FINANCIAL PLANNING 200809 TO 201011 AND 200809 BUDGET SETTING

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					FINANCIAL PLANNING 2008/09 TO 2010/11 AND 2008/09 BUDGET SETTING 1. 1.1 INTRODUCTION The Board has received two previous reports on the development of financial plans in line with commissioning objectives - in May 2007 and November 2007. This report builds upon these reports and reinforces the agreed strategy of developing plans across the three year planning period to 2010/11.

Additionally, this report sets out proposals for the establishment of budgets for 2008/09 which facilitate the delivery of the tPCTs Operational Plan. The tPCT has significant financial resources available to invest in its commissioning strategy. These resources consist overall revenue resources of £778 million (in 2008/09); above inflation growth; and significant non recurrent resources carried forward from 2007/08. The tPCT has a strong financial base from which to take forward its investment plans. This statement is made notwithstanding the recognition that the tPCT will face financial risk and therefore its financial strategy will require such risk to be both assessed and managed. Accordingly, the key challenge for the tPCT is to ensure maximum value from available resources – recurrent and non recurrent – whilst also ensuring financial risks are managed thereby ensuring resources are directed against the tPCTs key commissioning objectives, namely:     1.6 health improvement, prevention and addressing health inequalities; commissioning primary care to improve quality, access and environment; transforming urgent care; and transforming learning disability and mental health services.

This report should be read in conjunction with the update on the tPCTs Commissioning Strategy and 2008/09 Operational Plan, also on this meeting’s agenda. FINANCIAL PLANNING 2008/09 TO 2010/11 In November 2007 the Board reviewed its financial plans for the three year period to 2010/11 in light of the outcome of the October 2007 Comprehensive Spending Review. At the time of this review, detailed allocations had not been published for the tPCT although, based on available information, it was agreed real growth of 3% in PCT allocations was a reasonable expectation. The tPCT received notification of its revenue resource limit for 2008/09 in December 2007. The gross uplift to tPCT resources was 5.46% with inflationary uplifts ranging from 2.3% for secondary care services to 8% for prescribing. On this basis, the tPCT will receive real growth of just over 3% in 2008/09. Revenue resource limit allocations for 2009/10 and 2010/11 are due to be notified to PCTs in summer 2008. Whilst it is understood the resource allocation formula is being reviewed, the previous funding expectation of 3% real growth still appears appropriate.

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2.4

In light of the 2008/09 revenue uplift and secondary care uplift, the tPCT has reviewed its planning assumptions on inflationary uplifts. These are summarised below:Revenue Growth and Inflation Uplift Assumptions 2008/09 Revenue Growth Inflation Uplifts: Commissioning and Support Budgets Prescribing (including volume) 2.3% 9.08% 2.3% 8.78% 2.3% 8.67% 5.46% 2009/10 5.46% 2010/11 5.46%

2.5

The tPCT has also reviewed the level of resources available for carry forward from 2007/08. Based on the tPCT achieving its planned underspend of £3.3 million, the tPCT will have £52.8 million of non recurrent resources available. This sum comprises:£million Investment in SHA Strategic Investment Fund at 1 April 1007 2007/08 investments in SHA Strategic Investment Fund Planned 2007/08 underspend 29.2 20.3 3.3 £52.8

2.6

The tPCT has updated its financial plans by:i. ii. iii. using forecast outturn positions for 2007/08 budgets to inform 2008/09 financial planning; incorporating revised planning assumptions per paragraph 2.4 above; uplifting previous planning sums where more accurate information has become available (e.g. revised impact assessment concerning the New Oncology Wing at Leeds); recognising additional cost pressures where new information has become available; particularly concerning secondary care services and the revised impact assessment concerning activity required to achieve the 18 week referral to treatment access target by December 2008; continuing to incorporate the investment programme as approved by the Board in November 2007; and maintaining provision for a 0.5% planned underspend and a 0.5% contingency reserve.

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A summary of the budget setting process is attached at Appendix A.

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2.7

When taking into account the cumulative impact of these revisions to its three year financial plans, the tPCT can demonstrate that its proposed financial plans remain affordable over the three year planning period. Further, the plans continue to show recurrent investments commencing in advance of the receipt of new recurrent fund flows since non recurrent monies are being used to finance them. This is in accord with the strategy approved by Board to use non recurrent monies in this manner. Whilst the tPCT can demonstrate achievement of balanced financial plans and delivery of planned underspends, the position carried forward to 2011/12 shows a recurrent over-commitment of £4 million. It is recognised this represents just 0.6% of the tPCTs forecast 2010/11 revenue resource limit and on this basis the tPCT can appropriately maintain its investment plan as developed from that considered by the Board in November 2007. In making the above assessment it is important that the tPCT maintains a close overview of its recurrent financial position and that financial risk management is both maintained and improved. Section 4 of this report details financial risk management issues. The Table below summarises financial plans for the tPCT over the period 2008/09 to 2010/11, based on the work undertaken by the tPCT as summarised in paragraph 2.6 above. 2008/09 £’000 Summary Revenue Plans Revenue Resources/Income Expenditure - recurrent Net recurrent position Expenditure - non recurrent Underspend / (Overspend) Strategic Investment Fund withdrawal Net Financial Position Included within recurrent expenditure: - planned underspend - contingency reserve Contingency as a % of total resource Strategic Investment Fund (SIF) Summary Funds brought forward Prior year underspend Funds withdrawn SIF Incentive Scheme 2007/08 Non recurrent allocation Year End SIF Balance
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2.8

