Item 2 is consideration of the 2024-25 audit of NHS Ayrshire and Arran. I am very pleased to welcome this morning the Auditor General, Stephen Boyle. Good morning. Alongside the Auditor General are Fiona Mitchell-Knight, who is an audit director at Audit Scotland, and Leigh Johnston, who is a senior manager at Audit Scotland.
We have some questions to put to you on the section 22 report, Auditor General, but before we get to our questions, I invite you to make an opening statement.
Many thanks, convener, and good morning. I have prepared this report on the 2024-25 audit of NHS Ayrshire and Arran under section 22 of the Public Finance and Accountability (Scotland) Act 2000. As the committee will know, a section 22 report allows me to bring to the Parliament’s attention matters that have arisen from the annual audit of a public body.
As reported by Fiona Mitchell-Knight in her annual audit of NHS Ayrshire and Arran, the board is not in a financially sustainable position. In 2024-25, the board required a £51.4 million loan, known as brokerage, from the Scottish Government to break even. It now has the highest amount of outstanding loans across the national health service in Scotland, at £129.9 million.
The scale of the financial challenge that the board faces is unprecedented. The board’s three-year financial plan from 2025-26 through to 2027-28 projects a cumulative deficit of £112.1 million. The Scottish Government has said that NHS Ayrshire and Arran’s
“forecast position for 2025/26 does not demonstrate sufficient improvement in the board’s financial sustainability”,
and it concluded that it
“could not approve the”
board’s
“three-year financial plan.”
The Scottish Government set a target of a £25 million deficit for the current financial year 2025-26, but the board is forecasting a higher number than that—a deficit of £33.1 million. The appointed external auditor reported that the board is relying on “overly optimistic” savings plans that might not be achievable.
Further, NHS Ayrshire and Arran has been at level 3 on the NHS Scotland support and intervention framework since 2018 because of its financial position. It is receiving tailored support from the Scottish Government to support its financial recovery, and the Scottish Government asked the board to create a financial recovery plan that sets out a five-year path to balance. The board has not yet prepared sufficiently detailed plans to show how it will achieve financial sustainability in the future.
Our position is that there is no evidence yet that the board can achieve financial sustainability. It is relying on optimistic assumptions that it will achieve recurring savings of 3 per cent each year until 2027-28, and that forecast deficits will also continue to be funded by the Scottish Government. The board has what it refers to as a whole-system plan, but that does not yet sufficiently demonstrate how services will change or how efficiencies will be realised to meet the growing needs of patients within the financial constraints that we have outlined.
The external auditor has, quite reasonably, recommended that the board needs to continue to seek Scottish Government support for more radical reform if it is to achieve financial sustainability. Board members and the corporate management team need to continue to work together to provide effective leadership to secure the sustainability of services, and the recent appointment of an interim chief executive officer of the board provides it with an opportunity to help to address those challenges.
Lastly, it is clear that the board needs to set out a clear, realistic recovery plan to address the forecast deficit for 2025-26, and it also needs to agree how it can implement an improvement plan with the Scottish Government to achieve its financial sustainability objectives over the next five years.
As you mentioned, convener, I am joined by Leigh Johnston from our NHS performance and best value team, and by Fiona Mitchell-Knight, who, as I referred to, is the appointed external auditor of NHS Ayrshire and Arran. As ever, we will do our utmost to answer the committee’s questions.
Thank you very much for that comprehensive summary of the report, which touches on many of the areas that we want to ask you about.
You mentioned in that opening statement—and it is a stand-out conclusion of the report—that NHS Ayrshire and Arran has the highest level of outstanding brokerage of any territorial health board in Scotland. You say in the report that the figure for the audited year 2024-25 was £51.4 million, which represents 4.3 per cent of revenue resource limit.
Can you tell us how that compares with other health boards? Is NHS Ayrshire and Arran a real outlier or are there other health boards that are in a similar position or going in that direction?
I am happy to start and then bring in Leigh Johnston to say what we can at this stage about the wider picture. As the committee will be familiar with from our forward work programme, we will be setting out much of the detail that you are interested in in our annual report on the NHS in Scotland, which we will be publishing next week, if memory serves me correctly. That will also set out some of the context of the wider financial challenges and the support that NHS boards are receiving.
Part of the rationale for carrying out a section 22 report on NHS Ayrshire and Arran was because the scale of the financial support that it is receiving is at the end of the spectrum of all the boards. You mentioned territorial and national boards. If we add both together, the support for NHS Ayrshire and Arran is the most significant in terms of outstanding brokerage. The additional context that I touched on in my opening statement is that there is not yet clarity around whether it has a route to balance or a plan to resolve the scale of financial support that it continues to receive from the Scottish Government.
I will pause there and ask Leigh Johnston whether there is more detail that we can offer at this stage, short of giving you the detail that we will present to the committee very soon on the overview report.
As the Auditor General said, we will cover this in detail in our NHS in Scotland report, which we will publish in a couple of weeks. As the committee will be familiar with, NHS Highland, for example, has about £106 million of outstanding brokerage, and it received about £49 million or £50 million of brokerage in 2024-25. Of course, NHS Grampian, which we will talk about shortly, received more brokerage in value, but not proportionately, than NHS Ayrshire and Arran did in 2024-25—it was £65 million. NHS Ayrshire and Arran, NHS Highland and NHS Grampian have the most outstanding brokerage that is still to be repaid.
You have said a couple of times already this morning that your concern is that there is no evidence that the board can achieve financial sustainability. How has it come to that?
For some of the history, it would be useful for the committee to hear from Fiona Mitchell-Knight about the work that she and her team have been doing for the past three years of this audit appointment round.
You are right, convener—such financial support and the challenges are things that do not happen overnight. If I may first answer my own question of why this year, what we are not seeing through the audit process is a path or a route through to financial balance. As I mentioned in my opening remarks, none of this is new to either the board or the Scottish Government. NHS Ayrshire and Arran has been on the support and intervention framework for eight years. It has been receiving support from the Scottish Government, but it is hard to form a conclusion that that support is making an effective difference.
