08 - 2025-12-10 IJB - 20251210 Medium Term Financial Outlook 2026-2029
North Lanarkshire Council · 10 December 2025
Back to Health and Social Care Integration Joint Board — 10 December 2025 and its agenda
Text extracted from the council's PDF. Layout and reading order may differ from the original.
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REPORT Item No: 8 SUBJECT: Medium Term Financial Outlook 2026-2029 TO: Integration Joint Board Lead Officer for Report: Chief Officer Author(s) of Report Chief Finance Officer DATE: 10 December 2025 1. PURPOSE OF REPORT 1.1 This paper is coming to the Integration Joint Board (IJB) For approval For endorsement For noting 1.2 This report advises the IJB of the medium term financial forecast position for 2026- 2029. 2. ROUTE TO THE INTEGRATION JOINT BOARD 2.1 This paper has been: Prepared By: Chief Finance Officer ☒ Reviewed By: Chief Officer ☒ Endorsed By: ☐ 3. RECOMMENDATIONS 3.1 It is recommended that the IJB: (1) Note the Medium Term Financial Outlook (MTFO) position for 2026/27 to 2028/29. (2) Note the forecast funding gap over the three-year cycle. (3) Recognise the uncertainty in council funding arising from ongoing reviews of Grant Aided Expenditure. (4) Recognise this outlook will be subject to ongoing review prior to the Medium Term Financial Plan (MTFP) being presented to the Board for approval in March. (5) Note the work underway to identify options for addressing the budget gap. (6) Note the forecast reserves position. 4. VARIATIONS TO DIRECTIONS Yes No N/A
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5. BACKGROUND 5.1 In September, the IJB received a report presenting the initial iteration of the MTFO for 2026/27 to 2028/29. The report highlighted the financial challenges facing the University Health & Social Care Partnership (the Partnership) over the next three years. 5.2 That outlook indicated an envisaged 3 year budget gap of £63.388m (2026/27 £26.241m, 2027/28 £17.727m and 2028/29 £19.420m). Taking that position as the new baseline, this paper provides an updated outlook, reflecting a refresh of the underlying assumptions and incorporating the latest intelligence on cost pressures, funding projections, and service demand. The purpose of this update is to ensure that the Board has a clear and current understanding of the financial outlook, enabling informed decision-making and strategic planning in the context of ongoing fiscal constraints. 6. FINANCIAL CONTEXT 6.1 Health and Social Care Partnerships operate within a highly complex and dynamic environment, where national policy decisions and systemic pressures directly influence service delivery models and the financial resources available to sustain them. 6.2 Analysis of recent census data and sector-wide trends confirms that demand for health and social care services continues to exceed the funding allocated. This imbalance creates significant operational and financial risk for the Partnership, compounded by the increasing difficulty of implementing service redesign options that do not adversely impact service users. Despite these challenges, it remains imperative that the Partnership maintains a service model that is both effective and financially sustainable over the long term. 6.3 The Partnership’s financial planning framework is subject to ongoing review and refinement through a scenario-based approach. This methodology reflects the considerable uncertainty surrounding future cost trajectories and the variability of potential funding settlements, ensuring that strategic decisions are informed by robust risk assessment and contingency planning. 7. FORECAST ASSUMPTIONS 7.1 This MTFO focuses on the likely cost pressures that the Partnership can reasonably expect over the next three years. These assumptions have been informed by the local and national context within which the Partnership operates, Appendix 1 sets out the assumptions underpinning the financial outlook presented to members in September. This section highlights the key pressures that have evolved since that time. Contractual Pressures 7.1.1 The National Care Home Rate will not be known until Spring 2026. An annual 10% increase was included in the September outlook and there is currently no evidence to suggest that this should be reduced therefore the pressure remains at £4.893m. 7.1.2 Contract inflation for Care at Home services reflects increases in the Scottish Living Wage, which has recently been set at £13.45. However, the actual cost to the Partnership will also depend on Scottish Government weightings that are not yet confirmed. As a result, the financial forecast assumes an average of the anticipated weighted increase for 2025/26. This results in a provision of £7.014m which is £0.417m higher than the September outlook.
