Meeting documents

1 THE ISSUE

1.1 This report presents the first monitoring information for the Authority as a whole for the financial year 2004/05 to the end of September 2004. The report also includes a number of budget transfer requests that require Council Executive agreement or are reported for information purposes as prescribed by the Budget Management Scheme.

2 RECOMMENDATION

2.1 Note the expenditure and income position for the Council in the financial year to the end of September and the year end projections detailed in Appendix 1 of this report.

2.2 Approve the virements listed in Appendix 2.

3

FINANCIAL IMPLICATIONS

3.1 The financial implications are contained within the body of the report.

4 THE REPORT

4.1 The Budget Management Scheme requires that the Council Executive consider the revenue monitoring position on a quarterly basis.

4.2 Where overspent, services are expected to seek compensating savings to try and bring budgets back to balance. The Budget Management Scheme states that if overspending occurs it must be recovered.

4.3 Appendix 1 outlines the Council's current financial position for the 2004/05 financial year to the end of September 2004 by portfolio. The Appendix shows that there will be a projected year-end overspend of £867,000.

4.4 Significant areas of over and under spend are highlighted in this report, but further explanations of the reasons for over and under spends in the current year are provided within the notes to Appendix 1.

4.5 Social Services portfolio - forecast £1,225,000 over spend

4.6 Resources Portfolio - forecast £786,000 under spend

The favourable cash flow position the Council experienced in the first quarter of this financial year has continued in the second quarter. The lower than anticipated spend on capital schemes has delayed the need to enter into long term borrowing. In turn this has led to savings in both the loan charges and interest received budgets which are projected to be under spent by £1,107,000 at year end.

However, a potential shortfall has been identified in the amount of Government subsidy receivable in respect of Housing Benefit payments for 2004/05. The Council spends in excess of £25M annually on Housing Benefits which is reimbursed by government grant - which, from 2004/05 was expected to be 100%. However claims for subsidy are complicated by the complexity of the government's regulations and by rules regarding ineligible items and thresholds. The current forecasts are that around £250,000 benefit payments this year may not be recovered through the subsidy. Detailed investigation is currently taking place to fully identify the causes for this, which is partly due to the cost of bad debts on overpaid benefits and payment of bed and breakfast allowance exceeding national thresholds. There may also be an impact on future years, to be taken into account in the financial plan review.

Identification of this problem has arisen following closure of the 2003/04 accounts and preparation of the end-of-year claim for Benefit Subsidy which has resulted in an unexpected loss of subsidy in 2003/04. The necessary adjustments to the Council's balances are currently being finalised with the external auditors, but there will be a net adverse impact on balances. Another item of change to balances is a further allocation of ex Avon balances of £370,000 since the last report. The combination of this and loss of benefit subsidy means that the level of revenue balances is little changed from that expected for the year.

4.7 Leader's Portfolio - forecast £91,000 under spend

4.8 Sustainability & The Environment Portfolio - forecast £204,000 over spend

4.9 Community Safety & Housing Portfolio - forecast £190,000 over spend

4.10 The Chief Executive, Resources Director and the Executive Member for Resources will require proposals for achieving a robust outturn that is more in line with the budgets set for 2004/05. The following table contains details of action plans that are planned within and across Services to recover these projected overspends.

4.11 Directors Group are actively monitoring and managing the Council's financial position. Executive members will be regularly briefed on progress by Directors and given an update in monthly monitoring reports.

4.12 Budget transfers requiring Council Executive approval are listed in Appendix 2 together with an explanation of why the transfer is necessary.

4.13 Appendix 3 indicates the effect upon service and portfolio cash limits if these proposals are approved.

5 RISK MANAGEMENT

5.1 A risk assessment related to the issue and recommendations has been undertaken, in compliance with the Council's decision making risk management guidance.

6 RATIONALE

6.1 This report is presented as part of the reporting of financial management and budgetary control required by the Council.