We seem to be in a recurring pattern or cycle, in the context of what is now £130 million of outstanding balance, of brokerage support from the Scottish Government to support financial balance. I mentioned breaking the cycle in my opening remarks, but maybe neither the Scottish Government nor the board thinks that the cycle needs to be broken—that is just the model that they are in. However, that does not seem a sustainable position with regard to service delivery or quality for the patients of NHS Ayrshire and Arran.
I will bring Fiona Mitchell-Knight in to set out some of that additional context.
As the Auditor General said, this is a long-standing position—the board has been on escalation for a number of years—but the scale of brokerage that has been needed in the years since I was appointed as the auditor has increased. For the first year of my audit appointment, the brokerage was £25 million, it then increased to £38 million and, this year, as we have already said, it was £51 million. Certainly, the position is deteriorating with regard to the support that is needed.
Over that time, we have reported that the pace of transformation in the board has been slow. In 2023-24, I reported in my annual audit report that although a number of areas for discussion relating to short, medium and longer-term service reform options had been discussed with the performance governance committee, many of the measures were not costed. Therefore, we did not consider them to be credible options for closing the budget gap. At the time, we recommended that more focused leadership was needed to drive the change and to enable costed financial plans to be presented that would show how the financial gap had been closed. Such plans have not been produced. The plans that have been presented to the Scottish Government this year projected a deficit of £33 million. Currently, the financial monitoring reports are showing that it will be challenging for the board even to achieve a £33 million deficit.
There are particular cost pressures on the acute services. When it comes to meeting the demand for those services, the length of stay for unscheduled care is longer than it is in other boards. Delayed discharges are high and increasing. All those things are putting cost pressures on the acute services. As a result, the board is filling more beds than it can afford to fund in the acute sector.
The traffic-light system at the end of the report, which indicates which services are exceeding the targets and which are falling below them, is a very useful addition. On the face of it, if a health board was overspending its budget and achieving much better outcomes for its population, one could say that there might be some merit in that, but, in the report, you portray a health board that is overspending its budget and relying on bailout loans from the Scottish Government and which, even then, is still not meeting targets on accident and emergency waiting times and so on.
Our intention is to present a rounded picture, through not just the section 22 report but the annual audit report from which the section 22 report is drawn. In the annual audit reports, I ask the appointed auditors to present, in addition to their important opinion on the financial statements, a broader suite of judgments on financial management, value for money, use of resources and financial sustainability.
There seems to be a pattern of the board continually requiring brokerage. It is clear that that is difficult for the board—we recognise that that is not where it would want to be. However, the context for that extends beyond its own boundaries. The picture is a challenging one for all the territorial boards; we will set that out in more detail in our annual report on the NHS. However, the fact that NHS Ayrshire and Arran is receiving brokerage when neighbouring boards are not and when those boards are making harder decisions around service arrangements than NHS Ayrshire and Arran has perhaps been able to do up until now draws attention to the board.
In theory, at least, brokerage loans are loans that are expected to be repaid, but when it is projected that NHS Ayrshire and Arran will have a cumulative financial deficit of £112 million, and it has outstanding loans of £129.9 million, is it realistic to expect that any of that money will be paid back? Indeed, would that be the right thing to do?
09:45
I do not want to steal the thunder of the next report, but, in that report, we will refer to the fact that we think that the Scottish Government needs to be more transparent about what its expectations are when deficit support arrangements are put in place for NHS boards, not only for the benefit of the boards but to aid the public’s and Parliament’s understanding.
A variety of arrangements have been used over the past 10 years. With brokerage, as Fiona Mitchell-Knight mentioned, there is a long history of amounts being paid to support boards to achieve financial balance. Theoretically, those funds have been provided as loans, but the committee may recall that, when Covid came along, the slate was wiped clean. We are now seeing a new cycle of brokerage or support being accumulated.
As is referred to in the report that the committee is currently considering and in the one on the NHS that it will consider, health boards are making assumptions about whether they will or will not have to repay loans. Today, I will inevitably stray into highlighting other issues that exist elsewhere in the country. There are next to no examples of health boards actually repaying brokerage—I think that there is only one health board that has ever repaid brokerage—so it is perhaps not an unreasonable assumption for health boards to think of brokerage as less of a loan and more of a grant to support their financial position. However, we think that it is important that the Scottish Government should be clear in saying what is expected of boards and whether they should be factoring repayment into their considerations.
Leigh Johnston might want to say a bit more about that, if she is able to. The issue of the need for transparency and clarity is a theme that we will return to.
I do not have much to add, except to say that, when we ask the Scottish Government, it is very clear in setting out that there is still an expectation that the brokerage loans will be repaid by boards once they reach a break-even position.
The other issue that comes into this picture is the requirement on all health boards to find recurring savings of 3 per cent. I have always found it a little incongruous that, in an era in which we are seeing historically high levels of spending in the national health service, we are expecting health boards to make 3 per cent savings. Could you talk us through how that is supposed to work, especially in the context of a health board such as NHS Ayrshire and Arran, which, as we have just discussed, has massive brokerage, a massive projected cumulative financial deficit and so on?
You are right. I will bring in Leigh Johnston and Fiona Mitchell-Knight to talk about some of the detail in the annual audit report and their judgment on how realistic the savings targets are for NHS Ayrshire and Arran. I know that the committee is very familiar with the concepts of recurring and non-recurring savings. It is important that NHS Ayrshire and Arran has taken reasonable steps to use a traffic-light system for its savings plans to set out what is realistic, what is optimistic and what might be more pessimistic.
On the history of the 3 per cent target, you make an important point about compatibility. In some ways, the savings target is important, because all public bodies that spend public money should go through a process of challenge with regard to how efficient they are being. It is important to bring a culture of savings into the use of public money. However, the issue of sustainability is important. Any savings target must be realistic. It is a process that has been around for a number of years.
I will bring in Leigh Johnston first, to set some of the national context.
The 3 per cent target was brought in last year, if I remember rightly, but it was not met. There is an on-going deficit each year, and that is what the 3 per cent savings target is about. Those savings should be recurring savings. The committee has discussed the difference between recurring and non-recurring savings many times.