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7.1.3 A provision of £2.545m has been included in the 2026/27 outlook for inflationary pressures across the Partnership. This is based on the OBR’s Economic and Fiscal Outlook as at March 2025 (the most recent available forecast). Demand Pressures – Social Care 7.1.4 Demand on social care services continues to increase which has been well reported through the 2022 census information. A provision of £34.821m has been included over the next 3 years which is based on an average 5% increase. The projected value for 2026/27 is £12.825m, representing an increase of £11.633m compared to the September outlook. This substantial change is primarily due to limited progress on the £10.686m savings target, with only £1.168m achieved to date. For forecasting purposes, the outlook assumes no further savings will be delivered in this area. Pay Pressures 7.1.5 Employee costs represent 34% of the IJB net budgets therefore any increase in pay awards have a material impact on the forecast plan. 2026/27 Pay Award The pay award for NHS staff has been agreed at 3.75% however 0.75% of this will be funded by Scottish Government therefore the cost is £3.109m. Council staff have agreed a pay award of 3.5% which will be fully absorbed by the Partnership at a cost of £3.420m. Pay Award – future years Negotiations have yet to take place for 2027/28 and 2028/29 therefore 3% has been assumed reflecting the Public Sector Pay agenda at a cost of £12.339m. Prescribing 7.1.6 The MTFP included a 10% increase for 2026/27 and 2027/28; based on current projections this remains unchanged for this financial outlook. The provision for 2026/27 is £8.534m with the total 3 year provision being £28.249m Reinstatement of Non Recurring Solutions 7.17 The September outlook highlighted that several non-recurring measures were used to address budget gaps in 2024/25 and 2025/26. As no recurring solutions have yet been identified to replace these, a cost pressure of £16.547m has been included to reinstate these budgets Funding 7.1.8 Funding contributions from both Partners are significantly influenced by the Scottish Government Finance Settlement which will remain unknown until January. The MTFP currently includes a 3% increase on Health Services and 5.6% for Council Services. These forecasts would generate recurring income of £20.640m in 2026/27 and £64.482m over the 3 years. 8. GRANT AIDED EXPENDITURE 8.1 Grant Aided Expenditure (GAE) is part of the General Revenue Funding (GRF) that local authorities receive annually from the Scottish Government. It is a needs-based methodology used to allocate total revenue funding equitably among local authorities based on relative need.
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8.2 The three main GAE lines in relation to social care for the elderly are: Residential Care for the Elderly, Services for Home-based Elderly, and Personal and Nursing Care for the Elderly Historically, social care for older people in Scotland was means-tested, in 2002, the policy changed to provide free personal and nursing care to all elderly individuals, regardless of income. 8.3 The distribution methodology for these budget lines includes indicators calculated based on data collected through the census. The COSLA Settlement and Distribution Group (SDG) periodically review existing distributions to ensure they remain fit for purpose and have identified that the current distribution methods rely on out-of-date data (including some from 2001). SDG have found that many are either incorrect or not using needs-based indicators therefore are not reflecting the expected number of clients in each authority. Therefore, SDG have since agreed that these GAE lines need to be updated to best reflect the latest client numbers. In addition, the modelling of the client numbers, the variable weightings, and the quality of the weightings also need to be updated to ensure that sufficient weight is given to the correct older-age client numbers that drive the most need. 8.4 There is currently no indication as to which authorities are likely to be positively or negatively affected and there is also no indication of the amounts. To manage the financial impact of these changes, the SCDG recommends using the “Floor” mechanism to ensure the impact is smoothed. The Floor is designed to reduce the immediate financial impact of funding distribution changes on individual councils and ensures no council receives less than a set minimum change compared to the national average. The mechanism is self-funding with Councils above the Floor contributing proportionally to those below it. The SDG however have recently advised that prior to application of the floor, the combined impact of all changes gave a largest percentage increase of 22% and a largest percentage decrease of 20%, with these reducing to a 2.6% increase and 0.75% decrease following application of the floor (assuming no other changes within the settlement). 8.5 If agreed, these changes will take place from 2026/27 onwards and importantly would not have any retrospective impact. Council Leaders have included a specific recommendation that the Local Government Settlement cannot require any specific amount relating to past years funding be passed to IJBs. As members know, recent Council practice has been to pass on all changes in Adult Social Care funding lines to the IJB. Given the potential for significant changes, when the settlement figures are released in January, an assessment will be made by the Council on whether it would be appropriate to calculate the impact on their Floor contribution with the view to including this within the overall adjustment passed to the IJB. 8.6 Members should therefore note that this financial outlook does not include any forecast adjustments in relation the settlement methodology changes, further updates will be provided in the coming months 9. MEDIUM TERM FINANCIAL OUTLOOK SUMMARY 9.1 Using the financial planning assumptions detailed in section 7, a range of risk-based scenarios have been considered, resulting in optimistic, envisaged and pessimistic positions. 9.2 Table 1 provides a summary of these scenarios over the forthcoming 3 years.
