Annex A: Financial Model Methodology

Stages of financial modelling

Three stages of financial modelling have been adopted to transparently delineate between separate elements of costs and benefits.

Financial sustainability baseline

This is the ongoing financial sustainability of each proposed authority across the MSA region, focusing on indicative structural challenges for each proposed authority and creating equitable distribution of likely net expenditure requirements and core spending power at each authority.

This serves as a baseline from which to apply transformation benefits and delivery costs and has been the prevalent focus of financial modelling.

Transformation and reorganisation benefits

These are ongoing/revenue structural revenue benefits and disbenefits associated with LGR, enabled through consolidation and elimination of duplication.

The annualised benefits delivered are expected to increase in the medium term as the transformation is implemented.

Implementation costs

These are the one-off delivery costs of delivering transformation, including disaggregation and reaggregation of services, and are also expected to be incurred over a medium-term period.

Financial sustainability baseline:

estimated structural position of revenue expenditure requirement vs. spending power
medium-term view of likely change to demand and spending power (including council tax harmonisation)
debt summary
reserves summary and forecast
applicable to the region as a whole and then to each proposed authority individually

Transformation and reorganisation benefits

these are the ongoing benefits associated with reorganisation to the new option (such as consolidation of services and elimination of duplication).
these apply to the region as a whole, and then each proposed authority is considered individually

Implementation costs

disaggregation/reaggregation
enterprise transformation/implementation costs
applicable to the region as a whole and then to each proposed authority individually

While transformation is the mechanism for the realisation of genuine public sector benefits (both financial and non-financial), we acknowledge that estimates at this stage will require significant testing and validation with data not available to Brighton & Hove City Council during this phase of the LGR process.

However, analysis demonstrates that the following are most likely to determine the viability of all options:

financial sustainability baseline (service demand and core spending power)
outcome of the Fair Funding Review 2.0 (reference i)
funding of one-off change (distribution and availability of existing reserves to proposed authorities), it's of particular note that reliance solely on reserves to fund transformation will be incredibly challenging in Sussex, and central government funding and/or flexible capital receipts (such as from asset rationalisation) will almost certainly be required

Financial sustainability baseline

Structural revenue projections

Brighton & Hove City Council’s approach to financial sustainability modelling across the Sussex MSA can be summarised as follows:

summarise the revenue expenditure of existing authorities
summarise the spending power of existing authorities
allocate drivers, and values of those drivers, as a basis to disaggregate revenue expenditure and spending power of existing authorities
create district and ward geographies that can be constructed into proposed authorities for all options (these are district geographies or collections of ward geographies where options propose changes)
map District and ward geographies to proposed unitary authorities for each option
disaggregate revenue, expenditure, and spending power for district and ward geographies
restate revenue, expenditure, and spending power for proposed authorities
forecast critical changes to core spending power in future years
model council tax harmonisation schedule
forecast revenue, expenditure, and spending power for 5 years and identify structural revenue challenge (the value of the maximum projected difference between revenue, expenditure, and spending power, and the year in which it occurs)

The following sections break down these steps in more detail and indicate the source data.

Summarise the revenue expenditure of existing authorities

Restating FY25/26 revenue expenditure returns (RA returns) (reference ii) into a structured summary of net income and expenditure in a standardised format similar to a statement of accounts.

Summarise the spending power of existing authorities

Restating FY25/26 revenue financing returns (SG returns) (reference iii) into a structured summary of:

grants outside Aggregated Expenditure Finance (AEF)
grants inside AEF
revenue expenditure financing

Allocate drivers, and the values of those drivers

Allocate every RA/SG code with a driver to disaggregate spend. For example, Adult Social Care (RA code 360) is disaggregated using a population-IMD composite.

Internal data across East Sussex and West Sussex was not available.

List of drivers used (some of which have been calculated into composites):

population by ward (by age and sex) (reference iv)
forecast population (2032) (reference v)
homeless cases accepted (FY23/24) (reference vi)
tax base (2024) (reference vii)
tax base (2021) (reference viii)
IMD (reference ix)
collection rates (reference x)

Create ‘building block’ geographies

Create ‘building block’ geographies from existing wards. This mostly uses district footprints, but the following areas are comprised of ward-level groupings:

3 sub-groups for the Lewes footprint:
- Lewes – merged wards: part of unitary A in the five unitary proposal
- Lewes – coastal: part of unitary C in the five unitary proposal
- Lewes – inland: part of unitary C in the five unitary proposal
2 sub-groups for the Wealden footprint:
- Wealden – north: part of unitary C in the five unitary proposal
- Wealden – south: part of unitary B in the five unitary proposal

Map ‘building block’ geographies to proposed unitary authorities for each option

Mapping of ward and population data for ‘building block geographies’ to the new proposed unitary authorities for each option.