7 OTHER OPTIONS CONSIDERED

7.1 There are no other options to be considered at this stage of the financial year.

8 CONSULTATION

8.1 This report has been circulated to the Executive Member for Resources, the Chief Executive, the Chief Financial Officer, the Section 151 officer, the Monitoring Officer and all Financial Managers.

APPENDIX 4

1 THE REPORT

1.1 This report summarises the financial position and overspend for social services in 2004/05 and the actions being taken. It also considers other possible actions available to reduce the deficit.

1.2 The report informs members of the anticipated budget position for 2005/06 and future years.

1.3 In 2003/04 the Social Services cash limit was overspent by £569,000 or 1.6% of the overall budget of £34.5m. The main area of overspend related to the purchasing budgets for residential, nursing and domiciliary care and was primarily due to a reduction in the preserved rights grant. This grant was given to Councils to fund the costs of residential and nursing placements previously funded by the Department for Work and Pensions. The grant paid in 2003/04 was notified after the budget was set and was £711,000 less than had been assumed in setting the budget.

1.4 In the current financial year the Social Services budget is 10.6% over the Formula Spending Share (FSS). By comparison South Gloucestershire and North Somerset are 7% over FSS.

1.5 An analysis of expenditure over FSS for authorities across the country in 2003/04 identified that the average expenditure above FSS for unitary authorities was 9.5%.

1.6 In accordance with previous Council Resolutions, the Financial Plan for Social Services assumes growth in spending is tempered so that, over time, spending becomes more in line with FSS. For 2005/06 the Council's spending was planned to grow by 5.8% compared to a projected growth in the Social Services cash limit of 7.6%. This increase is based on the projected growth in FSS for Social Services of 9.2% tempered back to 7.6%. However current spending projections indicate that there is a likely deficit of £2.2m when compared to the financial plan target for 2005/06.

2 2004/05 FORECAST

2.1 In 2004/05 the summary of the overall position as at the end of September is as follows:

2.2 The budget for Children and Families is on target. The service has been making significant progress in reviewing and reducing costs of specialised residential placements and independent fostering and, in partnership with the Education Service and the Primary Care Trust, finding alternatives that can reduce the need to make costly placements. It must be noted that the potential for having to make a residential placement for a looked after child exists throughout the year and that the currently reported underspend cannot be guaranteed as the position at year end.

2.3 The underspend in other budgets is partly due to the freeze of non-pay budgets that has taken place since May 2004.

2.4 The main area of overspend is in Adult Services. This is further broken down as follows

3 CARE IN THE COMMUNITY BUDGETS

3.1 The overspend against these budgets is due to a number of factors. The main factor is the increased cost of placements for older people. The Council agreed above inflation fee rates for placements in residential and nursing care but the actual fees being demanded are between £20 and £30 higher per week with Team Managers having to negotiate each individual placement. The following table shows the initially agreed rates for residential and nursing care compared with the average rates being paid.

3.2 The cost of these increase in fees accounts for £700,000 of the total overspend in 2004/05. The Executive may recall that the fee increases requested by the Independent sector providers when the rates were being set would have cost the Council an additional £6 million in 2004/5. The impact of the higher fees being charged has been to increase costs by over £700,000 at the current forecast.

3.3 In setting the budget for 2004/5 account was not taken of the preserved rights grant deficit detailed in paragraph 4.1. This is believed to account for approximately £200,000 of the forecast overspend.

3.4 The final factor is an increase in expenditure for older people with dementia, which is currently forecast at 25% over budget, mainly in residential and nursing care.

3.5 The following graphs shows the number of older people with dementia in residential and nursing care each month since July 2002. The average numbers have increased from approximately 58 to 80 which has cost an additional £300,000.

4 MENTAL HEALTH SAVINGS TARGET

4.1 One of the Financial Plan savings was a £200,000 reduction in mental health costs for adults. This is because analysis of our expenditure on mental health services for adults (under 65) compared with our family of like authorities shows that we spend £800,000 more than the average. The Financial plan assumes an overall reduction in mental health services by 2006/07 of £800,000.