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Table 1 9.3 It is recommended that the IJB progresses with a financial strategy based on the envisaged scenario. This scenario projects an estimated budget gap of £80.905m over the 3-year planning period 2026/27 to 2028/29 of which £38.177m relates to 2026/27. 9.4 It is a statutory requirement for the IJB to set a balanced budget. Board Members will meet in March 2026 to agree the Medium-Term Financial Plan to fulfil this obligation. To achieve this, a range of options will need to be considered: 9.4.1 Savings Proposals The Senior Management Team are currently working with budget managers across the Partnership to develop savings proposals equivalent to 10% and 20% of existing budgets as part of the strategy to address the projected budget gap. Each proposal will include a comprehensive assessment of associated risks, operational impacts, and implications for workforce planning. They will undergo a risk assessment using a traffic light system and will be presented to Board Members for discussion during a development session scheduled for December. Further refinement will take place during a subsequent development session in January to ensure alignment with organisational priorities and risk appetite. Final recommendations will be submitted to the Board for approval in March, supporting a balanced and sustainable financial position. 9.4.2 Non-Recurring Underspends In 2025/26, the Partnership is forecasting £6m in underspends which are being used to offset overspends and unmet savings targets. An assessment will be undertaken to determine the quantum of these underspends which may continue into 2026/27. Once established, this value of underspend could be assumed on a non-recurring basis to help reduce the 2026/27 budget gap as a temporary measure, allowing more time to implement recurring savings. However, this is not a permanent solution for the three- year budget gap. 9.4.3 Utilisation Reserves The latest reserves forecast indicates a year-end balance of £71.965m. However, a projected overspend of £3.504m will be funded from reserves, reducing the forecast to £68.461m. Of this, £31.901m represents risk-based and contingency reserves classified as usable, as detailed in Table 2. Forecast Gap 2026/27 £000 2027/28 £000 2028/29 £000 Total £000 Optimistic £32,498 £18,289 £19,318 £70,104 Envisaged £38,177 £20,587 £22,140 £80,905 Pessimistic £39,306 £23,233 £25,392 £87,931
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Table 2 A review is currently being conducted with all budget managers to confirm whether previously earmarked reserves are still intended for their original purpose. If they are no longer required for that purpose, these reserves will be closed and reclassified as risk-based reserves to help address the budget gap. 10. Budget Timetable 10.1 The Medium Term Financial Plan for 2026/27 to 2028/29 as well as the Long Term Financial Outlook to 2036/37 will be presented at the Board meeting in March 2026. The timeline leading up to the meeting is detailed in Table 3. Table 3: Budget Setting Timeline Date Meeting Purpose 3rd December 2025 IJB Development Day Discussion on savings proposals 10th December 2025 Integrated Joint Board Medium Term Financial Outlook Update 2026/27 – 2028/29. TBC - January IJB Development Day Discussion on savings proposals 18th March 2026 Integrated Joint Board Approval of Medium Term Financial Plan 2026/27 – 2028/29 and Long Term Financial Outlook to 2036. 11. IMPLICATIONS 11.1 NATIONAL OUTCOMES People are able to look after and improve their own health and wellbeing and live in good health for longer ☐ People, including those with disabilities or long-term conditions, or who are frail, are able to live, as far as reasonably practicable, independently and at home or in a homely setting in their community ☐ People who use Health and Social Care Services have positive experiences of those services, and have dignity respected ☐ Health and Social Care Services are centred on helping to maintain or improve the quality of life of people who use those services ☐ Health and Social Care Services contribute to reducing health inequalities ☐ People who use Health and Social Care Services are safe from harm ☐ Reserves £000 Ring Fenced 14.118 Earmarked 22.442 Sub Total 36.560 Risk Based 17.782 Contingency 14.119 Sub Total 31.901 Total 68.461
