Budget Outlook and Medium-Term Financial Planning: 2027/28 To 2029/30
Argyll and Bute Council · 18 August 2026
Back to Argyll and Bute HSCP Finance and Policy Committee — 18 August 2026 and its agenda
Text extracted from the council's PDF. Layout and reading order may differ from the original.
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1 Finance & Policy Committee Date of Meeting: 18 August 2026 Title of Report: Budget Outlook and Medium-Term Financial Planning: 2027/28 to 2029/30 Presented by: James Gow, Head of Finance The Finance & Policy Committee is asked to: • Consider the budget outlook for 2027/28 to 2029/30 and note the risk and uncertainty regarding cost and funding assumptions. • Note the forecast budget gap of £34m for 2027/28 including £18m relating to the SLA with NHS GG&C. • Note that work on the savings plan and approach to managing the NHS deficit is continuing in partnership with the Council and NHS Highland. • Consider the strategic implications of the budget gap outlined in this report • Endorse the timeline and process outlined in this report. • Note expenditure control measures continue to be implemented. 1. EXECUTIVE SUMMARY 1.1 1.2 1.3 This report provides an updated budget outlook for 2027/28 and the following two years. It takes into account recent Government policy documents and nationally utilised assumptions in respect of funding and inflation uplifts. It is anticipated that the Scottish Government will publish its budget in December 2026 and will have also set out its public sector reform agenda by then. The HSCP will be in a better position to refine its financial modelling, at that time, however this will be too late to put in place service change plans in time for budget approval by the IJB in March 2027. As has been highlighted in financial reporting documents and by the External Auditor, the HSCP is not operating on a financially sustainable basis and, as a result, it is now required to make significant cost reductions. It does not expect to be able to finance current levels of spend in future years, particularly within health services. The situation has worsened as SLA costs have escalated and the Scottish Government have reduced their baseline funding uplift from 3% to 2%. The financial plan and savings programme will continue to evolve, as funding allocations are confirmed by Government and partners. The outlook aims to provide a framework for the development of the 2027/28 budget whilst placing it in a medium-term context. While the Scottish Government has recently published strategic direction / policy documents relating to Health and Social Care, funding levels have not been increased and there is no clear
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2 commitment to fund increasing demand and costs within the system. At a high level there is still a commitment to protect and invest in Health and Social Care, however, the previous commitment to real terms funding increases is not feeding into formula funding allocations when the impact of inflation and increasing demand is taken into account. 1.3 1.4 The situation across the Health and Social Care remains unsustainable with many IJBs and Health Boards reporting deficits. The financial context continues to worsen, and further efficiency and cost savings are required. Few opportunities remain for housekeeping or operational savings, and most further savings require service change along with proportionate impact assessments and consultation. Urgent work is required to develop and consult / engage on firm savings proposals to seek to balance the budget with the expectation that enhanced financial control measures and additional funding (NHS) will also be required. The scale of the NHS budget gap is such that it is now the case services to Argyll & Bute residents are costing well in excess of formula funding and the increase in costs for acute care presents a strategic risk to local service delivery. Appendix 1 provides recent summary financial data for HSCPs. There is a high degree of risk that short-term financial measures may impact on the strategic imperative to support preventative measures in health and social care, or reduce the effectiveness of the care system, resulting in further demand and cost pressure in the medium term. The development of the financial strategy needs to align with the JSP and service change aimed at reducing cost and shifting to preventative models of service provision. 2. INTRODUCTION 2.1 The purpose of this report is to update the medium-term financial outlook / plan and to provide a timeline for the budgeting process leading up to approval of a budget in March 2027. It summarises the context and aims to ensure that the HSCP has a realistic financial outlook upon which to base its planning decisions. The financial plan aligns with the new Joint Strategic Plan which has been developed in the context of anticipated resource constraint. The report includes the following sections: • Financial & Strategic Context • Current Financial Position • Revenue budget modelling & assumptions • Budget Gap and Savings Target • Transformation & Investment • Reserves • Scenarios and Risks 3. 3.1 DETAIL OF REPORT Strategic Context The Scottish Government published its spending review along with a number of strategic and policy documents: - Health and Social Care Service Renewal Framework - Scotland’s Population Health Framework