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2.10

2009/10 £’000

2010/11 £’000

777,758 (795,823) (18,065) (12,460) (30,525) 30,525 £0

818,886 (834,237) (15,351) (6,700) (22,051) 22,051 £0

862,260 (866,280) (4,020) (6,450) (10,470) 10,470 £0

3,570 3,359 0.47%

3,765 3,443 0.46%

3,970 3,259 0.44%

49,539 3,277 (30,525) 939 900 24,130

24,130 3,570 (22,051) 5,649

5,649 3,765 (10,470) (1,056)

3.

BUDGET SETTING 2008/09 Revenue Budgets

3.1

The tPCT has revenue resources totalling £777.8 million available for investment in 2008/09. This comprises the tPCTs recurrent baseline allocation from the Department of Health (DH) which includes 5.46% growth funding and recognition of additional allocations made by the DH; described as non recurrent allocations. In addition to the above resources, the tPCT is forecast to have £52.8 million resources carried forward from 2007/08. These resources comprise £49.5 million, deposited in the SHA’s Strategic Investment Fund (SIF), and £3.3 million being the forecast reported underspend for the tPCT in 2007/08. The tPCT has developed investment plans which require £30.5 million of the SIF to be expended in 2008/09. Accordingly, the tPCT is proposing a total budget of £808.3 million for 2008/09. The following appendices provide greater detail concerning the proposed budget:  Appendix B – Revenue Resources 2008/09 Appendix C – Budget Summary 2008/09

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Included within the proposed budget of £808.3 million is provision for a contingency reserve of £3.4 million and provision to underspend by £3.6 million. These provisions are consistent with previous Board discussions concerning the commitment to not commit 100% of available revenue resources but to retain 1% of DH revenue resource allocations. In 2008/09 the tPCT is proposing £795.8 million of recurrent investments. This exceeds DH revenue allocations (£777.8 million) by £18 million. This proposal is consistent with the financial strategy agreed previously by the Board to use SIF deposits to enable investment plans in the three year planning period to be commenced at an earlier date than would have otherwise been possible. The planned £30.5 million withdrawal from the SIF will support recurrent investments of £18 million and non recurrent investments of £12.5 million in 2008/09.

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3.6

Included within the total investment plans of £808.3 million are new recurrent investments of £44.3 million and new non recurrent investments of £12.5 million. These investments are summarised at Appendix D. The Board is advised that ‘slippage’ of £7 million has been assumed in forecasting recurrent investment expenditure of £44.3 million. The planned investments detailed in Appendix D are consistent with the investment schedule considered by Board in November 2007. Concerning this, attention is drawn to the additional allocation received for dentistry of £2 million which will provide additional capacity funding as well as inflationary cost cover. Plans for use of this allocation are being developed by the dental strategy group.

3.7

Based on the tPCT delivering its proposed total investment of £808.3 million, the year end balance on the SIF will be £24.1 million. When taking into account the planned underspend of £3.6 million, this will result in £27.7 million being available for carry forward to 2009/10. This amount is consistent with the control total being discussed with the SHA for 2008/09.

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Capital Budgets 3.8 The capital funding regime for PCTs has changed in 2008/09. In previous years the tPCT has received an operational capital allocation from the DH, based on a national allocation formula, and any underspends from the previous year have been carried forward. In 2008/09 this process has changed and instead the tPCT has been required to construct a proposed capital programme which will then be reviewed by the SHA before a capital resource limit is finalised for the tPCT. 3.9 The tPCT has developed a proposed capital programme of £2.4 million (net of land sale receipts) which takes into account discussions across the tPCT (including Estates, IM&T and Provider Services) and commitments carried forward from 2007/08. The proposed capital programme is attached at Appendix E. The tPCT awaits confirmation from the SHA as to the capital resource limit for 2008/09. Future Finance and Procurement Reports to the Board will provide updates on this. 4. 4.1 FINANCIAL RISK MANAGEMENT As stated previously, the tPCT has a positive financial position to carry forward from 2007/08 to 2008/09 as well as the availability of real growth – expected to be at least 3% across the three year period 2008/09 to 2010/11. Notwithstanding this, there are a number of risk areas which the tPCT needs to be both closely monitoring and managing, namely: Cost Variability – increasingly the tPCT is contracting for services on a tariff basis and this trend will increase as ‘payment by results’ is extended to additional services; Confirmation of Future Year Growth – financial plans will require updating following the announcement of 2009/10 and 2010/11 revenue allocations for PCTs in summer 2008. Plans have been based on receipt of 3% real growth – a 0.5% reduction in income would equate to reduced income of £3.9 million in 2009/10; Cost Inflation – similar to the above point, the tPCT’s financial plans will require reworking if inflationary pressures exceed those included in planning assumptions (see paragraph 2.4). A 0.5% increase in inflationary cost pressures would equate to £4 million in 2009/10; Secondary Care Services – additional resources have been invested in 2008/09 compared to previous (November 2007) planning assumptions. These additional resources represent investments in new developments discussed by the Specialist Commissioning Group and additional costs regarding non elective activity; high cost drugs; and activity to achieve the 18 weeks referral to treatment access target. The tPCT needs to review activity and development plans for future years to ensure budgets are being forecast accurately;