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People who work in Health and Social Care Services feel engaged with the work they do and are supported to continuously improve the information, support, care, and treatment they provide ☐ Resources are used effectively and efficiently in the provision of Health and Social Care Services ☒ 11.2 ASSOCIATED MEASURE(S) Each partner is required to remain within their approved budgetary provision. 11.3 FINANCIAL This paper has been reviewed by Finance: Yes No N/A 11.4 RISK ASSESSMENT/RISK MANAGEMENT The strategic financial risks detailed in the IJB Risk Register have also been updated where necessary. Relevant Risk Register Details Current Risk Level Risk Owner Financial Challenges Very High Nicola Scott Prevention and Detection of Fraud, Bribery and/or Corruption Low Claire Rae National Set-Aside Budget High Claire Rae Hosted Services Medium Claire Rae Prescribing Activity and Costs Very High Claire Rae Pharmacy Pressures within Prison Service High Claire Rae Third and Voluntary Sector Low Claire Rae Ineffective Governance Arrangements Low Claire Rae 11.5 ENGAGEMENT & PARTICIPATION Please tick the engagement and participation objectives that link(s) with this piece of work and provide further details on the engagement and participation that was undertaken. Objectives Further details ☒ Involve stakeholders in the development work aimed at achieving the national outcomes The Director of Finance of NHSL and the Chief Officer (Finance) of NLC both continue to be consulted on the financial position of the NL IJB. ☐ Provide stakeholders with information on how to get involved ☐ Ensure a diverse range of engagement and participation and opportunities are in place to suit different needs ☐ Measure how well we involve community stakeholders in the planning, design, and delivery of our services
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☒ Provide regular feedback on how stakeholder engagement and participation is shaping and influencing service development and delivery Financial information is shared with stakeholders on a regular basis and is provided to the PFA and IJB on a quarterly basis. ☒ Provide support to enable stakeholder representatives to participate meaningfully and confidently at meetings ☐ Develop participation guidelines to ensure a common understanding and set of expectations for both stakeholders and partnership staff ☒ Support engagement planning and participation in localities, taking account of other engagement activity and local plans across the Community Planning Partnership IJB Financial Plan and Reserves Strategy aligns and supports the IJB Strategic Commissioning Plan to ensure robust financial monitoring and scrutiny. 11.6 INEQUALITIES & FAIRER SCOTLAND DUTY Equality and Diversity Impact Assessment Completed & Fairer Scotland Impact Assessment Form Completed: Yes No N/A 12. BACKGROUND PAPERS Medium Term Financial Outlook 2026/27 - 2028/29 : September Board 13. APPENDIX Appendix 1 Assumptions applied in the September MTFO Nicola Scott Chief Finance Officer Members seeking further information, please contact Nicola Scott on 07581 007187.
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Appendix 1 ASSUMPTIONS APPLIED IN THE SEPTEMBER MEDIUM TERM FINANCIAL OUTLOOK Contractual Pressures National Care Home Contract The National Care Home Rate will not be known until Spring 2026. An annual 10% increase was included in the MTFP approved in March with the actual increase being 6.8%. For the financial outlook it is prudent to keep the envisaged increase at 10%. Contract Inflation for Care at Home Provision This represents the increases to the Scottish Living Wage which is unknown at this stage, therefore the financial outlook includes an average of the weighted 2025/26 increase. Inflation Inflationary pressures are based on the OBR’s Economic and Fiscal Outlook as at March 2025. Demand Pressures Social Care Demand on social care services continues to increase which has been well reported through the 2022 census information. A provision of 5% has been included over the next 3 years. Pay Pressures 2025/26 Pay Award A pay offer has been agreed for NHS Agenda for Change staff at 4.25% in 2025/26 which is higher than the 3% included in the MTFP presented to the Board in March. The budgeted increase was based on the Scottish Government’ Public Sector Pay Policy of a 9% increase over 3 years. The expectation is that Scottish Government will provide the necessary funding to meet the 1.25% increased offer. The 2025/26 MTFP also includes a 3% increase for council services pay award, however an offer of 4% has been agreed. It is also anticipated that Scottish Government will fund the differential for Council staff therefore there is no change in relation to these cost projections. Pay Award Future Years For future years the projected pay awards have been budgeted at 3% again reflecting the Public Sector Pay agenda. Prescribing Price increase and demand The price of drugs is set nationally and influenced by factors such as supply and demand, currency movements and patents. Activity is a clinical decision, and demand is ever changing despite positive work being undertaken to reduce the number of drugs prescribed. The MTFO includes a 10% increase.
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Appendix 1 Reinstatement of Non-Recurring Solutions Non-Recurring Solutions In 2024/25 and 2025/26 a number of non-recurring solutions were used to support the budget gaps and as yet recurring solutions have not been identified to replace these budgets. Scottish Government Settlement Funding Funding contributions from both Partners are significantly influenced by the Scottish Government Finance Settlement which will remain unknown until December. The MTFP currently includes a 3% increase on Health Services and 5.23% for Council Services.