Disaggregate revenue, expenditure and spending power for ‘building block’ geographies

Disaggregate East Sussex County Council and West Sussex County Council revenue expenditure and spending power across corresponding districts, using allocated drivers and associated values of those drivers.

Further disaggregate the resulting Lewes District Council and Wealden District Council figures into ‘building block’ areas.

Note that population figures are available by wards, and the tax base has been calculated by:

using published council meeting notes from Lewes for town and parish council Band D equivalents, in combination with national council tax base data, to deduce tax base by ward (reference xi)
weighted by population, where detailed taxbase data was not available for Wealden District Council

Restate revenue, expenditure, and spending power for proposed authorities

Sum the related component financial data for each area to restate the existing FY25/26 position for proposed authorities in each option.

Forecast critical changes to core spending power in future years

Forecast key spending power components from FY26/27 onwards (reference xii), disaggregating into ‘building block’ areas and proposed unitary authorities for each option as above, using the same methodology/drivers/driver values.

Model council tax harmonisation

Model council tax harmonisation using combined precepts (the sum of upper and lower tier precept, excluding parish councils and any other precepting authority) (reference xiii) of existing authorities for each ‘building block’ geography, in combination with council tax base (by ward) and collection rates (existing local authority CTR1 returns) (reference xiv).

Members of the new authorities will ultimately decide on Council Tax. However, the following assumptions demonstrate that harmonisation in all options can be achieved within 2 council tax setting cycles and demonstrate the minimum Council Tax foregone in each option:

no council tax precepts are reduced
maximum 4.99% increases applied to the lowest combined precept in each proposed authority
precepts in the remaining part of each authority are frozen, or applied with a reduced increment in the year it's exceeded by the lowest precept in the proposed authority, until all precepts are equalised

Forecast revenue, expenditure, and spending power for 5 years

Calculate the difference between projected revenue expenditure and spending power by financial year by:

a) creating a view of FY25/26 using the current tax base and adjusting contributions from reserves (which are a starting pressure currently being met from reserves)
b) forecast FY25/26 onwards by:
- i) multiplying the FY25/26 revenue expenditure requirement, which has been adjusted for likely service demand, by annual OBR inflation estimates (reference xiv) and annualised forecast percentage population increase
- ii) forecasting spending power by:
  - introducing Pixel estimates of major funding components (such as retained business rates and RSG) where they are known, or
  - incrementing by CPI inflation forecasts for core grants not covered by Pixel data
- iii) Introducing maximum council tax attainable from the harmonisation schedule, applying a further increase to the tax base based on the average annual growth of Band D equivalent in the area of the proposed unitary over the last 3 years

Analyse the largest structural gap by year, as total/percentage/deficit per capita.

Debt and reserves modelling

Summarise debt and investments

Summarise total debt and investments at each existing authority across (data does not distinguish between General Fund and HRA) (reference xv).

Summarise debt servicing

Summarise annual principal, leasing and interest payments as per FY25/26 RA returns at each existing authority.

Summarise usable revenue reserves

Analyse current budget statements to estimate general and earmarked reserves. These include capital and ringfenced balances but exclude schools (reference xvi).

Disaggregation and reaggregation

Use of similar disaggregation and reaggregation principles and calculations as set out elsewhere in this appendix to summarise debt/investments, annual debt servicing and usable revenue reserves in the context of the financial sustainability baseline.

Transformation and reorganisation benefits

Areas of transformation benefits were assessed and disaggregated to apply these benefits to the financial sustainability baseline of each proposed authority/geography:

transformation benefits
- a. service duplication
- b. agile unitaries
- c. joint working
disaggregation disbenefits
member consolidation
- a. basic allowances
- b. special responsibility allowances
elections
senior leadership consolidation

Full description of the wards in each ‘building block’ area

Building block geography: Brighton & Hove

Wards included

All

Building block geography: Eastbourne

Wards included

All

Building block geography: Lewes - merged wards

Wards included

East Saltdean & Telscombe Cliffs
Kingston
Peacehaven East
Peacehaven North
Peacehaven West
Chailey, Barcombe & Hamsey
Ditchling & Westmeston
Lewes Bridge
Lewes Castle
Lewes Priory
Newick
Ouse Valley & Ringmer
Plumpton
Streat
East Chiltington & St John Wivelsfield

