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Pioneering integrated care deal threatens unitary's finances

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A council’s financial stability is at risk from its membership of a pioneering health and social care integration deal, while the agreement is failing to deliver the savings required.

That warning has come from a financial resilience review of Torbay BC by the Chartered Institute of Public Finance & Accountancy (Cipfa) and due for debate by the council this week.

Torbay commissioned this after exhausting obvious income, savings and efficiency options, the review said. The Local Government Association last February urged Torbay to “exorcise the spectre of non-viability”.

Cipfa found the Integrated Care Organisation (ICO) formed with South Devon Healthcare Foundation Trust had a risk share that made the council “subject to the overall financial pressures from the NHS in the whole of the Torbay and South Devon area with no ability to control or influence them”.

Social care was “not delivering the agreed savings it requires and in practice is adding to the financial gap”. The report added: “It cannot be correct that Torbay council tax residents are having to fund the cost of the NHS just because they are pathfinders in integration.”

Cipfa warned: “If the current trajectory of spend continues it will fundamentally undermine the sustainability of the council.”

A spokesman for the council said an options appraisal of the ICO was being undertaken in line with Cipfa’s recommendation.

The government last May sent in a commissioner to oversee Torbay’s children’s services after a damning Ofsted report.

Cipfa’s review said options under consideration of putting children’s services into the ICO or an independent trust “could represent significant financial risk to the council”. Cipfa said it was unable to understand why Torbay needed the highest spend on children’s social workers per head outside London.

Cipfa also questioned a plan to employ new staff through a company which would sit outside the Local Government Pension Scheme (LGPS). While it is not known how many staff the company would employ as the plan is at a very early stage, Cipfa said it was “not clear” how targeted savings of £300,000 by 2021 had been estimated.

The report said Torbay should consider not just savings but “the potential demotivating effects on staff”, its future staff numbers, and whether being outside the LGPS would make recruitment difficult.

With any new staff joining the company being employed outside of the LGPS, the council’s liabilities would be based on a diminished number of contributors who will not be replenished - the report said there had been “insufficient thought” given to that impact and the fact “effectively it [the LGPS] becomes a closed scheme”.

John Hanratty, head of pensions (north) at pensions specialist law firm Nabarro, told LGC he knew of no other example of this approach.

He said: “The past service deficit would be apportioned over a lower number of employee members and Devon pension fund may treat Torbay as a ‘closed’ employer which could allow it to set Torbay’s contributions using ‘least risk’ valuation assumptions”. As a result the fund would protect itself by charging Torbay more, said Mr Hanratty.

Meanwhile, other concerns raised by Cipfa included a planned council housing company despite the fact there was “a lack of expertise” among those involved in the project while “officers you would expect to be involved are not”. Concerns about an absence of client side skills for a public services partnership and the council’s lack of development finance expertise were raised as well.

A Torbay Council spokesman told LGC: “[Cipfa] states that the council is financially viable in the medium and long-term and it has a number of innovative, income-earning schemes to help solve its financial problems.

“Key recommendations include identifying more savings options, undertaking an options appraisal for the ICO and focusing on producing quality execution plans for key savings projects.

“Feedback from Cipfa’s review has now been encompassed, and is being progressed through the council’s strategic action plan.”

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