Budget Update 2025/26
Argyll and Bute Council · 27 November 2024
Back to Argyll and Bute HSCP Integration Joint Board (IJB) — 27 November 2024 and its agenda
Text extracted from the council's PDF. Layout and reading order may differ from the original.
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1 Integration Joint Board Date of Meeting: 27 November 2024 Title of Report: Budget Update 2025/26 Presented by: James Gow, Head of Finance The Integration Joint Board is recommended to: • Note that budget planning for 2025/26 is on-going and national budgeting intentions are not yet published. • Note the HSCP is not currently operating on a financially sustainable basis. • Note the potential budget gap of £15.0m for 2025/26. • Note the on-going work and next steps in the budget preparation process. • Note that the HSCP does not expect to be able to propose a balanced budget for NHS services based on current planning assumptions. 1. EXECUTIVE SUMMARY 1.1 This report provides the IJB with an estimate of the budget gap for 2025/26 and a summary of progress made in developing savings plans. The report summarises the current context and highlights that the position has been developed without the assistance of firm budgeting assumptions from the Scottish Government, now expected in December. Public finances are under severe pressure and the Health and Social Care sector as a whole is not sustainable. Additional funding has been committed by the UK Government, along with new system cost pressures, but it is not yet clear how this will impact in Scotland. Assumptions will continue to be refined as the budget cycle progresses. 1.2 The budget gap for 2025/26 is estimated at £15m, assuming the HSCP has access to £2.5m of non-recurring pension fund savings. It is anticipated that some of this gap will be addressed through increased funding. The cost and demand pressures are significant and take some account of Social Care cost pressures experienced in the current year. It is not anticipated that the HSCP will be able to develop savings plans which address this gap without impacting on access, availability or quality of service provision. The savings proposals will be progressed on the basis that it will seek to minimise adverse impacts on the most vulnerable. The estimated budget gap will be refined as improved planning information becomes available. Based on current assumptions, additional resourcing via NHS Highland will be required to enable the HSCP to set a workable budget.
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2 2. Recommendations • Note that budget planning for 2025/26 is on-going and national budgeting intentions are not yet available. • Note the HSCP is not currently operating on a financially sustainable basis. • Note the estimated budget gap of £15m for 2025/26. • Note the on-going work and next steps in the budget preparation process. • Note that the HSCP does not expect to be able to propose a balanced budget for NHS services based on current assumptions. 3. DETAIL OF REPORT 3.1 Budget Context The HSCP is not operating on a sustainable basis at present, this situation is common across the sector with many IJBs reliant upon reserves (where they have these) to achieve financial balance and fund increasing operating costs. Budget planning commenced early as a consequence of the scale of the problem. Multiple management team meetings have now taken place to identify potential projects to deliver savings. In addition to the challenge for next year, the HSCP is overspending in the current year which is an indicator of the on- going high levels of demand for care and dependency upon supplementary staffing to deliver it, particularly within social care. The main disadvantage with commencing the process early is that there is limited planning information available. Since the last update report, the UK level budget has been delivered, however the likely impact on the Scottish Government Budget is not confirmed (other than to say there is no more funding for 2024/25). The UK budget does appear to allocate additional funds for the NHS but will also result in additional employer costs for the HSCP and all of the partners it commissions services from. • The Scottish Government have not published an updated Spending Review or draft budget. • The UK Government budget increases public spending (revenue and capital), some of which will flow to Scotland but it has also increased employer NI contributions. • The UK minimum wage is to increase to £12.21 per hour (6.7%) which is above the current health and social care minimum pay rate (£12.00). • The Scottish Government Health Finance team have written to all boards confirming there is no more funding available in 2024/25 as a consequence of the budget. Boards are to operate within previously agreed targets and have been issued planning assumptions which suggest zero general uplift in the funding allocation. • The Scottish Government have cut Multi-Disciplinary Teams (MDT) funding which was allocated to help focus on redesign and to manage delayed discharges. • The 2024/25 Agenda for Change pay increase has been agreed and fully funded (5.5%) and will come with a further 30-minute reduction in