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3 - Scotland’s Fiscal Outlook: Medium Term Financial Strategy It has indicated that public sector reform is to be prioritised, it is not yet clear exactly what this means for the Health and Social Care Sector beyond the development of sub-national (regional) planning across 2 areas; East and West. Argyll & Bute and NHS Highland are within the West area. The National Care Service proposals are not progressing. The regional approach provides a framework for consideration of the SLA and re-charging mechanism. There may be further structural implications associated with reform adding to uncertainty and risk. The health and care sector continues to be under severe service demand pressure and is broadly understood to be operating on an un-sustainable basis financially. The pressure is deriving from: - Demographic change and service demand. - Staffing recruitment and retention challenges. - Financial pressures, systemic overspending, reducing reserves and increasing budget gaps. - Failure to deliver sufficient cash releasing savings quickly. - Public services not sustainable and reduction in the public sector workforce is required alongside public sector reform. Inflation has reduced but is above target and remains a risk, the long-term impact of the conflict in the middle east is still to be fully understood. CPI is 2.6%, with RPI at 3.0%. Inflation is expected to remain high enough to put pressure on budgets during the planning period. Pay rates for NHS and Local Authority staff and uplift for care staff are still to be set from April 2027. Planning assumptions will be clearer in December. The NHS NRAC formula is still to be updated; this improved slightly in recent years for Argyll & Bute. The HSCP cannot wait until December to progress budget planning as there will be insufficient time for governance and engagement processes to take place prior to budget approval in March 2027. There are new legislative requirements and duties, the Care Reform Act, and The Promise, being two examples. These may result in further cost pressures if there is no additional funding to support new rights for people and obligations upon the HSCP to provide service. The HSCP has a new Joint Strategic Plan (JSP), this reflects the financial context. The implementation of the JSP will require to be aligned with the medium term financial plan. It is clear that the shifts in spending priorities will take time and are complex to manage. 3.2 Financial Position Financial performance in 2025/26 was favourable and increased reserves slightly to cover the deficit in 2026/27. As a consequence the 2026/27 budget appears manageable (excluding the SLA with Greater Glasgow & Clyde). Due to the different context for the two elements of the budget, NHS budgets and Council budgets will likely follow different processes with different expectations. General reserves as at the end of 2025/26 were:
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4 Discretionary Reserves £'000 Social Work General Reserve 1,432 NHS General Reserve 3,315 Total 4,747 These are below the 2% target and £2.4m of the NHS reserve is being used to support the NHS revenue budget in 26/27. Financial restrictions remain in place. Some of these are likely to be implemented more rigorously: - Care at home efficiencies – no net increases in care at home hours delivery. - Weekly vacancy monitoring reviews. - Direct leasing of key worker accommodation. - Reductions in agency staffing, where possible. - Contract reviews. - Limited new commitments from reserves other than to fund budget gaps or new government priorities. - Appointment of Reviewing Team to review care packages. These actions are, in some cases, related to the savings programme approved by the IJB already, such as the threshold of care and the reductions to 3rd sector contract costs. 3.3 Revenue Budget 2027/28 to 2029/30 3.3.1 3.3.2 Services are largely funded by allocations made by the Scottish Government to Local Authorities and NHS Boards. They pass on funding for delegated services. Allocations are predominantly based upon formulae which take into account factors such as population demographics, levels of deprivation, and rurality. Local planning assumptions are based upon those used nationally within the NHS and by Argyll & Bute Council. The following sections outline the financial outlook within each service; these are essentially providing a net expenditure budget if we continue to operate, as we are. They take into account assumptions on pay and non-pay inflation, a small allowance for increasing demand from demographic change and current trend data along with other known service changes and cost pressures. All figures are based upon a mid-range scenario, prior to publication of the Scottish Budget there will remain uncertainty. Social Work Budget The Social Work / Social Care Budget is being prepared in the context below: • Council allocated substantial extra resource to the HSCP in 2026/27. • £1m of this extra resource is non-recurring. • The 2026/27 savings plan targeted older adult budgets (care at home / threshold of care) and the 3rd sector (carers centres and older adult community services) disproportionately.