As we will mention in our report that is due to come out in a couple of weeks, unprecedented levels of savings have been made this year, and there has been an increase in recurring savings. A lot of the increase in funding for the NHS is to pay for the pay awards, so it is still necessary for boards to make on-going savings.
Specifically on NHS Ayrshire and Arran, the target for savings for 2024-25 was £26.5 million. The board reported that it had delivered savings of £26.8 million, but £8.9 million of those were non-recurring savings, which means that they do not count against the target. In relation to the target of £26.5 million, £17.9 million was what the board actually achieved.
Significant savings are included in the board’s plans for this year, but we have reported that we are concerned that the savings plans are overly optimistic and will not be achieved. There are high risks against some of those items. As I mentioned earlier, the signs in the financial monitoring reports are that the board will struggle even to achieve a £33 million deficit, so it will be a big challenge to achieve the savings that have been set out.
Just for completeness, does the report talk about savings being wrongly classified as recurring when they were non-recurring savings?
Yes. The distinction between recurring and non-recurring was not always clear in the reports, and it is very clear that the target relates to recurring savings. One of the recommendations in our report is that that should be clearer in the future for board members.
That is an issue of transparency for us, but, as you say, it is also an issue for the people who have responsibility for the safe governance and effective leadership of the board.
Yes.
That is very much the case. In any organisation, it is fundamental that clear reports are provided to those who are charged with governance. Especially in an organisation such as NHS Ayrshire and Arran, which is experiencing financial difficulties and is faced with making difficult and potentially unpalatable decisions, such reporting must be clear and precise. As Fiona Mitchell-Knight has highlighted in her report, the quality of the reporting was not good enough to enable board members to make the decisions that they had been asked to make.
I am conscious of the time, so I will move things along by inviting Colin Beattie to continue to pursue the fctheme of financial sustainability.
Auditor General, in your opening remarks you quoted from paragraph 11 of your report in connection with the board’s three-year financial plan, which was submitted to the Government in March 2025. You commented then that the Government did not accept it and that another three-year plan should be produced for 2025-26 with a new financial deficit of £25 million. Your report also said that that plan had not yet been updated—it had not been presented to the board, I think. That was supposed to happen in June 2025. Are you aware of any updated plans that have come forward since then? If so, what do they look like?
I will bring in Fiona Mitchell-Knight to share that detail with the committee.
A revised plan was submitted, but the revised plan also projected a deficit of £33 million. The board said that it was unable to produce a plan that met the Scottish Government’s expectation of £25 million.
So, what is happening now?
The board is monitoring its performance against its plan, and the Scottish Government is continuing to work with the board on any ways in which it can try to improve the position for the year.
So, the board is working to the plan that has been rejected because it projects a deficit of £33 million.
It is working towards the achievement of its own plan, but it is also looking for any ways in which, on top of the current plan, it can realise any further efficiencies. It is working with the Scottish Government on that.
Has that revised plan gone to the Scottish Government?
Yes, but it projects a £33 million deficit.
The Scottish Government came back and told it—what?
The Scottish Government told it that it needed to continue to look for further ways to realise efficiencies. As part of the escalation model at level 3, the Scottish Government is working with the board to identify ways in which those can be achieved.
But the Scottish Government rejected the second plan.
Yes.
It told the board to continue working with its existing plan in the interim, while looking for other sources of savings.
It told it that it should be seeking ways to realise further efficiencies.
This highlights a difficult position, which may be unsatisfactory for both the Government and NHS Ayrshire and Arran, in which two numbers for the projected deficit are being operated to. I think that there has to be realism as to what the board can achieve, not just this year but over the next three to five years, under a realistic plan. As ever, it is not just a plan for a plan’s sake, with an arbitrary number on it; it is underpinned by clear, costed steps and actions that will produce a sustainable model of healthcare for NHS Ayrshire and Arran.
The board and the Government could dance around whether the deficit is £25 million or £33 million, but that does not address the bigger picture of whether there is a sustainable financial position for the health board. Even if the deficit is £25 million, that is still financial support that the board requires, and that is real money—resource that could be being used to deliver healthcare in other public services. We need clarity around what the board can and cannot do and a clear plan with the Scottish Government.
Auditor General, you used the term “arbitrary”. Is the figure of £25 million based on anything, or is it just a notional target?
I am not sure that we will be able to give you that detail. It is potentially a question for the Scottish Government as to how it arrived at that figure—why it is £25 million and not £26 million. What we are not clear on—and it is something that Fiona Mitchell-Knight and her team will follow up during this year’s audit—is whether there was an incremental basis for that. Was there £8 million of savings that the Scottish Government asked NHS Ayrshire and Arran to deliver that the board felt it was not able to deliver because of risks to service delivery or patient safety? I do not think we have that detail today, but it is certainly something either that we will follow up during this year’s audit or that the committee could ask the Scottish Government about.
Let me summarise it for my own clarity. At the moment, the board is working towards a deficit of £33 million. That is what it is budgeting against, but there is a notional £25 million deficit that it has to achieve by as-yet-unspecified means. That was the position in June. Has there been any indication that it is likely to improve on the present situation?
No. The latest financial reporting to the board shows that it is challenging for the board to achieve the £33 million deficit. There are currently no signs that it will be able to deliver an improved position.
So, at the moment, the board has committed only to a £33 million deficit. Has it accepted a £25 million deficit as a valid target? It seems a very confused way to do business, to be honest.
Its financial plan is based on a £33 million deficit and was clearly compiled as part of its budgeting process. As I said earlier, we feel that it is overoptimistic and that that target will be hard to achieve.
That is an important point. There is lack of clarity about which target the board is being held to account for—is it the £33 million deficit or the £25 million deficit? If, as Fiona Mitchell-Knight has mentioned, the board is already indicating that a £33 million deficit will be challenging for it, that captures the lack of precision and realism about the financial position of the board and what it can achieve this year. That does not allow for the level of medium to longer-term planning that is required to deliver a financially sustainable health service in NHS Ayrshire and Arran that, rather than having this model that jumps from one year to the next with a debated savings target or deficit target, can get itself out of the very difficult position that it has found itself in a loop of for a number of years now.