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3 3.2 the working week with a further 30 minutes reduction to be implemented in 2025/26. • The Local Authority pay offer for 2024/25 has been implemented but not accepted by all relevant staff side unions. • The Scottish Government have again made in-year reductions to a number of budgets, including Health and Social Care. • Audit Scotland have reported that funding allocated to IJB’s has been reduced in real terms, contrary to previous planning assumptions. Assumptions The HSCP is assuming that Government will fund in full the impact of the minimum wage increase and the direct increase in employers National Insurance. It is assumed that the indirect impact of NI increases will be funded or absorbed by service providers, this is a material risk to finance and / or commissioned service providers. The lack of firm planning information makes it difficult to model the budget gap accurately at present and the HSCP has focussed efforts on developing potential solutions, it is assumed that: • Current and future pay uplifts in the NHS will be fully funded and NHS re-grading costs (particularly nursing) will be fully funded. • Direct employer NI increases will be fully funded as will the impact of the increase in the national living wage / minimum pay rate for care staff. • The excess (above 3%) for the 2024/25 local authority pay award will be largely funded. • The non-recurring pension fund saving from the Strathclyde Pension Fund will be available to the HSCP in 2025/26. • The HSCP will no longer hold material levels of general reserves it can use to contribute to the budget gap. It is assumed that other cost pressures, driven by inflation and demand for service remaining high or increasing will not be funded. The Government level assumptions is that these will require to be offset by savings, including service cuts or additional funding where this is not possible in the timeframe. 3.3 NHS Formula Funding (NRAC) Analysis was undertaken recently to understand how the NHS resourcing model (NRAC) operated. The model is population based and takes into account a range of factors including rurality, demographics and the health of the population. Funding for the HSCP had been reduced due to an estimated decline in the population. Recent Census data indicated this population reduction was overestimated. The NRAC funding shares for 2025/26 are available and the national share for the HSCP has increased from 1.87% to 1.91% (2.1% increase). The cash impact of this is to be confirmed, a £1.5m recurring improvement is assumed. Estimated Budget Gap – 2025/26 The first element of the gap is the underlying budget deficit, funded by non- recurring resourcing and reserves.
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4 Social Care Gap £1.3m NHS Gap £4.3m Opening Underlying Gap £5.6m The HSCP methodology for the medium-term plan is to look ahead 3 years using a best case, mid-range and worst-case modelling of cost and demand pressures. These align with planning assumptions used by both partners. The mid-range cost and demand pressures are summarised below, appendix 1 provides detail. These make some allowance for recurring elements of overspending this year. Very limited allowance is made for further increases to staffing (for example relating to the Health and Care Staffing Act). Social Care Net Cost & Demand Pressures £4.0m NHS Cost & Demand Pressures £9.4m Total New Pressures £13.1m Financial Planning Estimate 2025/26 NHS £m Social Care £m IJB Total £m 2024/25 Underlying Gap 4.3 1.3 5.6 Estimated Cost & Demand Pressures 9.4 4.0 13.4 Total Gap 13.7 5.3 19.0 Funding Contributions NRAC Improvement (estimate) (1.5) - (1.5) Reliance on Pension Saving (non-recurring) - (2.5) (2.5) Savings Target / Additional Funding Requirement 12.2 2.8 15.0 The overall position has worsened due to Scottish Government provided planning assumptions (NHS) which include a 3% SLA uplift and a 10% drugs cost uplift with no funding. These items add circa £5.9m to anticipated spend with no attached funding. It is not tenable to assume the HSCP can make compensating savings at this level in 2025/26 and it is therefore assumed that another solution will require to be found (additional funding / share of brokerage). As a consequence, the overall budget gap has increased to £15m, equivalent to 4%. It must be understood that the reliance on the pension fund saving presents an additional recurring problem in 2026/27 and beyond, a period in time where demographic change can be expected to increase pressure on services further. It is difficult to assess that the HSCP can realistically achieve savings at this level next year. A balanced budget cannot be delivered without impact on provision which would result in significant service change and require extensive consultation. This is a common situation across the system at present. Some of the challenges in planning for this scale of saving include: • Budgets where savings cannot be realised - Service Level Agreements including the one with Glasgow, much of the Primary Care budget, Justice services and the Mid-Argyll PFI contract to highlight the main examples.