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5 • It is expected that, due to the net value of assets held in the Strathclyde Pension Fund, there will be a further reduction in employer contributions. • The Council are forecasting a large budget gap and a repeat of new money for social care is not expected. • Recent provider failure will require new operating models, and additional cost, to deliver care at home services. • Changes arising from the care homes strategic work will not impact until future years (2030 onwards). • It is assumed that SG will fully fund the increase in the minimum pay rate for care staff. The table below summarises estimated incremental pressures on Social Work / Social Care budgets based on a mid-range scenario. Modelling will continue as spend patterns are shifting. There is a small allowance for unknown cost and demand pressures, this will be allocated to the most appropriate services as the budget cycle proceeds. There are mitigations which narrow the gap but there is risk with the assumptions. It is important that the HSCP has a realistic view of its likely gap to ensure that expectations regarding the budget proposals are as accurate as possible. The starting point is the current year budget which is in balance but is supported by £1m in non-recurring funding. There are also service risks, mainly associated with the care at home service which could potentially put further upward pressure on costs. As general reserves are below the 2% target these are being held in contingency and are not considered to be available for reducing the budget gap. Social Work Cost and Demand Pressures 2027-28 £000 2028-29 £000 2029-30 £000 Pay inflation @ 3% for 2022/28 and then 2% per annum 1,282 2,162 3,060 Incremental pay increases 158 316 474 Non-Pay Inflation 984 2,023 3,119 Children and Families demand – looked after children 100 175 250 Mental Health Demand 100 175 250 Older People Demand Growth (1%pa) 486 980 1,481 Allowance for unknown cost and demand pressures 200 400 600 Minimum Pay Rate / Free Personal Care Uplift (TBC) 3.000 6,000 9,000 Removal of non-recurring council funding (TBC) 1,000 1,000 1,000 Total Social Work Cost and Demand Pressures 7,310 13,231 19,234 Offset by additional funding: Inflation on NHS Resource Transfer 307 620 939 Minimum pay rate uplift / RLW (TBC) 3,000 6,000 9,000 Total Additional Funding (3,307) (6,620) (9,939) New Budget Gap 4,003 6,611 9,295 Mitigations Removal of transition funding budget for 3rd Sector (180) (180) (180) Full year impact responder charging (no increase 27/28) (140) (140) (140) Inflation on Fees and Charges – Council approval required (180) (380) (600) Potential pension cost reduction – not confirmed (900) (900) (900) Anticipated Savings Requirement 2,603 5,011 7,475
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6 3.3.3 The next stage in the process is to identify options for addressing the gap. The severity of savings delivered in 2026/27 make it difficult to propose more. The table below lists some high-level initial options, they are not budget proposals at present and further analysis is required. The approach is to minimise further impacts on Older Adult services and upon the 3rd sector. This makes it more likely that savings will require to relate more to services that support people with lifelong conditions (LD/PD/MH) and Children and Families. This approach is informed by potential technology solutions which are currently under development. Social Work – Potential Savings Options 27-28 £000 2028-29 £000 2029-30 £000 Better use of technology and in area placements to reduce LD/PD/MH Client Packages. Budget is £19m 3% saving 27/28 570 570 570 3% further saving on above in 28/29 570 570 Limit inflation uplift on 3rd Sector contracts to 1.5% 50 100 150 Efficiency from care at home scheduling and redesign (1% / 2% / 3%) 210 420 630 Key Worker Accommodation 150 150 150 Total 980 1,810 2,070 Further options are required along with a more detailed analysis of the ones outlined above. The context of increasing delayed discharges, increasing waits for service, continuing examples of provider failure and the level of complaints all require to be taken into account. It is also important that the HSCP reviews its management and support service costs to minimise further adverse impacts on service delivery. The IJB is only likely to be able to propose a balanced Social Work / Social Care budget if it further reduces services and spend. Actions are likely to have adverse whole system implications and are likely to be contrary to the policy framework. Community engagement in respect of any further service reduction is likely to be challenging. Specific work is on-going to try and address the longer term challenges, some of this will improve efficiency towards the end of the current 3 year horizon: • Care at home redesign and technology solutions. • The strategic care home review. • Development / enhancement of technology enabled care. • Improved workforce planning, development and recruitment processes. £400k is still available to fund transformation projects. Health Budget The NHS outlook remains extremely difficult, in addition to the underlying deficit, there are new cost pressures and the NHS uplift assumption was reduced to 2% per annum. Incremental budget planning is provided based upon current national assumptions: • 2% uplift in baseline funding. • pay increases and costs associated with agenda for change (reduced working week and re-gradings) are fully funded. • no change to NRAC formula assumed.
