 2028-29 are based on revenue settlements of +1% for future financial years, an indicative increase of 5% in council tax across the term of the MTFP, 2% for pay inflation in 2027-28, 2028-29, and 2029-30 (covering all staff including teachers), no uplift for NJC employer pension contributions, non-pay inflation at 2% in line with the Bank of England target, and indicative new additional demands of £3m per year.

The report says owing to no indication from the Welsh Government of future year settlements together with the economic uncertainty due to the conflicts in Ukraine and across the Middle East it is considered prudent to reflect projected revenue settlements of +1% for 2027-28 and 2028-29.

But it says previous revenue settlements for Merthyr Tydfil for the 2025-26 and 2026-27 financial years were +4.9% and +4.7% respectively.

Every 1% change in revenue settlements equates to a change of around £1.4m funding levels.

The MTFP is based on the latest information available and does not include fixed funding, expenditure, or activity projections but sets out a three-year budget forecast for the resources that are likely to be available.

The MTFP is reviewed regularly and will be changed as additional information becomes available with detail for future years being developed over the period of the strategy.