Budget Monitoring - 4 months to 31 July 2024
Argyll and Bute Council · 25 September 2024
Back to Argyll and Bute HSCP Integration Joint Board (IJB) — 25 September 2024 and its agenda
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1 Classification: OFFICIAL Integration Joint Board Date of Meeting: 25 September 2024 Title of Report: Budget Monitoring – 4 months to 31 July 2024 Presented by: James Gow, Head of Finance The Integration Joint Board is recommended to: • Note that the HSCP has overspent its budget by £0.8m. • Note that an overspend of £2.3m is forecast. • Note actions are required to reduce spend and additional funding is likely to be required from Argyll & Bute Council who hold pension saving resource on behalf of the IJB; • Note that savings of £4.2m have been delivered, 64% of target. • Note that reserves of £10.1m have been allocated including the £4.7m sustainability funding. • Note the risks associated with the financial position and challenges across the Health and Care Sector. 1. EXECUTIVE SUMMARY 1.1 This report provides a summary of the financial position as at the end of month 4 and a forecast for the year. The forecast is of concern as costs within social work services in particular are in excess of the approved budget. Steps are required to manage this through reduced spend and / or increased use of reserves and non-recurring pension fund savings. Specific cost pressures relate to on-going high levels of agency and locum spend, increasing high cost placements within Children’s and Families service and high demand and agency costs within Older Adult Services. 1.2 The forecast is currently an overspend against budget estimated at £2.3m. The approach to managing this will be to: • Increased scrutiny of spend and vacancy management. • Progress the savings programme. • Consider additional controls to reduce spend. • Examine options for delaying projects or seeking additional resourcing from the pension fund savings held by the Council. At this time in the year there is significant risk and uncertainty associated with the forecast, particularly as pay settlements have not yet been agreed and funding for current offers is uncertain. It is the case that the IJB sector is in a very challenging and unsustainable financial position, as highlighted recently by Audit Scotland.
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2 Classification: OFFICIAL 2. Recommendations 2.1 • Note that the HSCP has overspent its budget by £0.8m. • Note that an overspend of £2.3m is forecast. • Note that actions are now required to reduce spend and additional funding is likely to be required from Argyll & Bute Council who hold pension saving resource for the IJB; • Note that savings of £4.2m have been delivered, 64% of target. • Note that reserves of £10.1m have been allocated to date including the £4.7m sustainability funding. • Note that there are risks associated with the financial position and financial challenges across the Health and Care Sector. 3. DETAIL OF REPORT 3.1 4 Months to 31 July 2024 The table below provides the year to date figures, Social Work services report on a cash basis whereas the Health figures are on an accruals basis. Appendix 1 provides an analysis of the variances: Service Actual £000 Budget £000 Variance £000 % Variance COUNCIL SERVICES TOTAL 25,430 25,030 (400) (1.6%) HEALTH SERVICES TOTAL 86,255 85,830 (425) (0.5%) GRAND TOTAL 111,685 110,860 (825) (0.7%) 3.1.1 For Social Work budgets, there are several areas of concern: • Increase in external placements for children; • Demand for older adult care is continuing to increase and the focus on managing delayed discharges is adding to pressure; • The pay award for the year has not been agreed and the current offer is higher than budgeted; and • Spend on agency staff remains too high, the 10% planned reduction is not being achieved. These are summarised further in the forecast to the year end. 3.1.2 The NHS budget is also overspent, the main drivers are again use of agency staffing and medical locums along with an increase in high-cost external mental health placements. There are also early signs that the prescribing budget is under pressure again this year. 3.2 3.2.1 Forecast Outturn The forecast is of concern, particularly in relation to social work services where there are now several areas of material overspending. In addition to the implications in the current year a further concern is that the budget is already
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3 Classification: OFFICIAL reliant upon reserves which are reducing and largely committed. Forecast spend is summarised below with detail in appendix 2. Members will recall that the budget relies upon the use of reserves and an allocation from the non- recurring pension fund saving. There is uncertainty in respect of the forecast at this early stage in the year, particularly as some funding allocations are not yet confirmed and pay settlements have not been agreed. Service Annual Budget £000 Forecast Outturn £000 Variance £000 % Variance COUNCIL SERVICES TOTAL 93,204 94,686 (1,482) (1.6%) HEALTH SERVICES TOTAL 259,827 260,638 (811) (0.3%) GRAND TOTAL 353,031 355,324 (2,293) (0.6)% 3.2.2 Within Social Work, children’s and families, mental health and older adult budgets are all overspending and a large adverse variance is forecast. The month 4 figures are reporting a projected overspend of £1.5m. The main driver relating to Children’s Services is the increased number of children placed in out of area placements. These are considered to have been unavoidable and each one is carefully reviewed and considered before being contracted. This cost