4.2 The mental health services managed by Avon and Wiltshire Partnership (AWP) have been in a difficult financial position in the current year as there have been uncertainties about AWP's overall funding. Although proposals for savings have now been made, they are unlikely to achieve the full £200,000 saving required.

5 ADULTS WITH LEARNING DIFFICULTIES

5.1 This budget for purchasing care has grown by £2.18m in the last 5 years. The financial plan includes a further £500,000 of growth to meet the growth in placements. More people with complex needs are surviving into Adulthood and legislatively many of their needs are the responsibility of the Local Authority. Costs of care in this field are very expensive and locally it is a "sellers market" with prices being charged above the level of assessed need due to lack of alternatives. This situation is monitored by the Joint Commissioning Board but actions being taken are most likely to mitigate and reduce growth rather than lower expenditure.

5.2 The Joint Commissioning Board has approved the establishment of a pooled budget with the Primary Care Trust for learning difficulty services. It is anticipated that this will facilitate the integration and refocusing of services to mitigate the increasing costs and pressures on this service area for both organisations.

6 ACTIONS TAKEN TO REDUCE THE OVERSPEND

6.1 To ensure that placements in residential and nursing care are appropriate there has been a panel in place for the last two years that `audits' placements of older people to ensure that they are appropriate. This has been successful in reducing overall the number of placements for older people from 744 in July 2002 to 720 in July 2004.

6.2 There has previously been a separate panel to review mental health placements run by the AWP (mental health) partnership managers. Due to the increase in dementia placements all potential placements are now being vetted by the Social Services panel described in 9.1.

6.3 It was originally agreed not to implement managed vacancies due to the detrimental impact on staff morale and the ability to meet government performance targets. At the last Senior Management Budget meeting it was agreed that in view of the worsening financial situation it is now necessary to implement a slowing up of recruitment.

6.4 One of the main problem areas is the inability to find residential and nursing placements for older people at rates agreed at the start of the financial year. This has created great instability as we are not able to control fee levels or be certain of future costs.

6.5 A group of senior officers have met and set up a working group with representatives of the residential and nursing homes sector. The objective of this group is to make proposals for fee structures that will offer stability and certainty to the council and be at a level that is affordable to the council and meets the financial commitments of home owners. Work is currently underway to determine an accurate cost of residential and nursing care that can be used as a basis for negotiations.

6.6 The Director is in close negotiation with the Mental health Trust Chief Executive to ensure as much as possible of the £200k saving this year is identified and to maintain focus on the remaining targets for the next 3 years.

6.7 There is also concern about the impact (if any) of the mental health operational partnership on the increased use of (particularly residential) placements. Social Services no longer has direct control of mental health placement decisions (and therefore financial commitment) and robust discussions are taking place to ensure that the same degree of rigour is exercised when controlling access to placements, as takes place within the directly managed budgets.

6.8 77% of the net Adult Care budget is for purchasing residential, nursing, domiciliary and day care placements. This is where the overspend occurs and is obviously the area where savings should ideally be targeted. A serious constraint however is that the Government has introduced `Fair Access to Care' which means that Council's must immediately provide services to individuals that meet their eligibility criteria irrespective of the Council's financial position. Alongside this the Council is required to clear beds in acute hospitals or face financial penalties. Finally the Council has been set access targets for older people regarding the speed in which assessments and the delivery of services are taken following referral. This forms part of the Council's star rating.

6.9 In order to ensure that services are targeted at those in greatest need a review of the eligibility criteria for Adult care services was undertaken and the threshold was raised in October 2004. This could potentially reduce the pressure by up to £300,000 in a full year.

6.10 Other actions currently taken include the following:

6.11 Options to reduce the overspend in the short term are extremely limited and officers have therefore considered options for longer term savings that are considered in the next section.