10:00
It certainly seems a very unsatisfactory approach.
In paragraph 13, you explain that the board has been at level 3 of the NHS Scotland support and intervention framework. Can you briefly explain what the Scottish Government’s tailored support to the board for financial recovery actually looks like in practice, especially in the context of what we have just discussed?
I am happy to do so, and I will turn to Leigh Johnston to set out a bit of detail. Later this morning, we will speak about another board—one that is at level 4 in the escalation framework—and Leigh may be able to explain the distinction between them.
It is touched on in paragraph 13 of the section 22 report that NHS Ayrshire and Arran has received seven years’ worth of tailored financial support at level 3. It is a matter for the Scottish Government to determine which level it is at, but I do not get a clear sense that it is delivering a sustainable path to balance or service delivery requirements. I think that it will be an important question for the Scottish Government to decide whether the level of support that it is providing to the board is making the difference that can support financial sustainability and clarity of service models within the area.
From the audit point of view, do you consider that there is an adequate level of support?
What we highlight in the report is that, whether they are on the escalation framework or the funding arrangements, the decisions that are being taken either by the Government or by the board do not seem to be making the difference that would provide a clear financial plan into the medium term and the longer term for NHS Ayrshire and Arran.
It will be important for the board and the Scottish Government to take a view as to whether they can produce a three-year plan—or a plan over five years, or however long it takes—and for there to be realism in that financial plan, so that it does not bring us back, six or 12 months from now, to a further debate at the margins of very large numbers—one large number relative to another large number—regarding the brokerage or deficit that is required. I do not think that that is healthy for the board, and I am sure that it is stressful and proving a real distraction from what it is there to do, which is to deliver health services for its population.
Level 3 of the intervention framework brings significantly enhanced monitoring as well as tailored support, as we have outlined, which tends to come from the Scottish Government. A senior Scottish Government official will go in and help the board, whereas at level 4 it tends to be external senior support, with an assurance board being put in place. Fiona Mitchell-Knight might be able to offer more detail about the specific tailored support for NHS Ayrshire and Arran.
While you are responding, you could maybe refer to what the actual support is. If the Scottish Government is giving support, what is it actually doing? Is it giving advice? Is it intervening? Is it making suggestions? It is a wee bit vague.
Fiona Mitchell-Knight is probably in a better position to say what specific support NHS Ayrshire and Arran is getting.
One of the challenges that the previous chief executive had was that, between November 2023 and August 2024, there was a vacancy in the acute director role, which is clearly a key role in the board. To help with leadership capacity, working with the Scottish Government, the board secured external support from Viridian Associates. Viridian Associates has been working with the board to support the delivery of efficiency savings and other transformational work and to identify projects through which savings could be made.
It does not seem to have been too successful over the past few years. Has it actually made a difference?
It was appointed in August 2024.
It has still been in place for more than a year, and you would expect to see something coming down the line. What is the assessment of its effectiveness?
That is an important question for the board, Mr Beattie. I guess that it goes back to the point that I made in my opening statement and that I touched on a minute or two ago. Level 3 support has been provided to the board for seven years, but, whether it is support from Scottish Government officials or from appointed consultants to look at the cost base, it does not seem to be achieving the traction that would give NHS Ayrshire and Arran a route to balance. I should also point out that such decisions will not necessarily be ones that NHS Ayrshire and Arran itself can take. As we touched on in the report that we produced earlier this year on governance in the NHS, some of the decision making will rest with the board but some decisions will be about how services are provided regionally or nationally, and those will have a direct bearing on its cost base. For completeness, I note that the committee has received correspondence from the chief executive of the NHS in Scotland about some of the thinking that the NHS is doing about national planning arrangements, which I am sure will be relevant to some of the thinking that NHS Ayrshire and Arran will be doing about its cost base.
I apologise, Mr Beattie—I do not wish to labour the point, but seven years is a long time to receive financial support, and I am sure that both the board and the Government will want to reflect on whether that support has achieved its objectives.
What you are talking about moves us on to the next question that I wanted to ask. In your report, you said that the board is still to prepare sufficiently detailed plans to show that it will achieve financial sustainability. My question was going to be about the lack of progress on those plans and whether anything jumped out at you.
I will bring in Fiona Mitchell-Knight.
We touched on aspects of that in paragraphs 15 and 16 of the section 22 report, and in more detail in the annual audit report. At a high level, we are saying that the board does not yet have a clear enough plan to support financial sustainability. It will not necessarily reach the £33 million deficit target. Fiona Mitchell-Knight has touched on some of the risks in moving to its planned deficit, never mind the Scottish Government’s target.
Nevertheless, the board is looking at savings. As we referred to in the section 22 report, there is discussion around service redesign for surgery, emergency services and clinical support services—and around the workforce, too. I am quite sure that the board is considering some difficult decisions in order to support service redesign; the issue is whether it has the detail to translate an overall plan into specific actions in order to take the important next step.
I will bring in Fiona Mitchell-Knight to say more on that point.
When Fiona comes in, perhaps it will be possible for her to comment on this. After seven years at level 3, getting all the support during that period, and presumably after exploring every conceivable possibility of achieving savings—non-recurring savings, in particular, must have been explored by now—what is left for the board to do? Where does it go? We are also talking about its making recurring savings of 3 per cent. How feasible is that? Is it realistic, or is it just pie in the sky?
It is not expected that the board will be able to deliver a balanced financial position over the short term. The Scottish Government has laid out an aim for a five-year plan for the board to return to financial balance. However, as yet, we have not seen any detailed costings around the proposed savings that show how that will work over the five years.
As the Auditor General said, the board has plans in place for some efficiencies and some service reform. Indeed, it did deliver substantial savings in 2024-25, as it has done over a number of years, but it is just not enough. That is really where we are on that—I think that is all there is to say. There are no credible plans at the moment.