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5 3.4 3.4.1 3.4.2 3.4.3 • Inability to reduce small scale provision in remote communities. • Staffing and accommodation challenges to achieve reductions in supplementary staffing costs. • Organisational change constraints which make it difficult to implement change where it has an impact on employees or communities. The main issues to be addressed in the planning and budgeting cycle for 2025/26 include: • Expected budget shortfall. • Increasing / continued high levels of demand. • Reducing or constrained workforce. • Appetite for service reduction and in effect cuts of service provision. Transformation & Strategic Planning The Transformation Programme is in place and projects are designed to achieve longer term change rather than short term savings. The requirement to focus on the short term is having an impact on capacity for longer term change. Investment is also required to make change happen; it is unlikely to be deliverable within existing resource. The use of reserves to support revenue spend is making it difficult to commit to further investment in transformation. There is a severe shortage of the capital resource required to enable digital transformation as one example. Development of Savings Proposals The HSCP is working through the agreed process for the development of 2025/26 budget proposals. The scale of the challenge has been understood for some time and it was intended that the process would commence earlier than normal to allow for better consultation on proposals with communities, staff and the IJB. It is important that the savings programme is well understood and deliverable. Public Consultation A public consultation on the budget was conducted in February 2024 using an interactive tool. The outcome of this was reported to the IJB in March. Whilst there were some specific issues raised, the overall tone of the responses indicated disappointment at the need to make reductions. To the extent that savings are necessary, the consensus indicated they should be evenly spread across services. A desire for management costs to be reduced was communicated by the public. The HSCP is not intending to re-run the exercise as there is both an opportunity cost and real cost of extending the license for the software (circa £4k). Staff Consultation Engagement has taken place with staff asked to make suggestions for savings opportunities. 18 members of staff took the time to respond, some of which overlapped, and some respondents made multiple suggestions. These were reported at the last meeting and are being incorporated in the
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6 plan where appropriate. It is of note that several members of staff indicated a frustration at the on-going cost of locum and agency staffing and suggestions that staff retention and development should be prioritised. 3.4.4 3.4.5 3.4.6 Service Planning Work is underway to develop savings options, the process is challenging as most of the plans have an impact on service delivery. Service management are also in the process of reviewing budgets and spend in detail to seek to identify ‘housekeeping’ savings which will contribute to the final savings programme. This process has been on-going for many years now, however, there are new opportunities as spend patterns, trends and managers change over time. These savings would not normally require stakeholder consultation but can make a valuable financial and cultural contribution. Examples include: • Public Health commissioning • Removal of vacant posts • Rationalisation of telecom lines • Increased charging for telecare services At present these add up to £285k and some will require EQIAs to be completed. The more strategic priorities under consideration are summarised for each of the main services below. These provide an early indication of the changes suggested by management to deliver cost savings. It is not likely that these will result in sufficient savings to balance the budget. Children’s & Families – Maternity Services Review A full review of maternity services is underway. It is intended that the process will pilot a model for reviewing all of the services that sit within Children, Families and Justice. The process includes staff engagement from the outset and will take into account: • Configuration of services within Argyll & Bute. • Demographics, birth rates and complexity of need; and • Best practice and national service developments. The scope of the directly delivered service budget under review is £2.7m with a further £3m included within the SLA with Greater Glasgow and Clyde for births which take place within their maternity units. The review is anticipated to complete in February 2025, organisational change processes will follow, if the review recommends changes to service provision. The outcome will be reported through existing governance structures. If any savings derive from this work it will be reported in the budget paper but delivery of savings is likely to fall into 2026 and beyond. Adult Services – Care @ Home Services The care at home service is currently undergoing change as the new contract is introduced in November 2024. Challenges include:
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7 3.4.7 • Continuing high demand and unmet need. • Increasing use of agency staff within social care. • Lack of housing options for workers (Islands & Oban). • Pressure to minimise hospital delays. • Full organisational redesign of the Argyll and Bute service is underway. The care at home service impacts on a wide range of other services such as those offered by community nurses, AHP teams and demand for residential care. The budget sits at circa £20m. Specific consideration is being given to: • The linkages between telecare, mobile teams and the responder contract due for renewal in early 2025. • How the service can achieve a reduction in the use of agency staff and operate with sustainable staffing models. • Access and equity for Self-Directed Support payments; and • Reviewing of assessment thresholds and governance of care package implementation. Some allowance has been made in the cost pressures for the impact of demographic change. Longer-term planning for the financial and staffing implications of the increasing number of older adults is not adequately resolved nationally or locally. In order to reduce costs, it will be necessary to change the way care needs are assessed and the level of care that can be provided within the available budget. A principled and values-based approach is being taken which will seek to deliver on the priorities (as outlined in the strategic plan) in a fair, safe and equitable way. A strategic development process is underway in respect of HSCP operated care homes, this piece of work is complex and will take some time to complete, it is not expected that financial savings will be derived from this budget in 2025/26 other than through inflation increases on charges. A working group has now been established to review the responder service contract and how it relates to the range of services and staffing models within the service. This includes the review of activity data and any change will require the completion of an EQIA. The contract has a £1.8m value. Options range from continuation, through a reduction in scope to cancellation. It is perceived as the main opportunity to achieve a reduction in the Social Care budget gap in 2025/26. A minimum savings target is still to be established but this is clearly an opportunity to achieve a cost reduction. Adult Services – Time to Care The Time to Care project is approximately half-way through, it is externally facilitated by Meridian and funded by NHS Highland. It is intended to model how staff time is used within community teams with the objective of increasing the time staff have available to spend with patients and clients. The process will also focus on the training and development of systems and
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8 3.4.8 3.4.9 3.4.10 people at team leader and management levels. Staff engagement and communications continue. There are some opportunities for efficiencies being identified, however this does not necessarily mean it will be easy to realise savings. The main part of the project is scheduled to complete in November and it should then be possible to quantify the potential financial saving that can be attributed to it. Organisational change processes are likely to be a barrier to delivering savings should efficiencies be identified. The project could help to identify some early opportunities to reduce supplementary staffing. Acute & Complex Care – Rural General Hospital A review of the services offered within LIH is in its early stages. It is intended that the HSCP will work with NHS Highland to look for opportunities to better co-ordinate activity in Oban and Fort William in particular. It is anticipated that there may be some options to reduce duplication across the sites and create more joined up and sustainable staffing structures. There are some expensive out of hours arrangements in place and there appears to be excess theatre capacity. An approach to making better use of theatre capacity would also feature in this transformation work with potential for income generation or reduction in activity within SLA contracts. Mid Argyll & Kintyre Service Model This project is intended to review all services delivered across the area to: • Address consistent and continuing staffing shortages. • Review demographic data and care needs. • Review the impact of recent investment in Kintyre (purchase of KCC and transition to an internal care at home service; and • Identify areas of unnecessary duplication. It is expected that this work will identify potential savings but should be considered to be a longer-term transformation project to sustain services. However, there may be specific services where shorter term change is required due to the staffing challenges. Care Package Reviews A decision has been made to invest in the review of care packages. The programme is being scoped out but will include: • Care @ Home packages • LD/PD and Mental Health packages • Direct payments (Self Directed Support) The process will look to improve governance over care package decision making and the process will set specific targets for the number of packages to be revied starting with most expensive ones. Care packages at present have a total cost of around £30m with 55 packages costing over £100k or £8.5m of the total.