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7 • Expectation of 3% annual efficiency savings target. This situation has been emerging for some time as the underlying deficit has been funded by reserves and dis-investment in services has not progressed alongside investment in hospital at home and unscheduled care. The approach to addressing this requires further consideration by NHS Highland and Scottish Government. The HSPC is in a situation now where substantial retraction from local service delivery would be required to balance the budget. Key elements contributing to the worsening position include: • 2% funding uplift is only £5.5m in extra funding in 27/28. • National services and National Business systems cost increase is £1.3m • Pay inflation is estimated at £2.2m • Inflation on drugs is £2m • Other local inflationary uplifts are £2.7m • There are cost pressures which could total £18.6m relating to charges from Glasgow for acute services. • The underlying deficit is £8.5m which has not been addressed. Priorities for managing this include: • Design of dis-investment approaches and re-evaluation of services. • Analysis of activity in the Glasgow acute sector to reduce where possible and address costs where these appear high. Establish if there is activity that can be delivered locally (within NHSH) at little marginal cost and removed from the SLA. • Systems re-design to reduce delayed discharges in Glasgow. • Seek to ensure 3% efficiencies are delivered re the SLA. • Engage with NHSH and Scottish Government as significant dis-investment in community services to fund acute services does not appear to be the policy intention. • Minimise cost pressures, review approach to financial controls and vacancy management. • Review available reserves to contribute to gap. The JSP indicates that there should be a shift of resource towards preventative approaches. This is not modelled due to the scale of the budget deficit. NHS Cost and Demand Pressures 2027-28 £000 2028-29 £000 2029-30 £000 Pay Inflation Uplift – assume fully funded 2% 2,220 4,484 6,794 Pay Increments 100 200 300 New prescribing & Hospital Drugs Inflation – 6% 1,972 3,914 5,984 Inflation- Commissioned Services, SLAs, Business Contracts 665 1,212 1,775 Resource Transfer Inflation 307 620 939 Inflation on PFI Contract (RPI assumption) 124 249 379 Energy, Estates & Utilities Inflation 133 318 513 Fleet cost pressures 100 100 100 High Cost Care Packages 330 692 1,057 Others 267 346 428 NSD Topslice – cost pressures 500 900 1,300 MS 365 Licenses 100 200 300
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8 Patient Transport 200 200 200 National Business Systems 771 1,399 1,649 Labs and Radiology – new contracts (reporting) 200 200 200 Allowance for unknown cost and demand pressures 0 1,000 2,000 Depreciation 170 377 587 Total Health Cost and Demand Pressures 8,159 16,411 24,505 GG&C SLA Rebasing 12,000 12,000 12,000 Potential non-delivery of SLA 3% saving 2026/27 2,159 2,159 2,159 Inflation on GG&C SLA 2027/28 -29/30 4,459 8,276 12,268 Total Impact of SLA 18,618 22,435 26,427 Less baseline uplift @ 2% (5,499) (11,206) (17,027) Assumed New Medicines Cost 4,770 9,540 14,310 Less New Medicines Funding (4,770) (9,540) (14,310) Add underlying / recurring deficit 8,533 8,533 8,533 Assumed Savings Shortfall 500 500 500 Estimated Total Budget Gap 30,311 36,673 42,938 Estimated budget Gap excluding SLA 11,693 14,238 16,511 Indicative 3% saving on baseline 8,700 8,800 8,900 There is a presumption that there will be no new increases to the net staffing establishment (including for the staffing act). Addressing this scale of gap requires significant dis-investment. The £12m gap is equivalent to around 4% of NHS spend. However, approximately 50% of the budget is considered to be largely uncontrollable by the HSCP including the baseline SLA budget and much of the primary care and drugs budgets. There are many other constraints on managing this including: • The Health and Care Staffing Act. • Commitment to no compulsory redundancies. • Planning with people and consultation requirements. • Requirement to provide universal access to NHS services. • Organisational change processes. Options for reducing the scale of the deficit are being developed and will include: • Review of reserves • Re-evaluation of approach to vacancy management • Consideration of ability to fund discretionary projects • Estimation of realistic level of drugs savings and rebates • Review of services across the area to consider dis-investment opportunities. • Requirement for additional resource – SG will likely be required to provide some additional baseline resource for the NHS due to scale of deficits nationally. Sub-national planning processes could impact upon the approach. For example if finance and recharges are consolidated then the nature of the negotiation may change from the contract and payments to the most rational way of organising services across the region to deliver savings.