I guess that brings me back to what we have talked about before. We have talked about the board working to a £33 million deficit, and we have talked about what the Auditor General describes as an arbitrary figure of £25 million—simply because we do not know the basis on which it was reached. The board is supposed to be moving towards that target as well. Now, we have another Government plan over five years—is that what you said?
That is the target, yes.
That is layered on top. It all seems a bit confusing.
That is a fair assessment.
It is a difficult environment for NHS boards to deliver services in. There is growing demand for services from the public, and boards are trying to meet that demand in the context of service redesign requirements. In some cases, with tailored support from the Scottish Government, boards are also supporting the financial position of integration joint boards, which is a relevant factor in their financial position. There is then a lack of agreement about the financial target that is to be achieved.
All of that makes for a very difficult environment for NHS leaders and for the Scottish Government to work in. We absolutely support the principle of medium-term financial planning, and for me, Mr Beattie, this is one of the clearest examples of why it matters. If there is a continual debate about the in-year financial position, it will not help to address the challenges that they are facing at the moment. There has to be a path that allows them to move, over the next three to five years, to a sustainable position for the finances of NHS Ayrshire and Arran.
Thank you.
I will now invite Graham Simpson to put some questions to you.
Listening to the questions and answers so far, I was reflecting that we have had NHS Scotland at the committee before and my recollection was that it told us that there was to be no more brokerage. I hoped that my memory was not playing tricks on me, so I looked it up. The response to a freedom of information request on brokerage was published in September. Eight health boards needed brokerage in 2023-24. The response confirms that
“Alan Gray, Director of Health and Social Care Finance, wrote to Chief Executives of NHS Scotland on 04 December 2024 to provide the details of the indicative funding settlement for NHS Boards in the Scottish Government Budget 2025-26. The letter confirmed that brokerage would not be available for 2025-26 and that NHS Boards would be expected to work towards a breakeven trajectory in their three year financial plans”—
not five-year plans, as we have heard mentioned here, so I do not quite know how that figure has come about.
The Scottish Government’s stance appears to be “no more brokerage”. As you have said, no board has repaid any brokerage money, therefore there seems to be very little incentive to even save money—the boards have got used to having brokerage. NHS Ayrshire and Arran, as you have said, has had seven years’ worth of brokerage. Where is the incentive? It is all very well the Government saying that there will be no more brokerage, but if boards cannot meet their savings targets, there will be some more, will there not?
I guess that your question illustrates that clarity is important and the need for transparency from the Scottish Government. Whether you call it brokerage or year-end funding, and whether it is repayable or not, I do not think that the Parliament has sufficient clarity.
There were circumstances, as I discussed with the convener, where brokerage was accumulated towards the end of the last decade and then written off, and we have seen that that has restarted.
There is not sufficient clarity about whether amounts have to be repaid, as you referred to. Only one health board has ever taken steps to repay brokerage. We have the letter from the former director of finance with a clear message to boards that there will be no brokerage. NHS Ayrshire and Arran has been asked by the Scottish Government to operate to at least a £25 million deficit budget, and that deficit budget will have to be supported financially by the Scottish Government.
It is a matter of transparency, clarity and some realism. Whether it is three years or five years is a matter for the Scottish Government to determine, but a path to financial sustainability for territorial health boards is a key next step.
10:15
There is just this line from the Government, which we have heard and it has been confirmed in writing, that there is to be no more brokerage. The reality is that health boards will be running deficits. The health board that we are talking about now will be running a deficit. That is the reality, is it not?
That is borne out by its financial plans. There is a planned deficit, as Fiona Mitchell-Knight mentioned, of £33 million for the current 2025-26 financial year. That is not unique to NHS Ayrshire and Arran. Other health boards in different parts of Scotland will also be running deficits.
Who would fill that gap?
The straight answer is that the board will either fill it itself or it will receive brokerage or deficit support in one guise or another from the Scottish Government to support its financial position. If it is the former, that is really difficult because, as the committee is well versed in, the majority of NHS costs are staff costs. Service provision is a key factor that boards will have to consider.
To return to the point that Mr Beattie raised, which I think is related, savings are not a new feature of NHS financial planning. Many of the more straightforward savings will have been made many years ago. It will be a matter of considering, at both local and national level, what the financial position across the piece will look like, how productivity will play into it, the use of technology and making decisions about staffing, the estate and service provision. Those will all be factors. It is important to recognise that there is an acknowledgement in the chief executive’s letter of the need for wider consideration of planning of service provision. Of course, that needs to dovetail with the financial position of individual health boards.
Okay. Paragraph 15 on page 7 of the report—which we have mentioned already—states:
“NHS Ayrshire and Arran’s savings plans for 2025/26 are overly optimistic and are unlikely to be achieved.”
Could somebody explain what is overly optimistic about them specifically?
Fiona Mitchell-Knight might want to take that question because there is quite a lot of detail in the annual audit report about the board’s own assessment of how realistic some of the savings are. As I mentioned earlier, it has identified 33 per cent of the savings schemes as high risk. If a third of the savings put forward are at risk, that perhaps illustrates the starting point and the scale of some of the proposals put forward. I will bring in Fiona Mitchell-Knight to share some of that judgment.
As the Auditor General said, the board in even setting out that financial plan for the year already assessed 33 per cent of the savings schemes as high risk, 50 per cent as medium risk and 17 per cent as low risk. So, there was high risk already built into those.
On the specifics of some of the larger savings schemes, based on our experience we feel that the board is overly optimistic on how much it will achieve in this time period. Indeed, based on the financial monitoring reports to date, it seems that it will be challenging for the board to achieve the £33 million deficit that reflects that level of savings.
Do you have any examples of high-risk savings?
One example would be the bed reduction plan, which was originally in place but has been replaced with workstreams. It is about the lack of specific detail about how those will be delivered in the current year to deliver the level of savings that is included in the financial plans.
So, the board has basically said, “We will cut the number of beds”, but it has not said how or where.
Certainly, many of the savings programmes are not adequately costed with the timescales laid out on what will be achieved when.
Okay. Your report says there is a need for “more radical reform”. What did you have in mind when you used that phrase?