Building block geography: Lewes - coastal

Wards included

Newhaven North
Newhaven South
Seaford Central
Seaford East
Seaford North
Seaford South
Seaford West

Building block geography: Hastings

Wards included

All

Building block geography: Rother

Wards included

All

Building block geography: Wealden - north

Wards included

Arlington
Buxted
Chiddingly, East Hoathly & Waldron
Crowborough Central
Crowborough Jarvis Brook
Crowborough North
Crowborough South East
Crowborough South West
Crowborough St Johns
Danehill & Fletching
Forest Row
Framfield & Cross-in-Hand
Frant & Wadhurst
Hadlow Down & Rotherfield
Hailsham Central
Hailsham East
Hailsham North
Hailsham North West
Hailsham South
Hailsham West
Hartfield
Heathfield North
Heathfield South
Hellingly
Horam & Punnetts Town
Maresfield
Mayfield & Five Ashes
Uckfield East
Uckfield New Town
Uckfield North
Uckfield Ridgewood & Little Horsted
Withyham

Building block geography: Wealdon - south

Wards included

Herstmonceux & Pevensey Levels
Lower Willingdon
Pevensey Bay
Polegate Central
Polegate North
Polegate South & Willingdon Watermill
South Downs
Stone Cross
Upper Willingdon

Building block geography: Adur

Wards included

All

Building block geography: Arun

Wards included

All

Building block geography: Chichester

Wards included

All

Building block geography: Crawley

Wards included

All

Building block geography: Horsham

Wards included

All

Building block geography: Mid Sussex

Wards included

All

Building block geography: Worthing

Wards included

All

Transformation benefits

In each of the following areas, an estimate of controllable annual expenditure has been made by removing grants and funding (both inside and outside AEF) which are directly attributable to service areas to estimate controllable net expenditure in the base revenue for each of the proposed geographies.

For example:

education service expenditure is adjusted to remove DSG, Pupil Premium Grant and Universal Infant School Meals funding
children’s service expenditure is adjusted to remove Children’s Social Care Prevention Grant funding

Note that no benefits have been applied to Education or Public Health in any scenario, to take a conservative view in areas where there is less consensus and/or evidence in the right operating model.

Benefits in each scenario

Three unitary scenarios

Area: Service duplication

Benefit applied to estimated controllable net expenditure(%) Benefit (+)/Disbenefit (-)

+8.0%

Explanation

Economies of scale in services being aggregated at the district level:

Housing Services (GFRA only)
Cultural and Related Services
Environmental and Regulatory Services
Planning and Development Services
Central Services

Area: Agile unitaries

Benefit applied to estimated controllable net expenditure(%) Benefit (+)/Disbenefit (-)

0.0%

Explanation

Right-sizing the scale of unitaries in social care(PeopleToo research) (reference xvii) applicable to:

Children’s Social Care
Adult Social Care

Area: Joint working

Benefit applied to estimated controllable net expenditure(%) Benefit (+)/Disbenefit (-)

+2.0%

Explanation

Shared working and collaboration from services more transactional in nature and/or could benefit from a regional approach, and/or which are most likely to benefit from economies of scale:

Highways and Transport
Environmental and Regulatory Services
Central Services

Area: Disaggregation disbenefits

Benefit applied to estimated controllable net expenditure(%) Benefit (+)/Disbenefit (-)

0.0%

Explanation

Lost economies of scale, loss of larger pools of flexible resources, increasing overhead burden (such as ICT infrastructure, support/democratic services of sovereign authorities) arising in services already delivered on a larger county scale:

Education
Highways and Transport
Children’s Social Care
Adult Social Care
Public Health
Central Services

Four unitary scenarios

Area: Service duplication

Benefit applied to estimated controllable net expenditure(%) Benefit (+)/Disbenefit (-)

+6.4%

Explanation

Economies of scale in services being aggregated at the district level:

Housing Services (GFRA only)
Cultural and Related Services
Environmental and Regulatory Services
Planning and Development Services
Central Services

Area: Agile unitaries

Benefit applied to estimated controllable net expenditure(%) Benefit (+)/Disbenefit (-)

+2.0%

Explanation

Right-sizing the scale of unitaries in social care(PeopleToo research) (reference xviii) applicable to:

Children’s Social Care
Adult Social Care

Area: Joint working

Benefit applied to estimated controllable net expenditure(%) Benefit (+)/Disbenefit (-)

+2.0%

Explanation

Shared working and collaboration from services more transactional in nature and/or could benefit from a regional approach, and/or which are most likely to benefit from economies of scale:

Highways and Transport
Environmental and Regulatory Services
Central Services

Area: Disaggregation disbenefits

Benefit applied to estimated controllable net expenditure(%) Benefit (+)/Disbenefit (-)

-0.7%

Explanation

Education
Highways and Transport
Children’s Social Care
Adult Social Care
Public Health
Central Services

Five unitary scenarios

Area: Service duplication

Benefit applied to estimated controllable net expenditure(%) Benefit (+)/Disbenefit (-)

+4.8%

Explanation

Economies of scale in services being aggregated at the district level:

Housing Services (GFRA only)
Cultural and Related Services
Environmental and Regulatory Services
Planning and Development Services
Central Services

Area: Agile unitaries

Benefit applied to estimated controllable net expenditure(%) Benefit (+)/Disbenefit (-)

+3.0%

Explanation

Right-sizing the scale of unitaries in social care(PeopleToo research)xviii applicable to:

Children’s Social Care
Adult Social Care

Area: Joint working

Benefit applied to estimated controllable net expenditure(%) Benefit (+)/Disbenefit (-)

+2.0%

Explanation

Shared working and collaboration from services more transactional in nature and/or could benefit from a regional approach, and/or which are most likely to benefit from economies of scale:

Highways and Transport
Environmental and Regulatory Services
Central Services

Area: Disaggregation disbenefits

Benefit applied to estimated controllable net expenditure(%) Benefit (+)/Disbenefit (-)

-0.8%

Explanation

Education
Highways and Transport
Children’s Social Care
Adult Social Care
Public Health
Central Services

Member consolidation

Data from FY24/25, including basic and special responsibility allowances, is collected from each authority (reference xx) (excluding outturns of travel and expenses, which are assumed to remain constant).

Proposed basic allowances are assumed using the costs of Brighton & Hove City Council, East Sussex County Council and West Sussex County Council councillors for each geography as relevant.

A structure for special responsibility allowances for a ‘typical’ unitary is assumed using data from South East Employers for unitary authorities in the South East. This element is duplicated for each proposed authority (at £222K per unitary authority).

Elections

Electoral costs are assumed constant in each option and based on Maximum Recoverable Amounts from recent elections (reference xxi).

Without more detailed proposals, it's assumed that LGR will present an opportunity for all-out elections and create modest but constant savings in all options.

More detailed work to understand cost drivers is needed, but it's currently assumed that this is likely to be staff and polling stations, which are conservatively assumed to remain relatively unchanged in each option.

There could be further opportunities to align town/parish, local, remaining PCC and CA elections for wider public sector savings.

Senior leadership consolidation

Data from FY24/25 accounts is collected from each authority regarding senior leadership roles (reference xxii).

The current senior leadership of two-tier areas is disaggregated across the proposed geographies.

Similarly to the members approach, an assumed senior leadership structure of a typical unitary authority is:

assumed for each unitary authority (adjusted for FTEs where shared leadership already exists)
duplicated for each proposed authority
deducted from the current disaggregated costs

Implementation costs

Benchmarked values of costs (and benefits) (reference xxiii) are adjusted relating to the number of existing authorities, with multipliers applied for the number of existing, the number of proposed and the complexity of disaggregation.

Cost group: Transition

Cost sub-group: Shadow authorities

Explanation

Cost associated with implementation and maintenance of shadow authorities will move in line with the total number of proposed authorities. (including set up, member basic allowances, additional cabinet, allowances and Head of Paid Service costs)

Cost group: Transition

Cost sub-group: Election to shadow authorities

Explanation

Cost group: Transition

Cost sub-group: Programme delivery

Explanation

The five-unitary model and the cost of delivery are driven by:

disaggregation of East Sussex County Council into 3 ways across district and ward boundaries
disaggregation of Lewes District Council into 3 ways across ward boundaries
disaggregation of the Wealden District Council into 2 ways across the ward boundaries
disaggregation of West Sussex County Council into 3 ways across district boundaries, including a change to the coterminous Fire & Rescue Service hosted by West Sussex
reaggregation of upper and lower tier services across the MSA, increasing upper tier service providers from 3 entities to 5, meaning two instances where there's no continuing authority for upper tier services (upper-tier services transferred into a new entity)

The four-unitary model and the cost of delivery are driven by:

disaggregation of West Sussex County Council into 2 ways across district boundaries
aggregation of lower-tier services from 12 districts to 3 new unitaries
reaggregation of upper-tier services, increasing upper-tier service providers from 3 entities to 4 across the MSA, meaning one instance where there's no continuing authority for upper-tier services (upper-tier services transferred into a new entity)

The three-unitary model and cost of delivery are driven by:

zero disaggregation of services, meaning no instances where there is no continuing authority for upper-tier services
aggregation of lower-tier services only, from 12 districts to 2 new unitaries

Cost group: Transition

Cost sub-group: Redundancy and pension strain

Explanation

Estimates are highly circumstantial, based on an appropriate, fair and transparent process, but likely to be lower in a five-unitary model.