pressure was not foreseen at the time the budget was prepared. The forecast overspend on this heading is £0.7m on a budget of £8m and there is an expectation that this will increase further. This is being reported in detail to the September meeting of the Finance & Policy Committee. It also appears that spend on older adults is above budget with spend on agency a particular issue. The budgets summarised below were increased from £35.6m to £40m (12%) to allow for increasing demand and inflation. Social Care agency spend is already at £1.5m year to date. Adult Services Budget Forecast Spend Variance External Residential Placements – demand led @ national contract rate £12.4m £13.5m (£1.1m) Care @ Home Service £20.0m £19.9m £0.1 Internal Care Home Placements £7.6m £7.4m £0.2m Total £40.0m £40.8m (£0.8m) The new Care at Home contract is on track for implementation in October 2024. This is expected to result in reduced costs in the later part of the year. The national focus on reducing delayed discharges from acute services continues and is adding to the pressure to ensure people are placed in residential care or provided with care at home packages as quickly as possible. Services are being provided beyond the staffing levels and available budget we are able to support on a sustainable basis. Unlike in some other HSCPs, no action has yet been taken to restrict provision. The HSCP is considering what action it can take to reduce spend and manage within budget. The overspend is of concern and action is required to offset this where it cannot be reduced. The Social Work Budget assumed that £1.3m of the pension fund
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4 Classification: OFFICIAL saving (£3.5m is held by the Council) would be allocated to support revenue costs in 2024/25. While this is not sustainable, the HSCP would be required to request additional support from this funding from Council in the event that it cannot manage down its forecast overspending. This has been highlighted as a risk to the HSCP leadership group.The table below summarises the extent of forecast reliance upon non-recurring savings: Social Work £m Budgeted Reliance on Pension Fund Savings 1.3 Forecast revenue budget variance (M4) 1.5 Underlying budget gap 2.8 General reserves held by the HSCP for social work services totalled £2.6m at the end of 2023/24, these are largely committed to on-going project work (such as key worker housing, the shared service approach to catering and the care homes and housing project with Hub North), the completion of the Tigh a Rudha renovation and other property related projects. 3.2.3 The NHS forecast is also reporting an overspend of £811k. The main concerns are: - Agency staff – the gross spend on agency, locum and bank staffing across all services in 4 months is £4.1m. LIH is currently the highest spending service area. The continued medical staffing and registered nursing vacancies are the main reasons for NHS agency usage. The 10% targeted reduction is not being achieved. - High cost out of area private sector Mental Health referrals have increased beyond budget, unbudgeted new spend for the first 4 months stands at £429k. - GP prescribing – May costs were higher than forecast and not in line with trends, further work is underway to establish the drivers for this. The forecast overspend is as a result of the above. Some excess costs will continue to be offset by vacancies. However, the Health budget is already dependent upon the use of non-recurring reserves and there is little scope at present to increase reliance on reserves. The plan is to utilise £4.3m of reserves to fund the revenue position. Some tightening of controls is now required to bring NHS spend back in line with budget, progress on agency/locum staffing is critical to achieving this. 3.2.4 Overall the HSCP is operating in excess of its approved budget. Steps are in place to try and mitigate the overspending including: • Continuing vacancy management processes. • Improved reporting of agency and locum spend. • Establishment of Older Adult Finance working group. Work to firm up the forecasting and establish what savings are realistic is underway. The Social Work overspending has been reported within the Council and it is anticipated that further mitigations will be required. These may include:
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5 Classification: OFFICIAL • A request for more of the pension fund saving held by council to balance the revenue budget; and • Reductions in service delivery. This is a common situation across the Health and Social Care sector at present with many IJBs taking similar action. Concerns about the financial sustainability of the sector has again been highlighted by Audit Scotland. There are a number of risks to the position in addition to the remainder of the savings programme. These include: • Costs and funding for the April 2024 pay settlements, 3% has been budgeted for council services, the current offer will have an impact in excess of the 3.6% headline rate as lower graded staff will receive more; • The NHS Agenda for Change pay offer is 5.5% plus a further 30 minute reduction in the working week; • In year public sector budget cuts have been announced by the Scottish Government to fund the above; • There are several staff re-grading exercises underway which could result in increased pay costs (backdated) for both NHS and Social Work Services; and • Demand levels for services and the priority given to managing delayed discharges throughout the remainder of the year. 3.3 Savings Delivery 3.3.1 3.3.2 3.3.3 The service improvement team, finance teams and management