7 SOCIAL SERVICES FINANCIAL PLAN 2005/06

7.1 A Member Working Group has been established to review the increase in spending in Adults Services and in particular consider the implications for the Council's Financial Plan for 2005/06 onwards This is due to report back by Christmas.

7.2 Overall the current plan has a deficit of £2.2m in 2005/06 before any additional costs associated with the implementation of single status which is anticipated to cost up to £1m by 2007/8.

7.3 The main areas of growth within the financial plan relate to meeting the increased fees for independent sector residential and nursing placements. There is also the requirement to pick up the preserved rights grant of £1.1m that stops from 2005/06. The government states that the FSS has been increased to reflect the transfer of this grant into FSS. Increases in pension costs of 2% have been included.

7.4 The main areas of savings within the financial plan relate to the change in eligibility criteria (paragraph 6.9), savings in staffing by changing the skill mix in some teams, and reductions in children's placement costs.

8 OPTIONS FOR FURTHER BUDGET REDUCTIONS

8.1 An area for savings in the financial plan but with no figures yet attached (not realisable in the current year) will be the results of the review of "Back Office " processes currently underway as a joint project between Social & Housing Services, Resources and HBS Business Improvement team. As this is the first major process review with HBS, progress is slower than originally anticipated as lessons are learned, however current targets are to save from £100,000 initially to £150,000 over a 3 year period.

8.2 To achieve further savings will require significant refocussing of services and frontline/first line management staff. Reductions in staffing to Adult & Older people's services need to be considered in the light of our benchmarking of proportions of staff to population which show us to be very low in staff numbers and in view of our performance (judged to be "serving most people well") should be viewed as an efficiently performing service.

8.3 The majority of services now commissioned and/or provided are statutory. Where they are not they are closely linked to preventing the need for full time care or the prevention of significant harm. Reductions in these remaining areas to reprioritise to even greater need, runs the serious risk of escalating the numbers requiring full time care with its subsequent impact on budgets.

8.4 The change to eligibility criteria recently achieved is one avenue to managing demand. The other areas that could be reduced are in the areas of Day Services and some of the services being provided through the Voluntary Sector. Any options for reductions in the voluntary Sector will be considered and brought forward later in the year as part of the Voluntary Sector funding proposals. The risks involved with both are outlined below.

8.5 Children & Families services are, as stated above, on target to meet their cash limit for only the second year in the last 8 years. This would suggest that the budget setting process has begun to reflect requirements. In addition the service has, in accordance with the financial plan, a target to reduce its spend above FSS by 5% between 2004-2007. The staff to population benchmark ratio is not as "efficient" as in adult care, however diseconomies of scale in a small Local Authority make lower staffing ratios difficult to achieve whilst maintaining a safe children's service. None the less changes to skillmix and other workforce changes are part of the FSS reduction plans.

9 RISK

9.1 There is a considerable risk to the council both due to the shortfall in the financial plan and the continued risk of overspends. The sums involved would represent a significant impact on council tax. Each £600,000 is 1% increase in council tax and so the £2.2m deficit in the 2005/06 financial plan would represent nearly a 4% increase in council tax.

9.2 There are also risks within the Social Services financial plan. The "back office" review has not made sufficient progress to be sure the targets here are robust and achievable. There is a further saving of £200,000 for Mental Health Adult Services whilst the saving in the current year has not yet been achieved.

9.3 Staffing reductions above the workforce changes already proposed in the financial plan pose a very real risk at best to the standard of service quality and responsiveness, which in turn risk a reduction in customer satisfaction and external performance rating. At worst they risk a breach of statutory requirement and/or unsafe services.

10 SUMMARY

10.1 The Social Services budget in 2004/05 is currently forecast to overspend by £1.25m. There is also a likely £2.2m deficit in 2005/06 based on the current financial plan target.

10.2 The main pressures relate to residential, nursing, domiciliary and day care. Actions are being taken to reduce the overspend to its current forecast yet further measures to reduce expenditure will require significant reshaping of services to reduce the continued risk of these financial pressures on the overall council budget.