Budget Setting Methodology 2017/18

Budget Setting Methodology 2017/18 1. Purpose As part of the Trust s annual planning cycle the Trust needs to set its budgets for the year. The purpose of this paper is to propose the methodology and timetable for budget setting for the financial year 2017/18. 2. Background The Trust received its allocated control total from NHS Improvement on 30 th September for financial years 2017/18 and 2018/19. The table below shows the control totals: - Financial Year Control Total (Surplus m) S & T Funding m 2017/18 8.591 1.923 2018/19 8.923 1.923 If the Trust accepts this control total, the budget set for 2017/18 must deliver a surplus of 8.591m (including non-recurrent Sustainability & Transformation Funding of 1.923m). The Trust continually reviews its budgets over the course of the year through regular meetings with budget holders to maintain the accuracy of the financial information. These discussions take into account any significant factors such as service retractions, ward closures and new developments. The recurrent budgets are therefore the starting point of the annual budget setting exercise. NHS Improvement have brought forward the deadlines for organisations to provide their Operational Plans and to have contracts signed off. The deadline for both is 23 rd December. As a result it is proposed to use the month 6 recurrent budget as the starting point for the 2017/18 budget setting exercise as well as the financial strategy that is also currently being produced. In 2016/17, the Trust agreed that significant pressures which had been identified across budgets should be funded. These were funded from Trust central reserves and has left the Trust with no central reserves to fund further pressures. All named funding and savings targets are managed within Group budgets. 1

3. Budget Setting Principles and Process 2017/18 The Trust s budgets should reflect agreed working practices and actual costs being incurred. Therefore, the annual budget setting exercise must deliver a budget that provides the best estimate of how the Trust will utilise resources to deliver services in the coming financial year. To achieve this:- The 2017/18 budget setting exercise will include a detailed review of budgets ensuring that budgets are aligned with operational resource planning and are in line with the Transformation programmes currently being implemented across the Trust. This exercise will be undertaken through October December in full discussion with Budget holders. The 2017/18 budget must be owned by the budget holders. Therefore the process will involve base calculations by the Central Finance Team and the Income & Contracting Team being provided to the Group Support Teams to allow for continuous discussion with those responsible for managing budgets. It is expected that this engagement will identify appropriate pressures and developments, which will be reviewed and discussed at the appropriate levels DMG/OMG/GBM/CDT. It is essential that sign off includes agreement of income levels, expenditure budgets, activity targets and the level of contribution (indirect costs and overheads). Sign off will be at Service Manager level. Patient Care Income It is proposed that 2017/18 income budgets will be based on recurrent Month 6 budgets which will then be adjusted for any known developments and any impact of contract negotiations which are due to be finalised by end of December 2016, plus expected non-recurring income. Non Patient Care Income These budgets are continually reviewed. Any changes to contracts or anticipated under-recovery of income will be addressed at a local level initially as agreed with budget holders. Any unresolved issues will be highlighted as a pressure. For 2017/18, the timetable now includes 3 working days review period following completion of Pay & Non-Pay budgets, which will enable the Income & Contracting Team to finalise the Non Patient Care Income budgets to ensure the income & expenditure budgets match for salary recharges and other relevant costs. Pay Wherever possible pay budgets will be set based on agreed shift patterns, rota s and Transforming Services structures. Any remaining pay budgets will be set on the following principles. Budgets will be based on individuals pay points at September 2016 (Month 6 2016/17) plus the effect of any increments after that date. Where applicable Staff Enhancements will be included for those staff working unsociable hours. 2

Medical staff budgets will include on-call allowances, Clinical Excellence and Management allowances as appropriate. Non-Pay The main aim is to build upon the progress achieved in recent years to have appropriately funded non-pay budgets. Work has begun with Groups, in an effort to standardise non-pay budgets across similar services throughout the Trust. This will result in a consistent approach to the budget setting process where the rationale will be transparent and logical. This exercise will not result in a fixed blanket amount for each ward or community team, but will involve identifying a standard budget for the key budget heads within each team which will be based on key factors such as number of beds or staff establishment. Any proposed changes will be agreed initially with budget holders and any pressures or budget shortfall resulting from this exercise which cannot be managed at Group or Corporate Directorate level, will be highlighted and progressed to GBM and CDT for discussion. A further key objective of non-pay budget setting, is to build up a greater understanding of non-pay costs with appropriate working papers that demonstrate how the budget has been calculated, ie moving away from simply rolling forward previous year s budget. The following areas as a minimum, are due to or have been recently reviewed: Drugs These budgets are reviewed annually and savings are identified where drugs licences are expiring. Travel Community Services budgets have been re-aligned through 2016/17 to support delivery of Transforming Community Services. Work will begin with teams to provide an understanding and transparency of the travel budgets, for example miles travelled per member of staff and number of staff per team, so that where possible budgets can be set to accurately reflect expected costs. In-Patient Services In-patient Staffing Budgets for 2017/18 will again be based on ward rotas; it is proposed that the number of staff per shift and shift pattern will be agreed with the Group Nursing Directors, to ensure consistency across the Group and that each rota has a staffing establishment that ensures patient safety. The Group Support Teams will work with clinical teams to update this information. The rotas will be costed using the average salary point for each band rather than costing each individual member of staff on a ward at September 2016. Enhancement rates generated by the rota being worked and an additional 28% will continue to be built into each ward budget for annual leave/sickness/training cover 3