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9 3.3.4 Summary Budget Gap and Savings Target This report provides an indicative budget gap for planning purposes. It is clear the scale of the gap is such that the HSCP faces an unrealistic challenge to implement sufficient change by 2027/28, to address it. There is also a systemic contradiction between the vision set out in the Health and Social Care Service Reform and Population Health Frameworks, and our current understanding of resourcing. The impacts of achieving financial balance upon the communities we serve would be substantial. The progress made in the last year to address the Social Care budget means this gap is more manageable but is 4% of spend and will still require difficult decisions to be proposed, engaged upon and implemented. Total Budget Gap - Mid Range Scenario 2027/28 2028/29 2029/30 £m £m £m Social Work budget gap before savings 4.0 6.6 9.2 NHS Budget Gap before savings excluding SLA pressures 11.7 14.3 16.5 Total NHS Budget Gap before savings 30.3 36.7 42.9 Total Budget Gap 34.3 43.3 52.1 Based on a mid-range scenario, the budget gap is estimated at £34m. In consultation with both partners and Scottish Government it is likely that the following will be required: • on-going financial recovery measures. • new savings and service reduction. • additional funding / financial support. • moratorium on new investments and minimising cost pressures. 3.3.5 Timeline & Process Initial consideration of 2027/28 budget by Finance & Policy and SLT August 26 CFO / Finance Leads Engagement with both partners August 26 CFO / CO / Finance Leads Initial report on SLA to IJB September 26 Head of Planning / Head of NHS Finance Development of options and potential impacts – Social Work Savings October 26 / November SLT Development of NHS Savings proposals October / November 26 SLT Consideration of initial options by Finance & Policy & IJB November SLT / F&P Public engagement period November 26 – December 26 CFO / Bus Improvement / Public
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10 Health / SLT / Engagement Officer Finalisation of budget proposals and IIA’s Jan 27 – Feb 27 SLT Approval of budget by IJB March 27 CO / CFO / Chair Update reports will be provided to each meeting of the Finance & Policy Committee. The following graph illustrates the spend trajectory over recent years and the projections, going forward. This clearly shows that spend has increased year on year as costs and demands have increased. Health spend has increased at a faster rate than for social care. Developments such as primary care improvement, increased vaccinations, new drugs and treatments, additional staffing, inflation on drug costs and more generous pay settlements have all contributed to this increasing imbalance in resourcing and spend. The gap between available resourcing and projected spend (if we continue to operate as we are) is increasing. Health and social care demand is correlated to the number of older adults, addressing the financial situation at the same time as providing for demographic change (and shifting resource to invest in prevention) is exceptionally difficult, the table below summarises the older adult population projections: Age Group 2023 2028 2033 2038 2043 2048 65 to 74 12,779 13,565 14,469 13,773 11,382 10,028 75 to 84 8,332 9,098 9,222 9,833 10,444 9,855 85+ 2,814 3,089 3,711 3,899 4,024 4,323 We can expect demand for adult services to increase incrementally each year well into the 2040’s. The 75+ age group is expected to increase by 16% over the next 10 years (1.6% per year) with the 85+ group increasing by more. While 0 50 100 150 200 250 300 350 400 450 500 17/18 18/19 19/20 20/21 21/22 22/23 23/24 24/25 25/26 26/27 27/28 28/29 Health & Social Care Spend - Actual and Forecast £m Social Care £m NHS £m
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11 funding models allocate resources to areas based on demographics, the total budget is not being uplifted for this. The HSCP is being pushed to reduce services and capacity at a time when demand is known to be increasing. 3.4 Transformation and Investment Argyll & Bute Council allocated £500k to support transformation projects; plans for investing this are in development. Care @ Home services have been prioritised, particularly in areas where there appears to be poorer levels of efficiency or high use of agency staffing. The HSCP no longer has much scope to progress infrastructure projects other than those funded by partners. 3.5 Reserves General reserves are below the aspirational level set in the Reserves policy. The best-case scenario is that there will be a small balance to be held to manage risk and as a contingency, subject to financial performance being in line with budget in the current year. It is expected that it will take some time before the HSCP is operating on a sustainable basis and is able to plan to return general reserves to target. 3.6 Scenarios and Risk 3.6.1 Identified risks are summarised below, using the standard assessment of probability and impact: Risk Like. Impact Mitigations HSCP unable to identify and deliver sufficient savings in 2027/28 to balance the budget. 5 5 25 Development of savings plans and engagement with both partners. Implementation of existing savings plan. Demographic or population changes reduce the formula funding to the HSCP. 3 4 12 The formula improved in 2026/27, no particular reason why there should be an adverse impact in 2027/28. Reductions in non- statutory provision leads to increased cost of future statutory provision 5 4 20 Impact assessments and consultation on proposals. Savings options not supported by IJB 4 4 16 Transparent approach to financial planning and regular updates on scale of financial challenge. One or both of the partners do not pass on anticipated funding allocated to Health and Social Care. 3 4 12 On-going partnership working and consultation. Reduced risk as both partners engaged in financial challenge. Cost and Demand pressures increase further or are not funded to the 4 5 20 Engagement in sector networks, modelling based
