Contact: Peter Robertson, (01962) 87300; [email protected]
Jon Pittam, (01962) 87400; [email protected]
Rea Mattocks, (01962) 847200; [email protected]

With the concurrence of the Chairman under Section 100B (4)(b) of the Local Government Act 1972, this matter has been included on the agenda to supply the Cabinet with the outcome of the review of the Adult Services budget together with an action plan for recovery.

1 Introduction and Summary

1.1 A likely Adult Services budget overspend of £11.3m in 2005/06 has been reported. This report sets out the actions that need to be taken to recover the situation and create resilience against a future which clearly shows that demands on the service will continue to escalate at a time when pressure on the Council's budget overall is severe.

1.2 The Exceptional Review Interim Report is attached at Appendix 1. This report was compiled by an independent team consisting of the Corporate Policy Unit, Treasurer's Consultancy and Internal Audit as a first phase response to the issues.

1.3 This report reflects the views of the Chief Executive, County Treasurer and Director of Adult Services, having considered the review document.

2 Critical Issues

2.1 Despite regular reviews of the budget position between the beginning of Financial Year 2005/06 until Christmas the magnitude of the overspend was not predicted or reported. This limited the extent of the remedial action it was possible to take.

2.2 Real time data on commitments of funding against budget were unreliable until too late in the process. There is also a disconnect between those making the commitments and budget responsibility which undermines accountability.

2.3 Whilst the situation may have been exacerbated by the split of the social services budget between Children's Services and Adult Services part way through the financial year, and issues around the interface between the SAP and SWIFT systems, significant disinvestments in the health sector, and a significant increase in clients needing support, systems should have been in place to enable the developing situation to be predicted with a reasonable degree of accuracy.

2.4 Due process was followed in making assessments and providing care packages. The challenge facing Adult Services was the substantial increase in demand and whether the quality of management information enabled judgements to be made and acted upon in a timely manner, irrespective of service pressures.

2.5 These events demonstrate significant monitoring failings arising from the fact that the predicted overspend until Christmas 2005 was seriously wrong and moved from approximately £5.7m reported on 7/12/05 (using month 7 data as at 31/10/05) to between £10.2m and £11.6m at 9^th February 2006 using month 9 data as at 31/12/05. In view of the scale of the increase in spend this also shows corporate weaknesses - additional warning systems would have triggered increased alarm at Chief Executive and County Treasurer level as well as within the department.

2 Strategy

3.1 The actions set out below in paragraph 4 represents a strategy which is designed to:-

· Acknowledge the reality of current and future pressures on the Adult Services Budget.

· Return the Adult Services budget to balance within a period of 2 to 2.5 years but take opportunities to reduce this period if practicable.

· Establish a stable base of service provision which can be met from the available budget and build capacity sufficient to meet future trends and service needs.

· Maintain key core services.

· Minimise the impact on the Council's other services but consider all options.

· Consult as appropriate where changes have a direct impact on service users.

· Ensure that Adult Services are fit for purpose and meet locally prioritised policies and the Council's statutory responsibilities.

· Ensure that the management culture is responsive and flexible with the right balance between care and value for money with an appropriate balance between competing needs.

· That there is a proper balance between risk/risk aversion

· That services are delivered and needs met consistently across the whole county.

4 Recovery Actions/evidenced trends

4.1 Current trends for Adult Services show:-

Hampshire

· A population of people aged 85+ growing by around 1,000 a year.

· The NHS taking action to recover from a financial deficit of (nationally) around £700m at the end of 2005/06, leading to withdrawal from services locally, disputes over responsibility for continuing care cases and refusal to meet financial obligations for services transferred to social care. This required the threat of legal action to recover over £20m of unpaid invoices. Bed closures continue and it is estimated that around 500 have been lost in Hampshire since 2002.

· This is resulting in a growing proportion of people being referred to Adult Services from the Health Service. In 2000/01, 39% came from the Health Service (24% from hospitals). By 2004/05, this had increased to 58% (34% from hospitals).

· Numbers of people receiving domiciliary or nursing care continue to increase. Around 7,500 people were receiving domiciliary care at the end of 2004/05 and around 8,400 at the end of 2005/06. By the end of the current financial year, if these trends continue, this figure is likely to have increased to around 9,500 unless action is taken.

National

· The Local Government Association/Association of Directors of Social Services /Society of County Treasurers report on Social Services Finance in 2005/06 (March 2006) revealed that `pressures have left a gaping £1.76 billion black hole in funding for social services'.

· The Wanless Report `Securing Good Care for Older People' estimated that social care costs would rise by 139% between 2002 and 2026 to £24.0 billion - an increase from 1.1% to 1.5% of GDP - unless radical changes were made to the service and funding models.

