Overview

Why sound financial planning and budget management is so important

Why is budget management so complex in social services?

National funding of social services

The corporate context in councils

Why sound financial planning and budget management is so important

Service users are the people most adversely affected by poor financial planning and budget management. Poor budget management will lead to money being spent inappropriately and not targeted on national and local priorities. It may also lead to personal distress and the loss of essential support and care to some of the most vulnerable people in the community.

Effective long-term financial planning and good budget management will help ensure that the support given to users and carers is effective in meeting their needs, by avoiding poor short-term decision making.

Good budget management and financial planning will ensure the delivery of efficient and effective services by:

• Providing information to councillors and managers about how well service policies and priorities are being delivered
• Allowing changes to the direction of services to reflect requirements that are being driven either by central government or by the local authority
• Assisting complex service change programmes to be conducted in a stable financial environment which minimises risk
• Helping councils to respond to changes in demand for services and ensuring that resources are targeted to areas of need.

There have been considerable spending pressures on social services budgets over the last few years. These pressures, frequently accompanied by overspends, have particularly resulted from:

• the rising costs of childcare placements
• increased demand arising from a growing elderly population; and
• the increasing costs of supporting adults with complex needs in the community.

This has challenged corporate financial planning within councils and made it more difficult for councils to fund other priority areas. In this context good financial planning and budget management in social services has never been more critical to delivering positive outcomes for people. With many councils likely to reconfigure services in the wake of the Government's green paper 'Every Child Matters' councils need to be clear about how much they spend on Social Services and their individual budgets need to accurately reflect this.

Why is budget management so complex in social services?

It is the largest pot of money directly controlled by the council. On average social services expenditure accounts for nearly a quarter of the council's total budget (Exhibit 8) and is the second largest council budget after education. However, the vast proportion of the education budget is delegated to school governors whereas all of social services budgets are under the direct control of councils.

Source: Department of Health Key Indicators,

Decisions which affect the type and cost of services to be provided are often outside of the council's control and may be unpredictable. For example, decisions taken by the court in childcare cases or elderly carers suddenly being unable to care for a relative with high support needs.

• Some individual services are very expensive. Placements for children or packages of care for adults with complex needs can easily exceed £100,000 a year.
• Financial decisions have to follow the changing needs of individual users.
• Expenditure entered into in one year may lock the council into financial commitments for many years to come.
• Market pressures sometimes mean that councils can face escalating costs when purchasing services, which may exceed the original budget assumptions.
• While some services are low volume and high cost many are notable for their high turnover and volatility such as the provision of home care and some residential care services. The extraordinary high volume of budget decisions, financial transactions and changes to the level of financial commitments present real challenges to tracking the budget accurately (Exhibit 9).

Source: Joint Reviews

National funding of social services

• The Comprehensive Spending Review provides a framework for medium-term three-year financial planning. The last Comprehensive Spending Review has guaranteed annual growth in funding for social care over a three-year period in recognition of the pressures on frontline services due to increased demand. This increase is in addition to allowances for inflation and money being absorbed into mainstream funding due to the cessation of some specific grants - read more.
• Personal Social Services Total Formula Spending Share (FSS) (formerly known as the Standard Spending Assessment - SSA). This is the system which translates the overall spending plans outlined in the Comprehensive Spending Review into specific allocations for each council. The change in arrangements for the allocation of revenue support grants to local authorities by Government from 2003/4 from SSA to FSS has created significant shifts of resources for many authorities with some being major losers of funding and others securing significant increases. Maximum and minimum levels have been applied for 2003/4 but no information is available to indicate how these will be applied in future years. Until the full effects of this change have been implemented, authorities need to reflect the impact of these changes in their financial plans - read more.
• Floors and ceilings: The decision to soften the impact of the change, by ensuring a minimum funding increase of 4 per cent for those losing revenues in 2003/4 ('floors') and introducing a maximum funding increase of 8 per cent ('ceilings') for those who gain from the change, has eased the financial planning problem for authorities in the short term but has created uncertainties in medium-term planning. This is due to the lack of clarity about the application of 'floors' and 'ceilings' in future years, which affects how quickly individual authorities are going to benefit from the increases or suffer decreases in their FSS allocations - read more.
• Specific grants (SG) which are intended to target Government priorities for improving areas of poor performance or to support service development initiatives. While the introduction of these grants, with the additional new funding streams, have been welcomed by local authorities, this has been tempered by concerns about some priority areas having increased funding while other areas of mainstream budgets have been under severe pressure or suffering budget reductions. It is also seen as a development which has increased central government influence on the scale and direction of local authority spending. SG programmes are also time limited, with programmes either coming to an end, leaving authorities to determine whether or not to continue funding, or being absorbed into mainstream funding. Information is provided by central government of three-year allocations for authorities, the likely duration of the specific programme areas and whether there is any intention of absorbing the grant within mainstream funding allocations through FSS over this period. Local authorities need to consider the implications of changes to SG funding in their financial plans and to respond to the implications of any grants which are time limited within this period by providing new funding or developing exit strategies - read more.
• Fairer charging: New guidance for authorities to ensure that charges for non-residential social care services are more consistent nationally, and reflect people's ability to pay for their care - read more.
• Pooled budgets: The Government is encouraging partnership working with other key agencies, and this is leading to the development of 'pooled budget' arrangements with joint budget management responsibilities - read more.

The corporate context