Strategic Financial Planning

This section identifies a model for strategic financial planning and the criteria which need to be met to ensure effective financial planning in social services. It emphasises the reflective nature of the planning process, the need for an integrated approach over the medium term and, most importantly, that service plans and priorities should drive the strategic planning process. The topics covered in this section of the module are:

Stages of financial planning

• Monitor recent trends in demand and expenditure
• Monitor trends in funding streams (for example levels of income from charging)
• Monitor and report on actual performance and outcomes, including end-of-year position and performance against specific performance indicators for social services
• Gather comparative information about actual costs and 'cost drivers'
• Consider the outcome of any external inspection reports and management letters from external auditors.

Forecast the future:

• Consider the impact of national policies and strategies
• Identify and estimate levels of the various funding streams
• Look at the impact of local policy initiatives and priorities
• Determine the future impact of known trends in demand and expenditure
• Identify the financial implications of likely demographic trends and other 'drivers' of demand which are outside of the control of the council.

See Good Practice Example: Stockport MBC

Set strategies and plans:

• Take into account the corporate context for strategic planning including 'cross-cutting' programmes
• Link financial planning with service, human resource and asset management planning
• The knowledge and skill base required for effective budget management at all organisational levels
• Use 'option appraisal' techniques
• Be clear about the arrangements for commissioning and procurement of services
• Engage all key stakeholders, including users and carers, in the strategic financial planning.

Set annual budgets:

• Agree corporate arrangements for setting budgets
• Ensure budgets are informed by financial plans
• Involve budget managers in budget setting
• Match commitments and expected changes in demand with resources available
• Respond to unexpected changes
• Set 'pooled budgets'
• Budget structures
• Engage with key stakeholders including users and carers
• Ensure short term decisions in budget setting do not undermine longer-term priorities and strategies.

Source: Joint Reviews

Linking finance and service planning

A short-term approach to either service or financial planning fails to deliver prudent financial management or policy-driven change within Social Services. To secure an approach which will deliver 'Best Value' a longer-term approach to both service and financial planning is required, (Exhibit 11) which ensures that resources are targeted to meet priority needs. A longer-term approach will also provide the basis for the effective commissioning of services to meet those needs. Read more (Good Practice Example: South Tyneside Council)

Source: Joint Reviews

The benefits of adopting an integrated longer-term approach are:

• Estimates can be made of the likely levels of the various sources of funds available for Social Services to enable indicative budget allocations to be set which will allow the planning of service development or service reductions - read more.
• Trends in demand for services, known and unavoidable commitments, and forecasts of the impact of demographic changes can be estimated and compared against future budget plans.
• Complex service change programmes can only be delivered over a number of years and the financial implications of the programme can be planned over the expected lifetime of the programme.
• Major change programmes may require pump-priming or double funding to resource the programme in the early stages, which can be planned to be recouped later in the programme and built into financial plans.
• Major change programmes have a considerable impact on the human resources being assigned to existing services and the staffing needs of the redesigned services. It is only if an integrated approach to detailed human resource planning takes place that the real financial cost of the human resource implications of the programme can be established and built into the financial plan.
• A longer-term commissioning strategy can be developed - read more.

Service planning needs to be the main driver for change to achieve service priorities, adequately supported by strategic financial and human resource planning systems (Exhibit 12).

Source: Joint Reviews

"Clarity about priorities eases the problem of shifting resources to support those priorities. Corporate assessments have shown that priorities often fail to be met when the council does not shift resources to achieve them. Excellent and good councils usually had medium-term financial plans, and budgeting was led by policy with bids for external funding being made to support the priority list. In Bexley the business planning process frees up 1-2% of the budget annually, which is then re-directed towards key priorities"

"Setting Priorities and Maintaining Focus" - Learning from CPA briefing 2

Integrated longer-term strategic planning which reflects council and service priorities also forms the basis for a more strategic approach to performance management and is essential to the management of risk.

"Priorities can be thrown into doubt when an unforeseen crisis or new pressures appear; the Government announces a new initiative or the council changes political control. councils have developed a range of methods to manage these risks. Dorset County council developed a cross-party consensus around its priorities…Lewisham council has a traffic light system, throwing up problematic priorities or targets before they become a crisis."