There will also be further joint work to understand processes and systems for managing peaks in demand, and ensuring that budgets are aligned to this process. All inpatient budgets will be reviewed alongside the Safer Staffing data to ensure consistency and that any pressures have been identified. Community Services In line with the implementation of Transforming Community Services for 2017/18, Community Services budgets have been realigned to support the new teams and future pathway model. Patient Care Income has been realigned to reflect the new teams. Staff budgets have been based upon the agreed staff structure of the new teams. A detailed exercise around non-pay budgets is being undertaken and where possible standardised non pay budgets will be introduced for similar teams. Specialist Services Specialist Care inpatient and community services will follow the budget setting processes as described above under both inpatient and community services. In-patient Staffing Budgets for 2017/18 will again be based on ward rotas; it is proposed that the number of staff per shift will be agreed with the Group Nursing Directors, to ensure consistency across the Group and that each rota has a staffing establishment that ensures patient safety. If the proposed shift pattern increases the funding/budgeted establishment required, the Group will need to identify the shortfall. To support agreeing the planned financial delivery targets for Specialist Care in 2017/18, the Budget Setting process across the Trust includes the production of Service Line reports, to show the contributions and surpluses/deficits generated at both service and commissioner levels, this will help indicate whether services are financially sustainable at the proposed income levels. Central Departments Staff budgets for all levels of staff within Central Departments will be set to support the structures agreed through the Transforming Corporate Services review. All identified savings from Transforming Corporate Services have been removed and allocated to the relevant FDP targets in 2015/16 and 2016/17. Hotel Services Staff Hotel services staff budgets will also be based on rotas costed using an average salary point for each band rather than costing each individual member of staff. 4

Pay budget not subject to Rota/Transformation Budgets for staff groups not supported by Rota s or specific Transformation establishments will follow existing principles with a view to changing the methodologies used in the medium term. Where there are over-establishment posts, the reason will be reviewed. If this is a local pressure then the relevant area must identify the funding to support the post within the budget setting exercise. If they cannot this will lead to the post forming part of the pressures presented to GBM/CDT. If the post is not supported a plan to re-deploy the staff must be agreed as part of the budget setting exercise. Agenda for change protection and other protection costs will continue to be funded All relevant establishments will be reviewed against current business cases and any changes will be highlighted through the relevant Group/Corporate s budget summary. 4. Financial Delivery Plans It is anticipated that the Trust will need to deliver around 12.7m recurring savings in 2016/17 to achieve an 8.6m control total. The Trust s initial high level FDP developed to support the local Sustainability & Transformation Plan identified an FDP of 9.6m. So delivery of the required efficiency will be a significant challenge in 2017/18. Work is ongoing with the Operational Groups & Central Departments to identify the deliverable level of FDP to maintain safe services and support delivery of the Trusts financial targets. An initial session is being held with GBM on 21 October to highlight the required financial savings for 2017/18. With work on-going through October and November to identify opportunities to deliver savings and reduce costs across the Trust and to finalise the schemes that will make up the Trust s Financial Delivery Plan for 2017/18. The agreed schemes for 2017/18 will be fed into the budget setting process. 5. Service Line Reporting Finance reports on the dashboards currently include indirect and support costs. The initial dashboard reports for 2017/18 will, in addition to direct budgets, for clinical services, also show indirect and support services costs so that budget holders can see the full costs attributed on a service line basis. For support services it will show where there costs are charged to. Therefore a review of the apportionment information to support this will be discussed during the budget holder sign off meetings. The Trust must deliver savings of 12.7m to deliver the allocated 8.591m control total. Delivery of the FDP savings must be balanced with the quality and safety of the services being delivered. The result of a shortfall in delivery of the FDP would impact on the Trust s ability to deliver a surplus. Depending upon the severity of the shortfall it could result in the Trust delivering a financial deficit 5

in 2017/18. The Trust s Financial Strategy presented to the board in March 17 will be supported by the finalised budget for 2017/18. 6. Timetable A high level budget will be submitted to the November board meeting for approval to support the submission of the Operational Plan to NHS Improvement by 23 rd December. Any adjustments made after the board meeting will be as a result of changes from contracting discussions, which runs until 23 rd December. Any changes should have a corresponding impact on both income and expenditure. The budget setting process will provide a detailed operational budget to the Trust which will be agreed through discussions with budget holders and submitted for approval to board in March 17. The timetable for delivering the proposed budget setting together is shown in. James Duncan Director of Finance October 2016 6

2017/18 Draft Budget Setting Timetable Date 17-Oct 21-Oct Early Oct Oct - Dec Oct - Dec Detail Briefing Paper to CDT - explaining processes, rationale and proposed timetable GBM Away Day Identify the high level financial forecast for 2017/18 agree the required FDP allocations to deliver the control total Download Month 6 data and prepare recurrent income, staffing & non staffing worksheets for costing and sharing with Group Support Teams. Begin process to agree rotas as the basis of inpatient staffing budgets. Continuous work with Groups to feed into Budget Setting process identify pressures, mitigations and FDP delivery Feed through any 2017/18 developments / contract changes 16 _ Nov 7-Jan 11-Jan 16-Jan 01-Feb Early Feb Feb / Mar Mar Mar Late March Provide a high level budget for approval at November Board meeting supporting the Finance Strategy Finalise Initial Non Patient Care Income budgets Balance Budget setting across Trust Recurrent & Non Recurrent Initial Draft Budgets completed - Significant Pressures will be highlighted and essential concerns raised to CDT. Run Budgets through Costing Model - by Income & Expenditure and by Commissioner & Service 2017/18 Draft Budget Paper to GBM, CDT & FIBD to agree final budget Upload 2017/18 budgets into General Ledger Liaise with Informatics re: upload 2017/18 budgets on to dashboards 2017/18 Budget meetings to sign off from Budget Holders Obtain Final Budget Approval by SMT & Trust Board BUDGET HOLDERS WILL BE ENGAGED IN ALL STEPS OF THE PROCESS THROUGH DISCUSSIONS WITH THEIR GROUP SUPPORT TEAMS & THE CENTRAL FINANCE TEAM 7