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12 3.6.2 extent assumed in the model. on Spending Review figures and draft Budget. Increases in pay rates or employer on-costs are in excess of those allowed for in the budget. (the assumed pension saving doesn’t materialise 4 4 16 Possible challenge if inflation remains high or increases. This will not be within the control of the HSCP Service costs increase due to providers withdrawing from the market and / or ongoing workforce shortage. 5 4 20 Commissioning strategy and engagement with partners and care providers. Workforce planning and management of agency / locum contracts. Additional funding to improve terms and conditions. Funding reduced due to reserves held by HSCP and/or across sector. 2 4 8 Opportunity reduced as sector reserves are reducing. Budget gap too large to enable this. System wide challenges result in decisions to control recruitment and spend being made outwith the control of the HSCP. 4 5 20 Ensure that implications of such decisions are communicated and understood. Ensure budget aligns with JSP. Savings options are explored which turn out to be unnecessary and cause real and reputational harm as funding allocations are greater than modelled. 2 4 8 Engagement with sector networks and partners. Public Sector Reform substantially changes the nature of financial governance for these services in 27/28 3 5 15 It is assumed that any proposed changes will require consultation making implementation more likely in 2028/29 or later. There are service and financial risks related to both partners. NHS Highland have a significant structural deficit and Argyll & Bute Council are also having to identify savings, again due to funding allocations growing at a slower pace than costs. This presents risk to HSCP financial plans and to the level of service the HSCP and communities receive from partners. There is also an expectation that real terms cuts for other public services. Scenarios The figures presented are based upon modelling of the mid-range outlook. A worst-case scenario for health assumes a 1% additional efficiency saving is required. For Social Work, the table below summarises a potential worst case which reflects increased inflation assumptions which are not funded:
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13 2027-28 £m 2028-29 £m 2029-30 £m Mid-Range Budget Gap 34.3 43.3 52.1 Health Worst Case Additional 3.1 6.2 9.4 Social Work Worst Case Additional 1.5 3.1 4.9 Worst Case Budget Gap 38.9 52.6 66.4 In the event that the outlook improves or if the Scottish Budget allocates additional resource the HSCP would be less reliant on additional funding and would move closer to a sustainable model. 3.6.3 Workforce Workforce risks are considered in the Workforce Plan. Labour shortages are likely to continue constrain the ability of the HSCP to deliver services and improvement. The financial plan requires a reduction in workforce numbers; the Scottish Government has indicated the size of the workforce should reduce and it is not going to be possible to deliver balanced budgets and efficiency improvement without an impact on staffing structures. It is hoped that the HSCP will be able to reduce the vacancies it has within existing structures and reduce its reliance on agency and locum staff to implement more cost effective, stable, safe, and sustainable staffing. 3.7 4. Alignment with Strategic Planning The medium-term financial plan sits alongside a range of HSCP strategic and operational planning documents. These include the Joint Strategic Plan and Commissioning Strategy. The impact of the changing strategic direction recently communicated by government will impact on the future direction of health and social care provision. Funding assumptions do not currently align with strategic service aspirations and the scope for the HSCP to re-allocate resources when it is attempting to manage systems pressures and a large funding shortfall. The new JSP also reflects this context. RELEVANT DATA AND INDICATORS 4.1 The budget outlook is based on a number of assumptions. These are drawn from the Scottish Government Health Department assumptions, local modelling and guidance provided by policy teams. The assumptions are considered carefully and will be reviewed and updated. There will be variations between the assumptions made at this stage of the budget planning process and the eventual funding allocations and cost and demand pressures. 5. CONTRIBUTION TO STRATEGIC PRIORITIES 5.1 The Integration Joint Board has a legal responsibility to set a balanced budget which is aligned to the delivery of the JSP and to ensure the financial decisions are in line with priorities and promote quality service delivery. This requires to be considered when options are developed to balance the budget and address the funding shortfall. This will require to be progressed with both funding partners, Scottish Government and sub-national planning frameworks.