Consolidation of officers, and senior officers in particular, is likely to be more significant where fewer unitaries are proposed (alongside increased recurring staff savings).

Cost group: Transition

Cost sub-group: ICT consolidation

Explanation

The five-unitary model increases the likelihood that contracts can be exited and consolidated more quickly during disaggregation, but presents additional implementation requirements for infrastructure and systems, particularly in services where less regional sharing is likely.

Cost group: Transition

Cost sub-group: Branding, communications and engagement

Explanation

The cost associated with communications, public engagement and curation of new brands will move in line with the total number of proposed authorities.

Cost group: Transition

Cost sub-group: Creation of new councils

Explanation

The setup of sovereign new entities will move in line with the total number of proposed authorities.

Cost group: Transition

Cost sub-group: Closedown of existing/shadow councils

Explanation

Closedown of shadow entities will move in line with the total number of proposed authorities.

Cost group: Transformation

Cost sub-group: Programme delivery

Explanation

As per the transition programme delivery section above.

Cost group: Transformation

Cost sub-group: Redundancy and pension strain

Explanation

As per the section above on transition redundancy and pension strain.

Cost group: Transformation

Cost sub-group: ICT consolidation

Explanation

As per the transition ICT consolidation section above.

Cost group: All

Cost sub-group: Contingency

Explanation

5% of the total budget.

Cost group	Cost sub-group	Lower range (£M)	Upper range (£M)	One off costs 4 unitary model - Lower range (£M)	One off costs 4 unitary model - Upper range (£M)	One off costs 5 unitary model - Lower range (£M)	One off costs 5 unitary model - Upper range (£M)
Transition	Shadow authorities	2.7	3.2	2.9	3.4	3.1	3.6
Transition	Election to shadow authorities	2.9	3.4	3.0	3.5	3.1	3.6
Transition	Programme delivery	13.7	16.1	18.6	21.	25.3	29.7
Transition	Redundancy and pension strain	8.5	10.0	6.4	7.5	4.8	5.7
Transition	ICT consolidation	26.4	31.0	28.2	33.1	30.1	35.4
Transition	Branding, communications and engagement	1.6	1.9	2.4	2.8	3.4	4.1
Transition	Creation of new councils	3.6	4.3	4.4	5.2	5.3	6.3
Transition	Closedown of existing/ shadow councils	1.6	1.9	1.6	1.9	1.6	1.9
Transformation	Programme delivery	15.4	18.1	16.0	18.8	16.5	19.4
Transformation	Redundancy and pension strain	11.7	13.8	9.2	10.8	7.2	8.5
Transformation	ICT consolidation	15.4	18.1	30.2	35.5	59.2	69.6
All	Contingency	5.2	6.1	6.1	7.2	8.0	9.4
Total one-off implementation costs		108.7	127.9	128.9	151.6	167.7	197.2

An upper range value has been assumed for each option.

Overall MTFP model

What the modelling includes

The model assembles every element from the sections above to produce a view of every proposed authority, for both the proposed option and comparator options, which:

starts with a financial sustainability baseline covering each proposed authority for each financial year in each option
deducts apportioned transformation and reorganisation benefits/disbenefits for each proposed authority for each financial year in each proposed option
adds apportioned implementation costs phased for each proposed authority for each financial year in each proposed option
assesses the ability of each proposed authority to fund implementation by assuming that deficits and transformation costs are met in each financial year through usable reserves - this suggests that any LGR option without further sources of funding or flexibility in funding is unlikely to be viable

What the modelling excludes

The modelling does not take account of ‘dynamic’ factors, including but not limited to:

mitigation of cost pressures through officer and member response
unknown political choices, such as:
- council tax rates
- service provision
- capital borrowing
- committed costs of existing plans
cost pressures and overspends experienced since FY25/26 budgets have been set (which could be structural as well as in-year)
actual housing delivery, business growth, or economic shifts in specific ward-level areas
service data (activity and output level) to more accurately assess and disaggregate current demands, existing delivery models, forecasts and transition arrangements (in transition and transformation phases)