Audit Commission - "Learning from CPA - briefing 2"

National funding developments

• The Comprehensive Spending Review provides a framework for medium-term three-year financial planning - read more
• Personal Social Services Total Formula Spending Share (formerly known as the Standard Spending Assessment) - read more
• Floors and ceilings - read more
• Specific grants are intended to target Government priorities - read more
• Fairer charging - read more
• Pooled budgets - read more

Medium-term financial targets

In order to develop medium-term financial plans, councils need to:

• Identify all the possible sources of funding for Social Services and produce statements about how each of these are likely to change over time. Frequently, it is the difficulty of forecasting funding streams which deters authorities from setting indicative spending plans for services. This means that the financial plans become statements of known commitments and likely changes in demand without any attempt to match these to likely funding allocations.
• Identify future spending levels. The difficulty in forecasting the levels of future funding streams mean that it is necessary to indicate planned levels of spending in the longer term, so that managers are well placed to take action to match their services to the funding that is likely to be made available.

Good Practice Example: South Tyneside Council - read more

The benefits of this approach are:

• It provides better positioning to deal with either increased investment, 'real terms' disinvestment of resources ('budget cuts'), or re-alignment of resources to meet priorities.
• It avoids short-term reactive approaches to budget increases or reductions, which can skew service priorities and undermine strategic objectives.
• It eases the changes which can arise when actual budgets are set. For example, managers may be given indicative budget allocations for the next three years and be expected to plan to this level and (say) 2 per cent above and below this level.
• It provides the framework to produce 'exit strategies' where service projects are reliant on funding streams which are time limited.

Sources of funding

Funding for Social Services comes from a number of different sources. The funding for Social Services in an average council is reflected in Exhibit 13 below.

Source: Joint Reviews

The following are the main funding streams which relate either directly or indirectly to the provision of social services with comments about the issues which need to be considered in setting indicative resource allocations for the longer term:

• Revenue support grant from Total Formula Spend Share (FSS) - read more.
• Specific grants - read more.
• For England local public service agreements (LPSAs) provide the opportunity of additional funding for priority areas. This is a key area in which securing additional funding for Social Services may contribute to improved corporate performance. As well as helping to achieve broader corporate objectives, careful targeting could improve the overall performance within Social Services (the star rating) while also offering the potential of improving the council's overall Corporate Performance Assessment (CPA). Care needs to be taken to target the highest priority areas, in setting realistic service targets and ensuring that any additional resources made available by Government will be sufficient to support the achievement of agreed targets. ). More details on the Wales Programme for Improvement are available at http://ww2.audit-commission.gov.uk/wales/el/itc_12.shtml
• Other specific grants supporting more cross-cutting Government priorities and have a direct bearing on the mainstream work of Social Services. These need to be considered in service and financial planning as they may affect spending priorities within Social Services. This could include further investment of Social Services mainstream resources to support these programmes. Examples of cross-cutting specific grants to tackle Government priorities, but which have a direct impact on the work of Social Services, are funding to support initiatives to reduce teenage pregnancy, crime prevention, and drugs and alcohol services - read more.
• Income from user contributions towards the cost of services they receive is a major source of funding for Social Services and can increase gross spending by up to 30 per cent of the net allocations received from Government or raised by the Authority through the council Tax. While income levels are influenced by national regulations or Government guidance, authorities still have a great deal of discretion which can affect total levels of income. Furthermore, recent experience is of gradual increases in income due to the average levels of contributions increasing due to users' higher disposable income levels (for example higher levels of contributions because more people are in receipt of occupational pensions or welfare benefits). Authorities need to take both of these factors into account in forecasting the levels of income streams in the future - read more.
• External sources of funding - These are frequently available to authorities to support the main stream work of Social Services and to meet national and local corporate policy objectives. Maximising these sources of income often requires a strategic corporate approach to be adopted by the council - read more (Good Practice Example: Wiltshire County Council). The most common examples are European Social Funds, Partnership funding from other agencies (especially the Health service), Neighbourhood Renewal funding, and charitable sources. Authorities need to consider the implications of these for their longer-term financial planning as they may need 'pump-priming' or 'matched' funding to secure the external funding and to plan exit strategies if (as is likely) the funding is time limited. See Case Example: Buckinghamshire County Council.
• Contribution from Council Tax - Actual spending on Social Services is often greater than an authority's FSS (or previously SSA), after discounting funding from other sources such as specific grants. This funding is made available through the authority's council Tax. As part of longer-term financial planning, an authority needs to estimate the level of future council Tax income and how much of this is to be allocated to Social Services. This may mean indicating how Council Tax levies might need to rise or fall, and how income might increase or fall due to changes in the number of households or banding categories.
• Supporting People - While this is funding for a specific programme to provide housing- related support services, those services are closely related to community care services provided by Social Services. All 'top-tier' councils which have responsibility for the provision of the personal social services are also responsible for the development of the Supporting People strategy for their area. Councils should ensure that strategies, and the plans to deliver those strategies, maximise the total resources available to them to support social care and housing-related support services to vulnerable people.