That is something for the board to determine with Scottish Government support. Clearly, the position as it is is not sustainable. I have mentioned the particular challenges on the acute side of the service: the length of stays in hospital, the increase in delayed discharges and the number of beds that the board had planned to close over a long period but has been unable to.
I want to ask about staffing and workforce. Paragraph 20 of the report states:
“The board also continues to face workforce challenges. The rate of sickness absence in 2024/25 was 5.6 per cent ..., well above the ... national standard, and reliance on temporary staff continues to come at a high cost to the board. This will have a significant impact on the board’s plans to achieve the savings needed for longer-term financial sustainability.”
That is something that we have discussed before at this committee. It continues:
“nursing pay was overspent by £13.5 million, £7.9 million of which was on agency nursing in acute services”
and
“medical pay was overspent by £7.7 million, £5.8 million of which was on agency doctors.”
Do you know whether the board has done any work to identify the underlying reasons for staff sickness levels? Is there any way that it can cut the reliance on agency and locum staff?
I do not have specific details on the work done on sickness absence, but in my annual audit report I refer to a number of actions being taken by the board to reduce reliance on bank and agency staff. There have been reviews of nursing to see how the board can reduce agency staffing. There is an on-going review of the acute workforce. There has been a review of how rostering of staff has taken place. I would say that the use of bank and agency and locum staff does provide the board with the flexibility to staff the extra beds that it has open, which it really needs to close to reduce its cost base. There is no evidence yet of that being successful.
It gives the board flexibility but it also costs it a lot of money. It is surely better to reduce the use of agency staff, is it not?
That would certainly reduce its cost base, yes.
Have you seen any plan to do that?
It is tied into the number of beds that the board is filling. Effectively, it plans to close a number of beds and therefore would need less staff to be able to staff those beds. However, as yet, it has not made progress on that.
You are right that sickness absence is a flow through to sustaining services and therefore the use of bank and agency workforce. I do not think that we have the detail as to whether there are any wellbeing initiatives, for example, or any underlying causes within the board that are resulting in its sickness absence being above the national target. If we have any more detail on that, we will come back to the committee, but it may be that the board itself can give that insight to the committee.
Okay. This is the final question from me on this. How does NHS Ayrshire and Arran compare with other health boards in terms of its use of agency staff?
We might need to collate that information from our records. We have certainly covered it a number of times in overview reporting. Leigh Johnston might have detail on it. It is probably something that we can check, and we will share with the committee any up-to-date information or signpost you to it.
All I would add to that is that there has been a real focus across NHS Scotland on reducing agency staff. We will bring more detail on that in our report in a couple of weeks. I do not know about individual boards, but nationally NHS Scotland has really driven down its use of agency staff. There has been some very focused work, particularly from the Scottish Government and the financial delivery unit, to try to drive that down.
I will now turn to Joe FitzPatrick, who has some questions to put to you.
I want to ask some questions about leadership and governance, but first I will pick up from Colin Beattie’s question about the acute director role. He was focusing on what has happened since that position was filled in August 2024, but we have a remaining question. That critical position in the leadership team was empty for nearly a year between November 2023 and August 2024, when it was finally filled. Why was such a critical role left for so long? Do you have an understanding of why that was?
I am not sure why that was the case. You would need to ask the board about that.
Okay. It seems to me that, if everything was going wrong and the leadership team was not fully resourced, that would only add to the challenges.
The other challenge for the leadership team is that the chief executive announced her retirement in August 2025 and, as you have said, Stephen Boyle, an interim chief executive is in place. Can you give us an indication of the timescale for appointing a new chief executive? What are the immediate priorities for the interim in that stopgap period?
Fiona Mitchell-Knight might want to talk about the timescale for that, but it is key. The interim chief executive comes from an NHS background, from the Golden Jubilee hospital, to support NHS Ayrshire and Arran to address its financial position, and to come up with a credible plan for effective governance arrangements and the relationship between clinicians, the board and NHS Scotland. He has to move it from the tricky position that it is in and—I am at risk of repeating myself—not just come up with something for this 12-month cycle but move it to a sustainable model of health service provision in Ayrshire and Arran. Fiona will say a bit more about that.
I do not know the timescale for the appointment of a permanent chief executive but, clearly, the prompt appointment of the interim chief executive was a very positive step. He has come in with a very clear focus about what he wants to do. Many of those things will take longer than the current financial year and will not be seen in this year’s financial outturn. However, it is a positive step that that individual is in place.
Is the board looking at this for the longer term, trying to get things back on a more sustainable footing in order to pass it on to the next chief executive?
The board is working with the Scottish Government towards this five-year path to financial recovery.
Which gives the transparency.
My other question is about the wider board and the chair. This has been going on for a long time. I can remember that, when I was a junior health minister, this was one of the boards that we talked about often, and we are still in the same position. Do the wider board and the chair have the skills that they require to challenge leadership? It is difficult if the leadership team is not full, but do they have the skills, or is there something more that the Government needs to do to make sure that they are providing the challenge that Government ministers have to rely on them for?
They do. It is multifaceted. There are a couple of things that I will start with and then I will bring Fiona Mitchell-Knight in. As I mentioned earlier in the meeting, I ask auditors to make judgments about the effectiveness of governance in public bodies as part of the wider-scope approach to public audit in Scotland. Fiona has captured those judgments in her annual audit report. What is important is that we are not saying that there is a governance deficit in the organisation in the way that there is a financial deficit. It is important, though, to highlight for the board to consider that, as is referenced in the annual audit report, it has not always received information in a clear and transparent way to support its understanding and the decisions that are being asked of it. I think that Fiona said that “misleading information” was provided to the board.
We also reference, if it is helpful, “NHS in Scotland: Spotlight on governance”. It presents a picture of a complicated governance process in the NHS in Scotland with boards. You will be familiar with boards and with NHS Ayrshire and Arran, but it is not always the case that the problems that are experienced financially reside only in the board and its decisions. Many of the decisions, which are potentially very difficult and unpalatable, will be known, but it is not necessarily the case that the responsibility and the levers for them exist solely within the board.