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14 6. GOVERNANCE IMPLICATIONS 6.1 Financial Impact – There is a significant budget gap that requires to be addressed; the HSCP is required to set a balanced budget. 6.2 Staff Governance – None directly, but there is a strong link between HR management and delivering financial balance. 6.3 Clinical Governance – None. 7. 7.1 7.2 8. PROFESSIONAL ADVISORY The development of the savings plan in response to the budget outlook is being progressed in consultation with Professional Advisory Leads and the full Leadership Team. Professional advice is that the HSCP should aim to increase the provision of reablement and proactive Care at Home reviews. This is now being done. We are also required to develop or refocus services towards prevention. This is more challenging to achieve given current service pressures though is under active discussion within the management team. Efficiency improvement measures taken to manage the financial situation are leading to care at home not being provided to community and hospital in-patients to the same extent, or as quickly as in the past. This is leading to increased dependency and deconditioning from longer stays in hospital and blocks to discharge causing associated system flow pressures. Increased risk held in community and increased demand on unpaid carers are other consequences. Any further action to reduce social care activity levels / costs will exacerbate these issues. EQUALITY AND DIVERSITY IMPLICATIONS 8.1 None directly from this report. Some of the proposals to address the estimated budget gap will require integrated impact assessments and can be expected to have adverse impact upon those with protected characteristics within the terms of the Equalities legislation. 9. 9.1 10. GENERAL DATA PROTECTION PRINCIPLES COMPLIANCE None. RISK ASSESSMENT 10.1 There are risks associated with medium-term financial planning. These are quantified within the worst-case scenario and further detail is provided within the report. Financial sustainability risks are increasing to a strategic level as a consequence of the increased SLA cost. The risk is that the HSCP will be required by SG to manage down local services to compensate for increased charges for acute care. 11. PUBLIC AND USER INVOLVEMENT AND ENGAGEMENT 11.1 Public engagement in relation to the 2026/27 budget was extensive with multiple in person events and a much higher level of public input than in previous years.
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15 The HSCP can demonstrate that the engagement resulted in changes to the budget proposals and contributed to an improved approach in very challenging circumstances. As this took place relatively recently it is intended that the budget engagement will be more limited for the 2027/28 budget process with the focus of in-person events being in relation to actual proposals rather than the generality of the budget. This is part of the extensive engagement plan. 12. CONCLUSIONS This document provides an updated budget outlook for 2027/28 to 2029/30. It outlines the key assumptions, cost pressures, and risks. It also provides an indication of the scale of the budget gap facing the HSCP. It highlights a severe financial challenge in relation to NHS services which has been building in recent years. Reserves are being depleted, and inflation has eroded the real terms value of budgets. The step increase in SLA costs has been driven by a re-basing of activity and costing by NHS GG&C. This issue means that services within Argyll & Bute are costing well in excess of baseline health funding. This is a strategic risk to local services. Recent efforts to manage down social work / social care spend has been effective in moving these services to a more sustainable position, particularly with the assistance of additional resourcing provided by the Council. However, there is on-gong requirements for further savings alongside longer term service change and investment in technology. The identified budget gap requires to be addressed in a variety of ways which take into account the health and care needs of the population as well the imperative to balance the budget and fund expenditure plans. The assumptions underpinning the modelling summarised in this report will be updated throughout the coming months. At present, it is clear that the HSCP continues to face a stark financial challenge in respect of NHS services in particular. The constraints on change will mean that this will take some time to deliver and return towards a sustainable position. 13. DIRECTIONS Directions required to Council, NHS Board, or both. Directions to: tick No Directions required √ Argyll & Bute Council NHS Highland Health Board Argyll & Bute Council and NHS Highland Health Board AUTHOR NAME: James Gow, Head of Finance james.gow@argyll-bute.gov.uk
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16 14. PREVIOUS REVIEW OF THE REPORT Meeting Title of report Date Output (if relevant) Strategic Leadership Team Budget Outlook 10 August 2026 Noted – requirement to develop proposals acknowledged Finance & Policy Committee Budget Outlook 18 August 2026 TBC Appendix 1 – IJB Financial Position