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Continuing Care – the tPCT is increasingly confident that sufficient investment has been made for the impact of the new national criteria for continuing care, effective 1 October 2006. It is understood new criteria is also planned for continuing care for children, although the financial impact of any such change is not known at this stage; Recurrent Position 2011/12 – as described in paragraph 2.8, the tPCT’s financial plan for 2011/12 is overcommitted by £4 million on a recurrent basis – if the tPCT is to maintain a 0.5% contingency and 0.5% underspend. Detailed work on this analysis is required following receipt of the PCT revenue allocations for 2009/10 and 2010/11; New National Initiatives – the impact of new national initiatives will require close monitoring (in particular any unanticipated impact on investment priorities from the Darzi Review) to determine whether current investment plans will enable them to be delivered; and Specialist Services and High Cost Drugs – the tPCT has made provision for additional costs for these services in future years. However, it is recognised that growth in these areas can be significant. An example is the impact of new treatments for Age Related Macular Degeneration – provision has been made for £1.8 million in 2008/09, although dependant of the final NICE guidance, costs could exceed this provision.

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4.2

Another significant issue for the tPCT is to ensure that agreed investment plans are delivered in accord with the achievement of commissioning objectives and the planned timescale, per Appendix D. This last point is important since, if investments are delayed, the achievement of the tPCT’s 2008/09 control total (£27.7 million) will be compromised. In summary, the over-riding objective is that the tPCT can demonstrate by the end of the three year planning period that it is investing all available resources with maximum effect being achieved from such investment.

4.3

The tPCT has already identified actions which will mitigate many of the above financial risks. Additionally, there are further actions which can be taken. In summary these actions are: a 1% contingency is included in the tPCT’s Financial Plans – comprising a 0.5% contingency reserve and a 0.5% revenue resource limit planned underspend; maintain and enhance existing financial management practices. This will include close working with budget holders; appropriate training for budget holders; and communication of key issues - for example dissemination of Standing Orders, Scheme of Delegation and Standing Financial Instructions; ongoing review of value for money opportunities – particularly in terms of procurement; estates utilisation; and demand management initiatives. Concerning demand management, it is important that benefits of increased primary and community services investments are modelled to ensure reductions in secondary care referrals/activity are delivered; and commitment to regularly review the tPCT’s financial planning assumptions, particularly once PCT revenue allocations are known in Summer 2008.

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5. 5.1

NEXT STEPS The Board is being recommended to note the tPCT’s Financial Plans for the three year planning period and approve the proposed 2008/09 revenue and capital budgets. Subsequent to Board consideration of the above recommendations, a number of key actions will take place: Standing Orders, Scheme of Delegation and Standing Financial Instructions will be publicised to all budget holders. Additionally, clarity as to the responsibility of budget holders to utilise allocated budgets in accord with their purpose will be communicated; Directors and Senior Managers with responsibility for investing developments within Appendix D will be required to provide assurance that plans are in place to expend the identified reserves. This will be reviewed via regular budget review meetings; a full review of the tPCT’s financial position will be undertaken following receipt of 2009/10 and 2010/11 revenue allocations. Following this, Board will be advised of the review’s findings; additional work will be undertaken on planned commissioning of primary and community services to model their impact on secondary care. Also, work will be undertaken to model current referrals into secondary care, to determine the forecast recurrent demand for secondary care once the additional activity, required to achieve the 18 weeks referral to treatment access target, has been undertaken. This work will involve joint working between PBC commissioners, contracting, finance and information teams; and opportunities to drive additional value for money will be pursued. Key areas for the tPCT to address are continuing care expenditure; high cost, low volume out of area placements; and estates utilisation across the tPCT.

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Appendices: A – Summary of the budget setting process B – Revenue Resources 2008/09 C – Budget Summary 2008/09 D – Summary of investments E – Capital Programme 2008/09

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