· Both of these figures are driven largely by increasing numbers of older people. The Wanless Review projects a rise of 54% in the number of older people who will need a high level of support.

· The Department of Health's Learning Disability Taskforce estimate that `between 2001 and 2021, on a conservative assumption, there will be a 36% increase in the numbers of adults with learning disabilities aged over 60 in England'.

4.1 The issue for the future is how these upward trends can be managed affordably and how the existing overspend can be brought back into balance given clear evidence of additional pressure on the overall financial envelope available.

4.2 The following actions will be taken:-

4.2.1 A recovery steering group chaired by the Chief Executive with the Director of Adult Services, the County Treasurer and the Director of Property Business and Regulatory Services will take responsibility for implementation and delivery of the recovery plan.

4.2.2 It is proposed that the above group reports to a small member panel comprising:-

The Leader

Executive Member for Adult Services

Executive Member for Performance and Efficiency

Chairman, Health Scrutiny Committee

4.3.3 Specific actions for recovery

· The Adult Services re-structure is a critical element, (separately reported). Within the restructure care must be taken to align budget responsibility with the ability to commit against it at all levels in the structural hierarchy. It will be important to define cash limits and adhere to them.

Action: This re-structure should be expedited. In view of the predicted service growth it will be essential to identify and take opportunities to reduce management costs and strengthen the front line wherever possible.

· There are cultural issues that need addressing. It is important that Adult Services operates as a caring service. But it also needs to be recognised that if delivery is not exactly appropriate to the needs of a client group or an individual or priority area then one client group may suffer at the expense of another.

Inevitably, budget holders have been allocated budgets for 2006/07 which will not fund current levels of provision. These must be reduced. Existing approaches will not enable the necessary reductions, so the crucial task is to revise policies and associated procedures which will enable spend to be reduced. The Director has employed external consultants to help identify and drive through the necessary change.

Action: Arrangement to be put in place to ensure all key managers have appropriate guidance and recognise that managing the provision of care is vital, this means that commitments and budgets must align before commitments are entered into. Care and best value for Adult Services clients are not incompatible concepts. Action will be via discussion and learning, revised policies and procedures and clearer lines of responsibility with external help where necessary.

This action needs to incorporate issues around how to avoid approaches that are too risk averse.

· Confirmation both of a satisfactory SWIFT to SAP interface with certainty that SWIFT is operating successfully including action to improve the quality and timeliness of care data recorded in SWIFT. Management information is absolutely critical. Monitoring at DMT and at a corporate level is seriously compromised if the data cannot be relied upon, as was the case until the last quarter of 2005/06. Departmental systems for committing packages and their projected funding requirements, robust trend analysis and performance data are key elements of reliable monitoring arrangements.

Action: Robust management and financial information systems to be put in place capable of being monitored departmentally and overviewed corporately.

5 The following difficult decisions need to be implemented quickly

· Maximise income

Action: Fully implement actions agreed at the Executive Member Decision day on 12^th May.

· Review procurement and ensure the procurement strategy is fit for purpose.

Action: Put revised procurement strategy in place during this financial year. Strategy to be developed by bringing together procurement specialists in the Directorate of Property Business and Regulatory Services and Adult and Children's Services. This will build on work already under way and reflected in the current Consultation Draft of the Corporate Procurement Strategy 2006 to 2008 which will shortly be presented to members at the Building Land and Procurement Panel.

· Reduce provision for Day Care by providing viable more cost effective alternatives where appropriate (NB - Day Care represents only 2.8% of the budget for older persons therefore robust saving strategies around domiciliary care, residential and nursing care will also be needed).

Action: A managed incremental transition to alternative forms of support more in keeping with personal care and independent support needs.

· Follow up the evidence suggesting a knock on impact of NHS disinvestment in Hampshire.

Action: Ensure no responsibilities are accepted without:-

a) Evidence it is an HCC responsibility

b) An agreement covering contributions

The current protocol which has been circulated to the health sector and must be agreed in the next 2 weeks seeks to achieve this.

· Qualifying criteria for support to be raised to critical level subject to legal opinion.

Action: Possible implementation of revised qualifying criteria.

· Continued monitoring of staffing levels, turnover and the vacancy factor to identify opportunities for reducing costs by only appointing to or covering critical posts.

Action: Continue to require clearance from the Director/DMT for all recruitment with immediate effect.

6 Targets

6.1 The underlying level of overspend and other pressures, carried forward is at a dangerous level (around £20m) and must be brought under control as a matter of urgency otherwise the Council's funding plans will be undermined and all services could be affected.