We would characterise the complexity by saying that it is not always clear that you can point to the board and say that it ought to have done better and there ought to have been better non-executive leadership. I think that it is broader than that.
10:30
It is over the past two years that the financial position has deteriorated greatly, and in 2023-24 we began to be concerned that the board probably did not appreciate the severity of the situation. At that point, in my annual audit report, I drew attention to the fact that, in my opinion, the board had been “slow to transform services” and that future plans were needed to demonstrate how services would be delivered within the funding that would be available in the future. In my recommendations, I specifically tasked the chief executive, directors and board members with ensuring that those plans were in place. I specifically said at that point:
“Effective leadership is required to drive the changes needed and progress should be challenged by the Board.”
I also made the comment that the board should not be “passive” in that.
As a result of that, I saw board members in the audit committee being more challenging in their scrutiny of the board’s financial position but, as I say, even though proposals were being put forward on change and savings programmes, they were not being costed and they were not sufficiently detailed for the boards to be able to scrutinise them and demonstrate that there was a sustainable position going forward. That remains the case now.
There is an opportunity here for the board to grasp what you have been saying about increased transparency and drive that home, so that it can get the change and the information that it needs to do the job that it is expected to do. I guess that that is what audit should be about.
Thank you. We now have a final couple of questions from the deputy convener, Jamie Greene.
Good morning and thank you for your evidence so far. I have been listening to the session and I read your report with great interest, particularly as a member who has covered the region of Ayrshire and Arran for some nine years now. These issues are not new to anybody who lives in the constituencies that I represent.
I am extremely concerned by the outcomes of your report on a whole range of levels. The most important one that I am worried about is not necessarily the financially precarious position of the board but what it means for patients and people. Ultimately, the health board is not a business. I know that we are using audit language here and talking about operating losses, but we are also talking about health outcomes. What effect does operating at such a loss have operationally on the board’s ability to deliver quality healthcare to the people of Ayrshire and Arran?
I am very happy to start. We touched to an extent on what the correlation is between the deficit that the board is operating with and its service performance. As we captured in the appendix to the section 22 report, there is a fairly crude traffic-light system and there are some green indicators across some service provision and some reds. That will be borne out in health boards across the country. The deficit that you refer to, deputy convener, is not necessarily directly impinging on service provision, because that deficit is being funded; the board is being supported by the Scottish Government through brokerage and other means to operate at an expenditure level higher than the Scottish Government thinks it should be. NHS boards in Scotland are funded by the Scottish Government almost exclusively and that is done on the basis of the national resource allocation formula—NRAC—funding methodologies. There is a process by which the Scottish Government determines what different health boards across the country need to deliver health services and those amounts are uplifted through funding and budget decisions that the Parliament makes.
It is not like in a business context, where a £25 million deficit would impinge on a body’s financial position or status as a going concern. Fiona Mitchell-Knight will have considered going concern issues carefully, but in a public sector context it is very different, because there is certainty of financial provision; if anything, it is perhaps the opposite. If the health board were operating as a commercial entity and it had to meet a break-even position each year, that would be money that would not be being used in the way it is in NHS Ayrshire and Arran.
Surely it costs what it costs. I am confused by the language around saying that it is spending more than it should. If people are unwell, they are unwell and they need to be treated. I do not understand this countrywide approach that we are taking to the NHS—the suggestion is almost that it is living beyond its means. That seems outrageous.
I think that that is the assertion that the Scottish Government is making—that it is living beyond its means. The Scottish Government has said that this is the funding that the individual territorial national boards receive and that NHS Ayrshire and Arran is not delivering its services in a way that is affordable and sustainable.
What is it doing wrong? Where are the gaps here? What is it spending money on that it should not? I cannot work it out.
Fiona Mitchell-Knight can come in with that detail, but we have talked a little bit about bed and ward provision as part of the model. For me, it is a question for the Scottish Government more than the audit team. The Government has said that this is what NHS Ayrshire and Arran thinks necessary to deliver health services. Mr Simpson referenced the letter from the former director of finance that said, “This is your funding allocation. There will be no brokerage,” so I think that it is a reasonable assumption to make that the Government has considered what it thinks is necessary.
As the committee knows, you could always increase public spending. To help people deliver in any way they want, you could almost have an unlimited amount of public spending, but the Scottish Government has told NHS Ayrshire and Arran, “This is your financial pot to deliver your services,” and it is going beyond that. Certainly, Fiona Mitchell-Knight will have details to share with the committee. I think that that context is where the Government’s view is.
I am trying to get my head around who is to blame here. NHS Ayrshire and Arran has been on level 3 for eight years, so there is financial intervention every single year. The idea that that is a loan is nonsense; I would put money on the fact that it is never going to pay this stuff back. The model is broken, in my view. Something is clearly going wrong, but I cannot quite work out who is to blame. Is it governance issues? Is it the board? Is it the management team? Is it the Government? Is it ministers? Is it all of the above?
It illustrates the fact that, clearly, the Scottish Government has taken a view for seven years that NHS Ayrshire and Arran needed a combination of support and intervention. It is safe to say that it starts at support and then trips into intervention the higher you go up the five-point scale. Support on its financial position and financial plans is part of it. We have touched on governance as being a factor, with the board not receiving the right information or being too passive, but to an extent it is also questionable. You could go round this loop again about who is to blame, but it will not necessarily deliver the sustainable model for the people of Ayrshire and Arran. It must be a suboptimal use of management and governance time to be focused on delivery of an in-year financial position, rather than medium-term planning about how to deliver the wider health outcomes that are spoken about so regularly and the ambitions in the service renewal framework from the summer to move to a preventative model and keep people healthier for longer. It is hard to reconcile that ambition when you have the financial loop that seems to be played out repeatedly in NHS Ayrshire and Arran. Again I will pass to Fiona Mitchell-Knight.
