NHS financial management and sustainability

Graphic illustration of hand putting pound coin into moneybox with heart and cross on outside with two pills lying next to it to show NHS financial management and sustainability

The National Audit Office has published two reports. The first, NHS financial management and sustainability, looks at the financial and operational performance of the NHS as a whole as well as the financial performance of local NHS organisations. The second, Review of capital expenditure in the NHS, examines the use of the NHS capital budget, which is for replacing and maintaining equipment and buildings.

The NHS is treating more patients, but has not yet achieved the fundamental transformation in services and finance regime needed to meet rising demand. Short-term fixes have made some parts of the NHS seriously financially unstable, according to the National Audit Office report.

NHS provider trusts reported a combined deficit of £827m and clinical commissioning groups (CCGs) failed to balance their books again, reporting a £150m deficit in the financial year ending 31 March 2019. Trusts are becoming increasingly reliant on short-term measures, including one-off savings (rather than more permanent year-on-year savings) to meet yearly financial targets. These deficits were offset by a centrally managed NHS England underspend.

The NAO finds that the extra money brought in by the Government to stabilise the finances of individual NHS bodies has not been fully effective. Although the NHS treated more people in 2018-19, it has struggled to transform services. Patient waiting times continue to get worse and the number of people waiting for treatment continues to increase. Trusts in financial difficulty are increasingly relying on short-terms loans from the Department of Health and Social Care (DHSC). These are effectively being treated as income by these organisations and they have built up a level of unsustainable debts (£10.9bn in March 2019) which they are unlikely to ever repay.

In the past five years, the Government has transferred £4.3 bn from capital to revenue budgets to cope with day-to-day pressures facing the NHS. It has been unable to clearly say how this has affected patient services and acknowledges its approach to capital funding requires reform. The rising demand for capital spending and the growing maintenance backlog means there is an increasing risk of harm to patients.

Over the last three years, NHS providers have requested on average £1.1 bn more for buildings and equipment than their spending limits allow. Fourteen per cent of NHS buildings are older than when the NHS was formed (in 1948). The backlog of maintenance work to get all buildings up to standard currently stands at about £6.5 bn.

The NAO concludes that DHSC, NHS England and NHS Improvement should revamp the way the system is funded. This includes developing a clear long-term capital funding strategy and establishing a more stable funding system that is not reliant on loans.

Gareth Davies, Head of the NAO said: “The short-term fixes that were introduced to manage the NHS’ finances are not sustainable. The Department of Health and Social Care continues to provide some trusts with short-term loans just to meet their day-to-day costs with little hope they will be repaid. This is not a sustainable way to run public bodies.

“To bring about lasting stability, the Department and NHS England and NHS Improvement need to move away from short-term financial fixes and provide longer-term solutions.”

Responding to the reports, Dr Chaand Nagpaul, BMA Council Chair, said: “These reports highlight what the BMA has been warning for some time; that over reliance on short-term fixes is taking the health service away from the model of sustainability it so badly needs.

“With each winter’s performance records worse than the last and patient waiting times continuing to increase, the Government has not yet managed to deliver a system that can meet rising demand.

“Shifting money from one part of the NHS to another to cope with day-to day-pressures only papers over cracks in the short-term, but these inevitably re-emerge even worse than when they first appeared.

“The BMA is calling for a comprehensive spending plan that sees an increase in total spending by at least 4.1% in real terms and a credible multi-year plan to invest in NHS infrastructure, which includes tackling the estimated £6.5bn in maintenance backlogs.

“With NHS provider trusts reporting a combined deficit of £827m and CCGs reporting a £150m deficit last year, this is clearly evidence that current levels of investment are woefully inadequate to meet service demands.

“If we want a health service that lasts for the long-term then the Government must think in the long-term. This means an investment level that truly meets the health needs of the population.”