6.2 All the recovery actions must be pursued simultaneously to have any prospect of success, given the forecast growth in demand. Whilst this may sound like a contradiction in terms it is very important to have robust plans to align existing budgets with the current activity, before future trends are mapped on top. Strict cash limits must therefore be imposed in the current year. A targeted, reduction to the budget representing a proportion of the underlying overspend which cannot be met, therefore needs taking out. This will be amongst the first tasks the Recovery Steering Group recommends to the Member Panel.

6.3 The target for the current financial year is to eliminate 50% of the overspend by a combination of the actions in paragraph 4 for recovery.

6 Broader Financial Issues

7.1 There are four aspects to the broader financial issues

· a recovery plan within adult services in 2006/07 (and into 2007/08) to bring overspending committed from 2005/06 back into line with 2006/07 budget levels

· a corporate recovery plan to write off the £11m overspend from 2005/06

· a corporate plan to mitigate the risks of a continued overspend on adult services, if full recovery is not possible within the year

· a review of budget cash limits for 2007/08 to re-balance service budgets, as necessary

Adults recovery plan 2006/07

7.2 The recovery plan for adult services in 2006/07 is being developed for the Executive Member and will include the actions set out in this report.

2005/06 overspend

7.3 The 2005/06 budget included extra balances of £2m to recognise additional risks, including the potential overspend by adult services. When the 2006/07 budget was set, balances were increased by an extra £2.6m, and it is possible that a further £3m or more could be added when the accounts are closed in June 2006.

7.4 Estimated balances at 31 March 2006 are £12.8m which will cover the overall overspend. Just £1.1m will remain in balances after allowing for the budgeted withdrawal of £0.7m in 2006/07 for one off spending. This is far too low for general purposes, let alone the risks of continued overspending from adult services (and possibly children's services) in 2006/07. The minimum target level of balances is £7m (excluding additional risks), so around another £6m (£7m less £1.1m) needs to be found.

7.5 This could be recovered over the next two years by requiring adult services to repay the overspend. However that looks unrealistic given the other pressures and trends reported to Cabinet on 24 April 2006.

7.6 A firm recovery plan to re-instate balances by £6m will therefore be required when the accounts are closed in June. This could include some recovery from adult services, and other options could include:

· additional in-year savings targets across services

· more capital receipts and a review of the capital programme

· temporary use of other reserves, business unit surpluses or other budgets which are capable of quicker in-year variation (subject to plans to re-instate them during 2006/07 or 2007/08)

· extra income.

7.7 Few of these options are likely to be palatable and can be haphazard in impact. Some of them may be necessary to ensure the recovery of a prudent minimum level of balances for 2006/07 given the other in-year risks from pressures on adult and children's services, and from the potential settlement of equal pay claims arising from job evaluation.

2006/07 position

7.8 An additional budgeted contribution to balances of £1.8m in 2006/07 is available to cover the risks of a continued overspending by adult services in 2006/07. The Leader in his budget speech also added £0.5m to balances in 2006/07 and £0.5m to the budget for day centre provision by withdrawing resources planned for Hampshire Action Teams, freezing members allowances at the 2005/06 level and by seeking corporate savings of £190,000.

Therefore there is an extra £2.3m (£1.8m plus £0.5m) in a central contingency in 2006/07 to cover the risk of overspending from adult services in 2006/07. The £2m contingency in the adults budget has been released by writing-off the requirement to use it to meet the equivalent amount of the 2005/06 overspend carried forward into 2006/07. That, with the additional £0.5m for day centre provision (unless used to mitigate the savings target) amounts to £2.5m in the adult services budget, which with £2.3m centrally provides £4.8m contingency cover towards the risk of overspending in 2006/07. If the £11.3m or so overspend continues into 2006/07, the adult services recovery plan needs to target the balance of the overspend as a minimum (around £6.5m).

2007/08 service cash limits

7.9 The current budget plans, based on the increase in the national spending plans allocate a 2.7% cash increase to adult services in 2007/08. As specific grants reduce by a further 2.9% in that year, the net cash increase for the service is only 1.4%. This will not be enough to meet future cost and demographic pressures, even if it were possible to deliver full recovery to within the 2006/07 cash limits in one year.

7.10 This inevitably means some further shift of resources into adult services in 2007/08. Further work will be done to attempt to measure and predict the cost of demographic pressures. The Cabinet has already agreed that the budget planning process should start in September 2006 for 2007/08 and options for budget guidelines will be brought forward at that time.

8 Recommendation

8.1 To endorse the strategy for recovery set out in the report including the Member/Officer governance arrangements.

9 Appendices:

9.1 Exceptional Review Interim Report (Appendix 1 and supporting documents 1a, 1b, 1c and 1d).