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9 3.4.11 3.4.12 3.5 The reviews will be designed to ensure that care provision appropriately meets the needs of the vulnerable people being supported. It is not possible to set a target financial saving at this stage. Contract Management and Inflation Cost and demand pressures have been scaled back slightly to reflect lower inflation. It is intended that the HSCP will seek to arrange contract renewals on a flat cash basis except where specific funding is received to provide for uplifts or where contract rates are set nationally. It is unclear if funding for NI increases will be made available for 3rd sector / commissioned service providers operating in the health and social care sector. It is anticipated that the living wage will increase and the HSCP would expect to receive funding for this and would intend to pass this to providers where appropriate. The process of contract management reviews will continue and managers will continue to scrutinise all contracts in terms of the value for money they provide. Service Transformation The Transformation Programme has been recently reviewed and the new structure in place around this piece of work is still under development. Important themes for strategic transformation in addition to the projects summarised above include: • Digital Transformation. • Care Homes and Housing. • Community Hospitals. • Strategic Workforce Development and Accommodation; and • Fleet Management. The Transformation programme overlaps with the main savings projects, but it is recognised that the demographic, finance and staffing challenges are set continue for many years and longer term transformation is therefore needed in addition to shorter term savings projects. This work will also seek to look at areas where there have been long term challenges with recruitment and staffing. It is anticipated that there will be circumstances where the HSCP must consider if it can continue to provide the current range of services in all the locations that it does at present. On-going reliance on temporary staffing presents clinical risk as well as being costly. Next Steps The development of the budget will include progressing the projects described above as well as seeking to identify other opportunities for savings through, for example vacancy and expenditure control processes: • Chief Officer approval of all locum and agency contracts and extensions. • Further scrutiny of vacant posts.
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10 • Changes to PECOS approval processes to stop unnecessary spend. • Tightening of care package approval processes; and • Review of grant and commissioning commitments and renewals. The process is challenging, particularly in the operational context facing the management team. On-going communication and consultation are critical as is engagement with partners as they will be required to provide support for the change required. In particular, support with the HR aspects of change is a gap within the management structure. It is accepted that some mechanisms that organisations normally apply to reducing costs are not available in the context of HSCPs as a result of policy commitments and/or partner approaches to HR management. Engagement with staff and the IJB and Finance and Policy Committee will continue throughout the process. Discussions with both partners will continue, based on current planning assumptions the HSCP does not believe it can achieve financial balance in 2025/26 in respect of its NHS budget and will require resourcing above the level assumed. It does expect to be able to develop plans which could enable it to operate Social Work / Social Care services within available resources in 2025/26 assuming the non-recurring pension fund saving is passed on and pay increases above 2% are funded. However, getting to this position will require reductions in service provision. November – December 2024 -Firm up savings plans and agree target savings -Develop engagement plans for staff and communities where appropriate November – December 2024 Review Scottish Government Draft Budget and planning assumptions to refine estimated budget gap January 2025 IJB Approval for Operational Savings identified to date January – February 2025 Conduct engagement and detailed planning in respect of proposals March 2025 Approval of Budget and savings by IJB The table below summarises the current areas of focus: Service(s) Project Approx Service Budget Children & Families Maternity Services Review £5.7m Adult Services – Care @ Home Review of service and contracts £20m Adult Services – NHS and Social Care Time to Care project - Meridian TBC Acute & Complex Care Rural General Hospital model review with NHSH £17m All Services Mid Argyll & Kintyre Service Review TBC
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11 Adult services and Acute and Complex Care Structures Care Package Reviews £30m All Services Contract Management and Restrict inflation £6m The next steps are to identify project leads where these are not yet in place and estimate realistic savings targets and timelines. 3.6 4 4.1 5 5.1 Medium Term Planning The medium-term plan will be updated in detail once the Scottish Government have published their budget for 2024/25. The table below provides an indicative analysis of the potential scale of the challenge. NHS Social Care Total £m £m £m 2025/26 Estimated Gap 12.2 2.8 15.0 2026/27 Remove non-recurring funding 0.0 2.5 2.5 New Cost & Demand Pressures 8.5 3.4 11.9 Potential additional 26/27 Budget Gap 8.5 5.9 14.4 2027/28 New Cost & Demand Pressures / Gap 8.1 3.8 11.9 Cumulative Annual Gap 28.8 12.5 41.3 The table indicates an increasing budget gap, it is not clear at present to what extent the HSCP will be required to deliver savings as additional resource is likely to be allocated. Savings of this magnitude would require service closures. These figures will be remodelled as soon as long-term budget assumptions are provided by the Scottish Government. It is not expected that there will be an opportunity to access funding for major capital programmes during this period. The focus will be on addressing backlog maintenance and funding transformational projects where possible. RELEVANT DATA AND INDICATORS Information is derived from publicly available public planning documents, professional networks and financial systems of both partners. CONTRIBUTION TO STRATEGIC PRIORITIES The Integration Joint Board has a responsibility to balance its budget and ensure spend and investment is aligned to the Strategic Plan and the priorities therein.