It is worth reflecting on the fact that we are not always talking about cost cutting and efficiencies in our annual audit report. We reflect on the fact that the board has been slow to reform services—the reform of services that the board itself has set out to achieve and then has not delivered on. It is not us saying that it needs to do these things; the board itself recognises it could do things differently. Of course, some of the cost savings and service changes could impact on patient delivery, but some could just be about doing things differently and more efficiently.
I am sure that is true across the NHS—thank you for that.
The other issue that concerns me greatly is staffing. I deal with a lot of casework from that part of the world, particularly related to Ayr hospital and Crosshouse hospital. My understanding is that Unison, which represents many of the staff there, has surveyed the staff and that the outcomes are worrying. The last statistic I read in the Ardrossan & Saltcoats Herald was that 32 per cent of NHS Ayrshire and Arran staff felt that they are so short staffed that patients’ lives are at risk. That is nearly one third of the workforce.
Those staff are working in an environment where they are struggling. The board is spending huge amounts of money on agency staff to fill in gaps at both a consultant level and a nursing level. That is costing huge amounts of cash, while the staff themselves are frustrated because they cannot deliver the quality of service to their patients that they think they need to—and ultimately that is putting lives at risk. We are not just talking about numbers; we are talking about people’s lives. What evidence is there that the board is taking the issue seriously or doing anything about it?
Again, it is a question for the board, rather than us, to respond to the Unison survey. As we do not have the detail to hand, that is perhaps the safest route to follow.
I absolutely recognise your point that we are talking not about abstract numbers but, very clearly, about a vital public service. The point of our report is to capture that continuing around a loop of unsustainability and in-year savings does not provide the platform from which to plan services and to deliver a sustainable, affordable model that best meets the needs of patients of today and those in the years to come. We are talking about NHS Ayrshire and Arran, but it could be other parts of Scotland, too.
The specific question is for the management. Clearly, because of the nature of how health services are delivered, staffing is central to the model, and the board must be clear about and sensitive to the requirements that its staff are telling it about.
Can we cut to the chase? Are we just dancing around the issue that the current model is not working? The unsustainability that you highlight in your audit is a long-term issue; it is not a one-off. It has been happening for nearly a decade, and it is probably going to continue in the same direction, if not get worse.
The idea is that the Government is somehow helping out by stepping in and plugging financial holes, painting the picture of it saving the board. Do you think that the Government needs to have a fundamental look at the entire model to rephrase it, reframe it and be a bit more honest with the public and the health board about how it is funded and what it expects of the board?
This is not new territory for me. I have said for many years that the sustainability of health and social care in Scotland is in doubt and that we need a more detailed reform process to move from the models that we have now to support better outcomes for people and provide clarity around financial challenges. I have said that in many overview reports and section 22 reports, and we will say more—as Leigh Johnston and I have mentioned—in the overview report that we are publishing in the next couple of weeks about building on the ambitions that were set out in the summer.
Much of the sustainability points were recognised in the Government’s ambitions through the service renewal framework and public service reform strategies to move from the models that we have today to a more sustainable future. As ever with strategies, the more mundane parts are just as important in translating the strategy into clear milestones and deliverable plans. That applies just as much to NHS Ayrshire and Arran as it does to the service across the country.
10:45
I have one final question. The idea of brokerage is political lingo, but is there a reason why the Government frames it in that way? Essentially, it is saying to boards that, if they are spending more than they have, the Government will make up the difference in the form of a loan. Are there financial or audit reasons why it would do that? Is someone sitting in a civil service room saying, “Minister, do not just give them cash—give them loans”, because it has a financial benefit or some knock-on effect down the line or in the way that the Government reports its accounting?
If we multiply the approach across all boards, it is a substantial sum of cash. Why would ministers not simply say, “Look, if you need £30 million to meet your health objectives, we will give you that”, rather than continue a pretence that the money is a loan? It is never going to be paid back.
I would not want to second-guess ministers’ intentions, but I do not think that there is any audit rationale for it. I think that it is more one of incentives for health boards, rather than providing a year-end funding allocation or bailout. My assumption is that the Government considers the funding allocation appropriate to deliver health services in different parts of Scotland. To vary the approach and not call the money repayable probably debases the funding formula model that has been in use.
I think that that response creates an issue of equity across the country if some parts of Scotland are delivering services within their funding allocation—and no doubt making really hard decisions to do so—but other parts are not. I can see why brokerage, or continuing to say the funding is conditional and not just a grant—
It is not really a loan; there is no expectation that it will be paid back.
Yes—that is very much our point as well. There needs to be clarity and transparency, because to continue going through the loop of considering whether or not there is brokerage or whether or not it is repayable is not providing transparency to Parliament in its consideration of how services are performing and how funding is allocated.
I have just spotted some figures in your traffic-light system. The 12-week out-patient target is 95 per cent. The Scottish average is 61 per cent, which is shocking anyway, but in March 2024 it was around 61 per cent in NHS Ayrshire and Arran. Over the summer—in July and August—that number dropped to 35 per cent. That basically means that one in three patients were seen within the target. I have a genuine concern that people are dying while waiting for treatment. Is this costing lives?
We have not done any audit work on that in the current year. I think that it is a question better directed either at the board or the health regulatory bodies, rather than us as auditors. Are they looking or concerned at that number? What we will do is to consider the statistics of performance and, as you will know, audit can be a retrospective activity at times. I do not have the insight for the numbers that you are referring to, and it may be for the board or regulators to comment on.
We will ask them. Thank you.
Thank you very much indeed.
We have another evidence session up and coming on NHS Grampian, which was also the subject of a section 22 report. Before we turn to that, I will take this opportunity to thank Fiona Mitchell-Knight, the Auditor General and Leigh Johnston for the evidence that you have given us on the position of NHS Ayrshire and Arran.
I suppose that, for context, we need to understand the point that you made towards the end, which is that not all the 14 territorial health boards have required brokerage. The question for us as the Public Audit Committee is why some boards have required it and others have not. Maybe there are fundamental issues about the funding formula—who knows? I think that there are some wider points that we need to get a better understanding of.
Thank you very much indeed for what has been a very useful session for us. I will now suspend the meeting while we change witnesses.
10:49 Meeting suspended.