Concerns about a funding shortfall for intermediate services have loomed after it emerged that most of the new money, about £500m, has been allocated to local authorities without being ringfenced.

The clarification of the funding arrangements came in a joint health service and local authority circular published last week.

The circular sets out how new intermediate care services are to be commissioned by the NHS and councils using the£900m allocated in the NHS plan.

It states: 'A substantial component of the£900m relates to resources being provided to local government, mostly through the personal social services SSA (standard spending assessment).'

The circular spells out that£405m has been earmarked as NHS resources by 2003-04, leaving a total of£495m which seems to have been given to local authorities as part of their SSAs.

The announcement has come as a surprise to many, as it was thought that the bulk of the funding was going to the NHS and that all funds would be ringfenced.

NHS Confederation policy director Nigel Edwards said:

'People in intermediate care assumed they were getting£900m and it looks more like£400m. The bottom line is that there is between£490m and£600m missing.

'We have to recognise that councils have a lot of pressures on them and local government has lots of competing priorities. Many local authorities have already spent above their SSA. . . this is potentially quite a blow.'

Mr Edwards said there appeared to be no obligation on councils to spend the money on intermediate care, and the fact that the bulk of funding was going to social services was 'slightly surprising'.

Local Government Association head of social affairs John Ransford said there were problems with the way in which the funding had been allocated to councils.

He said: 'One is that SSAs are for local government services, and local decisions have to be made as to how it is spent.

'It will depend on existing service pressures. We are also concerned that this is not separate money for intermediate care.

'What is different is that we expected£900m of new money and we didn't anticipate a substantial proportion would come through the SSA. The SSA formula has to support a lot of things. The amount left will create some very hard decisions.'

Chesterfield & North Derbyshire Royal Hospital trust finance director Eric Morton also voiced concerns about the pressures on councils.

He said: 'The concern is that local authority funding is under pressure. These resources are going to be under a lot of pressure. There is no doubt we have seen significant pressures on the intermediate sector.'

The circular says the increases in SSAs for 2001-02 to 2003-04 were announced following the spending review and included in the local government settlement announced in November.

It says these are 'intended to enable councils to contribute to the expansion of these [intermediate care] services'.

But it adds: 'The deployment of resources made available through SSA remains a decision for councils to make in the light of local circumstances.'