Commissioning strategies

Commissioning strategies are the key to reshaping services to meet changing need and service priorities. For more information on this look at the Commissioning module. Strategic financial plans are the bedrock of effective commissioning strategies and support their development in the following ways:

• A financial plan integrated with service, and human resource planning enables a holistic approach to strategic commissioning.
• It provides the mechanism for all funding sources to support strategic commissioning to be identified.
• It enables the financial outcomes from planned changes to the services to be reflected in longer-term financial plans.
• It ensures that all the necessary resources are reflected in the longer term financial plans of the partner agencies.
• It reflects the financial effects of planned decommissioning of services, and identifies savings when they are needed to produce a 'virtuous' circle of service development - read more (Good Practice Example: Wokingham Council's Children's Services).
• The levels of investment in commissioning and contracting processes can be identified in financial plans to reflect the changing level of activity.

See Lincolnshire Social Services and Bexley Social Services for examples of commissioning strategies.

Investing in service development

Resources to cover the additional costs of achieving service change programmes must be identified in financial plans. Plans should identify any payback from this investment from the more cost-effective services which emerge and the time over which it will become available.

Resources can be made available in a number of different ways to 'pump-prime' service change programmes:

• The Government's 'Invest to Save' programme - This is a national programme which provides additional resources to 'pump-prime' service developments to support Government priorities. The programme seeks bids from local authorities on an annual basis for developments which meet the criteria for that year's programme.
• The Private Finance Initiative (PFI) - This national initiative enables councils to secure approval from Government for major capital investment from the private sector sources to support change and development programmes. The scheme requires private sector companies to deliver services under contract to a level and time period to recoup the investment.
• Revenue funding made available by the council - councils can create their own 'Invest to Save' programmes to enable them to pursue their own priorities through longer-term financial plans. This requires the council to set criteria for additional resources and build these into financial plans, with plans to recoup the initial outlay in later years. Revenue funding could also be identified to supplement Government capital spending approvals to finance capital projects to support the development of services.
• Capital funding made available by the council from its 'Single Capital Pot' allocation. Councils now receive single capital allocations (the 'Single Capital Pot') from Government which allows them to borrow (under the 'Prudential Borrowing' guidance) to support local priorities for service development across the various areas of service. councils need to build the revenue financial consequences into their longer-term financial planning. This must include the repayment of the debt as well as any changes in the finances required for the new services.
• Funding from Partner organisations - Contributions from partner agencies such as Health or Housing, whether revenue or capital, can help to pump-prime initiatives which require a jointly funded approach. An example would be a capital contribution from the Housing Corporation or a housing provider towards the development of a supported living scheme.

Option appraisal

Option appraisal (OA) is a tool to aid decision making by assessing the advantages and disadvantages of different options that would, potentially, achieve the same objectives and outcomes. The aim of OA is to maximise the service benefits that are desired through the optimal use of scarce financial resources. OA is essential to the conduct of effective Best Value reviews of service, and to allow the subsequent change programmes to be built into the longer-term financial plans of the council. As part of their service and financial planning, councils should undertake option appraisal for any service change programme or new service development where there are a number of possible options to achieving the desired outcomes but the financial consequences are uncertain - read more.

Corporate planning, priorities and cross-cutting programmes

Social Services managers need support from corporate planners in providing data for service planning purposes and clarity about corporate priorities. Social Services managers should ensure that service plans contribute to the achievement of broader corporate priorities within the council. (Read more) In particular:

• Councils need to have arrangements in place to monitor demographic changes in the population and to use this information to forecast future changes. Social Services managers need to clarify their requirements from the central statisticians if they are to secure the information in a form that is useful for service planning and commissioning. Corporate planners need to outline planning timescales and processes for engaging with service managers to meet the expectations of service planners.
• Service and financial plans for social services need to reflect broader corporate priorities and the cross-cutting programmes which support them. Examples might include the release of mainstream funding to resource a benefit take-up campaign as part of the council's strategy to tackle poverty, which in turn might produce additional income from some service users, or targeting drug action and awareness programmes in a locality which has a high prevalence of children on the Child Protection Register.
• The specific grants that are being made available to tackle cross-cutting national priorities (see sources of funding) should be planned to be used to meet corporate objectives in this area and if appropriate to also tackle social services priorities.