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12 6 6.1 6.2 6.3 GOVERNANCE IMPLICATIONS Financial Impact – the budget gap is significant and plans to reduce spend are required. It is expected that the HSCP will require additional resource in 2025/26 to fund NHS related spend in particular. Staff Governance – None directly from this report but there is a strong link between HR management and delivering a balanced financial position. Clinical Governance – None directly, however if costs savings are required there will be implications for care provision. 7. 7.1 8. PROFESSIONAL ADVISORY The budget planning process for 2025/26 ensures that Professional Leads are fully engaged. EQUALITY AND DIVERSITY IMPLICATIONS 8.1 None directly from this report, service changes will require impact assessments to be completed. 9. 9.1 10. GENERAL DATA PROTECTION PRINCIPLES COMPLIANCE None. RISK ASSESSMENT 10.1 Financial sustainability is a Very High risk on the strategic risk register. Specific risks relating to this report include: • The HSCP is not able to identify savings opportunities to a great enough extent to enable it to propose a balanced budget. This could result in interventions from partners or Government. • The IJB may not support the proposals due to increased risk. • Some of the planning assumptions turn out to be optimistic. • Scottish Government or partners do not pass on funding as assumed or make available resources. • Adverse impact upon workforce and lack of HR and support service support to effect change. • The HSCP is not able to deliver the approved savings and operate on a financially sustainable basis in 2025/26 and beyond. This could have significance consequences for the IJB. The HSCP is not currently in a sustainable financial position as spend and service demand exceed available funding, this is included in the Strategic Risk Register. 11. PUBLIC AND USER INVOLVEMENT AND ENGAGEMENT 11.1 None directly from this report, engagement on activities relating to savings and transformation forms part of the project plans where appropriate. The HSCP is transparent in respect of its finances and this report is publicly available. The
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13 HSCP does not intend to re-run the public consultation due to the cost of the software, it will however continue to communicate and engage with all partners in respect of the financial challenge it faces. 12. CONCLUSIONS 12.1 12.2 This report provides an indicative estimate of the scale of the HSCP budget gap and savings target for 2025/26. The budget gap for next year is estimated at £15m or 4% of spend. Work is on-going throughout the management team to develop savings proposals. This process has commenced earlier than in recent years due to the scale of the challenge. However, it not realistic to assume that the HSCP can deliver a balanced NHS budget for 2025/26 based on current planning assumptions. The constraints on the pace of service change do not enable such a level of change in the timescale available. 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 14. PREVIOUS REVIEW OF THE REPORT Meeting Title of report Date Output (if relevant) SLT Budget Update 18/09/24 Amendments made IJB Budget Update 25/9/24 Recommendations noted Finance & Policy Committee Budget Update 28/9/24 As above SLT Budget Update 20/11/24 TBC Finance & Policy Committee Budget Update 22/11/24 TBC APPENDICES: Appendix 1a & 1b – Cost & Demand Pressures AUTHOR NAME: James Gow, Head of Finance EMAIL: james.gow@argyll-bute.gov.uk