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Budget setting policy

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Budget setting policy

PORTSMOUTH HOSPITALS NHS TRUST Policy No. 11.12

    POLICY AND PROCEDURE

Title Budget Setting Policy 2009/10

    Reference number 11.12

     Manager / Director of Finance & Investment committee Finance Committee responsible

    Date issued 14.02.2009

    Version 1

    Review date January 2010

    Equality Impact

    Assessment has N/A been applied to this

    policy

    Author Ft Finance manager

    Ratified by Hospital Management Committee (27/01/09) Amendments record

    Date Page Comments Approved by

    V1.0 (12/08) Produced by FT Finance V1.1 (01/09) Sec 7 Manager

    & 9 Amended by FT Finance

     Manager following meeting with

    DoF 23/12

Contents:

    Page Number

    1 Introduction 2 2 Budget Setting Principles 3 3 Income 4 4 Pay 4 5 Non-Pay 5 6 Savings/CIP 5 7 Reward/Levy for Prior Year Outturn 6 8 Growth/Cost Pressures 6 9 Service Developments 6 10 Activity Changes 6 11 Reserves/Contingencies 6 12 Other Budget Adjustments 7 13 In-Year Budget Adjustments 7 14 Management of Budgets 7 15 Approval of Expenditure 7 16 Performance Management 8 17 Budget Profile 8 18 Budget Setting Timetable 8 19 Review of Budget Setting Policy 8

Budget Setting Policy. Issue 1. 14.02.2009 Page 1 of 9

PORTSMOUTH HOSPITALS NHS TRUST Policy No. 11.12

    POLICY AND PROCEDURE

1. Introduction

    Budgets are produced annually following the agreement of the Financial Framework which is

     prepared in accordance with the Operating Framework. The budgets produced aim to deliver the agreed Financial Framework, and to build a robust financial base for future years.

    This Budget Setting Policy should be read in conjunction with the Budget Setting Guidelines 2009/10 which spell out the principles in detail.

    This budget setting policy covers all revenue operating budgets, i.e. those for income, pay and non-pay.

    The starting point for all budgets is the recurrent baseline, rolled forward from the previous year.

Budgets are uplifted annually for inflation, but this isn’t necessarily a straight-line uplift across all

    budget headings. This is detailed further below.

    Savings/Cost Improvements are integral in delivering the planned financial position. Budgets will be reduced accordingly, and Divisions must develop savings plans in advance of the new financial year commencing in order to balance their budgets. Savings will normally result from a combination of divisional schemes and corporate workstreams.

    A timetable will be prepared by the Finance Directorate to provide key milestones and to outline responsibilities. Budgets must be as complete and robust as possible to ensure in-year reporting is consistent with the financial plans submitted to external bodies (i.e. DoH, SHA, Monitor etc).

    In order to understand how budgets have moved from 2008/09 current budgets to 2009/10 proposed budgets, a control spreadsheet will be maintained by the Deputy Director of Finance. Each Division will ultimately have a budgetary control total which they will be expected to balance their opening budget for 2009/10 to.

    The main items that will determine control totals for 2009/10 are as follows:

    ; Start Point: 2008/09 Budgets (As at Month 7)

    ; Less Non-Recurrent Funding

    ; Add Full Year Effect of 2008/09 Funding

    ; Adjust for anticipated Month 7 to Month 12 funding adjustments

    ; Activity/income adjustments (SLA 2008/09 to SLA 2009/10)

    ; Inflationary adjustments (as per tariff uplift)

    ; Growth / Cost Pressure Funding (locally agreed)

    ; Inter-Divisional Transfers

    ; New Hospital adjustments

    ; Less CIP target 2009/10

    ; End Point 2009/10 Opening Budgets

    The above is a preliminary list and is by no means all inclusive, the Budget Setting Guidelines should be referred to for further detail, but the sections below outline the requirements.

Budget Setting Policy. Issue 1. 14.02.2009 Page 2 of 9

PORTSMOUTH HOSPITALS NHS TRUST Policy No. 11.12

    POLICY AND PROCEDURE

2. Budget Setting Principles

There are several key principles that underpin the Trust’s budget setting for 2009/10:

2.1 Consistency across business planning

    At the same time as the Trust is preparing financial budgets for the year ahead it is also preparing activity and workforce plans for each service. The importance of these three items being consistent cannot be overstated.

    In theoretical terms the activity plan should come first. This will outline the levels of work that the Trust is expecting to perform in 2009/10 and as a by product will also inform the level of income associated with that work. The workforce plan should come next, in that this should be a robust assessment of the workforce required to perform said level of activity. The financial plan should then be the final item to be concluded and should detail the level of resource required to perform the activity required.

    The reality is that the planning process is never quite as smooth as outlined above. Activity plans are often delayed by the complexity of negotiations with PCT’s and workforce plans often

    confused by the difficulty in getting a robust starting point. Nevertheless wherever possible, Divisions, specialities and those corporate leads involved in the business planning process must ensure that they keep these three items as consistent as possible throughout the planning process. Failure to do so will mean starting the year with different baselines for activity, workforce and finance which will inevitably weaken the monitoring information produced during the year.

2.2 Divisional ownership of income and expenditure

    One of the aims of budget setting is to ensure that Divisions start the year with an expenditure target that is consistent with the planned activity levels agreed in SLA’s with PCT’s.

    Building on this principle, it is recognised that activity levels during the year will vary and in some cases will exceed those agreed with PCT’s. Given the Trust’s clearly stated desire to move to a business unit approach, it is important therefore that any contract over/under performance is clearly recognised within Divisional Financial positions.

    This will build on the system in place over the last two years where Divisions have been allocated additional budget in respect of over-performance. The exact nature of the system to be introduced in 2009/10 is to be agreed with Divisions but the preference is for SLA income to be devolved to Divisions with any over or under performance being recognised through adjustments in actual income rather than through budgetary adjustments as is currently the case.

2.3 The plan is the plan budget adjustments to be minimised

    A further principle to be established for 2009/10 is to minimise budget adjustments wherever possible. Budget adjustments (especially those within Divisions) can be extremely time consuming and often serve to make meaningful analysis of the financial position more difficult. The clear aim for 2009/10 is to ensure that there is one plan and then variances are managed