continue to progress, monitor and report on savings projects. As at the end of Month 4, £4.2m (64%) of the £6.6m target has been declared: 2024/25 Savings Year to 31 July 2024 Target Achievement Balance % £' 000 £' 000 £' 000 Fully Achieved 3,966 3,966 0 Partially Complete 2,647 250 2,397 Total 6,613 4,216 2,397 64% Appendix 3a lists the fully delivered savings and 3b summarises the remaining ones, risk rated: Savings regarded as low risk £514k Savings unlikely to be achieved in full in 2024/25 £1,545k Savings unlikely to be deliverable in 2024/25 £338k Work is on-going to deliver as much of the balance as possible. There are a number of projects where change processes are required which are taking some time to progress. A stable medical staffing model in Cowal is not yet in place which is making it difficult to achieve the saving on the forensic medical
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6 Classification: OFFICIAL 3.4 3.4.1 3.4.2 4 4.1 5 5.1 6 6.1 6.2 contracts. The amber and red rated savings projects represent a financial risk and have been incorporated in forecasts. Reserves Earmarked reserves of £19.9m were carried into 2023/24 including the £4.7m allocation for sustainability and value, this has been passed back to NHS Highland and replaced with a recurring allocation in 2024/25. To date £10.1m has been committed, including £4.3m to fund the NHS revenue budget gap and the £4.7m described above. The reserves position is summarised in Appendix 4. Remaining reserves are reduced to £9.8m, many of these are earmarked for specific purposes. The Scottish government have suggested that there is some scope for reallocating reserves to help fund recurring cost pressures. The IJB is in the process of allocating reserves to projects. To some extent these are compensating for insufficient investment in infrastructure by partners. The main projects underway are: • £600k for the Prevention / Wellbeing project; • Estimated £529k for remodelling the Campbeltown Hospital to better locate new radiography equipment; • £366k for the houses on Coll (net of £100k from the Strategic Housing Fund); and • £800k for the Tigh a Rudha renovation and remodelling (Reserves are match for Council capital and Island Programme Funding). Additionally, some of the strategic development work has been paused due to capital funding constraints, the Care Homes and Housing project is continuing. It is recognised that the use of reserves to balance the revenue position is not sustainable and a proper solution to the mis-match between recurring funding and spend requires to be identified as reserves reduce and the pension fund saving will not be available beyond 2025/26. RELEVANT DATA AND INDICATORS Information is derived from the 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. GOVERNANCE IMPLICATIONS Financial Impact – the forecast outturn position is a projected overspend due to demand for services. This will require to be offset by additional savings or additional funding. The Council are holding a pension fund saving which could be accessed in the event that the HSCP continues to overspend. Staff Governance – None directly from this report but there is a strong link between HR management and delivering a balanced financial position.
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7 Classification: OFFICIAL 6.3 Clinical Governance – None directly, however if costs savings are required there are likely to be implications for care. 7. 7.1 8. PROFESSIONAL ADVISORY Professional Leads have been consulted with on the implications of the 2024/25 budget and savings programme. EQUALITY AND DIVERSITY IMPLICATIONS 8.1 None directly from this report. 9. 9.1 10. GENERAL DATA PROTECTION PRINCIPLES COMPLIANCE None. RISK ASSESSMENT 10.1 There are a number of financial risks and these are reported to the Finance & Policy Committee: • Continuing impact of high service demand; • Pay settlements and funding for these in the current year; • Recovery and use of reserves held; and • Delivery of the balance of the savings programme. The HSCP is not currently in a sustainable financial position as spend and service demand exceed available funding. Financial recovery and development of the savings programme for 2025/26 are a priority. However, the HSCP does not expect to return to a position where it requires additional funding that it will need to repay. 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 tis finances and this report is publicly available. 12. CONCLUSIONS 12.1 12.2 This report provides a summary of the financial position as at the end of month 4. The forecast is of concern and the management team are in the process of considering what actions can be taken to manage spend during the year. The reliance upon non-recurring resourcing is of concern. It is likely that the HSCP will require to seek additional support from the non- recurring savings relating to pension costs from Argyll and Bute Council to fund its overspend. This will restrict flexibility in future years, adds to the longer-term gap between spend patterns and available resources. This will also limit funding for development and transformation as the balance shifts further towards managing immediate pressures rather than longer term change.
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8 Classification: OFFICIAL 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 Monitoring M4 5/09/24 Noted and approved APPENDICES: Appendix 1 – Year to Date Position Appendix 2 – Forecast Outturn for 2024-25 Appendix 3a and 3b – Savings Programme Appendix 4 – Reserves AUTHOR NAME: James Gow, Head of Finance EMAIL: james.gow@argyll-bute.gov.uk