The Deficit

The past few years have seen the NHS provider sector (NHS trusts and foundation trusts) struggling to cope with increased demand, due to a growing and ageing population, plus rising costs coupled with cuts to funding.

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The headline deficit for 2016/17 was £791 million. However a Nuffield Trust report explains how this figure is flattered by temporary extra funding, one-off savings and accountancy changes that mean the underlying state of provider finances was not accounted for. Removing these reveals that the actual underlying deficit for that financial year is £3.7 billion.

Even with optimistic predictions of inflation and continued high levels of savings, the NHS trusts are likely to continue running with large underlying deficits until at least 2020/21.

The King’s Fund reported on the trusts in deficit as of the end of March 2018. As a whole, the NHS provider sector finished the financial year with reported deficits of £960 million. 44% of NHS trusts were in deficit. Without even accounting for the underlying figure of deficit, this was nearly an of £200 million from the previous year.

Sally Gainsbury, senior policy analyst at the Nuffield Trust think-tank, believed the deficit figure for 2017/18 could be more like £4bn.

Announced in 2015 and introduced in 2016/17 was the £1.8 billion ‘sustainability fund’ for NHS providers. The initial plan was to use to money to fund provider overspending. Following this it would shift to a 'transformation' fund with investment in new services and systems. However, it is now expected for the money to continue being used to fund overspending until at least 2018/19.

If this fund didn't exist it is likely even more providers would be experiencing deficit. The funding is essentially there to force providers to continue making spending cuts. This is through imposing quarterly targets that result in larger surplus or smaller deficit.

In 2016/17, 57 organisations missed these targets making a catch up very unlikely. Significantly though, organisations that met their targets to gain a share of the £1.8 billion are not able to spend this. Instead, they must use the fund to create a gross surplus that would offset the deficit of other providers.

So, although this ‘extra cash’ boosted incomes of providers it did not mean that spending increases at all. Therefore, this £1.8 billion should always be deducted when assessing the actual underlying financial health of providers.

November 2017 Budget

The Chancellor has promised an immediate £335 million to stave of a winter crisis. Then there will be a payment of £1.6 billion for the NHS in England in 2018-19, followed by £900 million extra in 2019-20. But, all the payments are one-off payments and not permanent additions to the NHS’s baseline budget.

The funding in the budget is at odds with what the government's own Office of Budget Responsibility (OBR) considered to be necessary. Lawrence Dunhill at the HSJ tweeted a handy graph of just how different the funding given in the budget is from the funding that the OBR believes is needed over the next two years.

Read more on the November 2017 budget here.

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June 2018 funding announcement

Theresa May made this funding announcement in mid-June 2018, hailing it a 70th birthday present for the NHS. Essentially, it equates to an extra £20 billion of funding for the NHS by 2023.

The general consensus from healthcare experts is that the service needs at least 4% yearly budget increases in order to meet patient demand and ensure quality of care. The latest funding announcement means that by 2023 there will be a increase of only 3.4%.

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Source: The King's Fund

Chris Hopson, the chief executive of NHS Providers, appeared on the Andrew Marr show and welcomed the extra money for the over-stretched and underfunded NHS but commented: “We will want to see the details of the announcement, including the impact on the wider health budget, but the immediate task ahead is significant. After almost a decade of austerity, the NHS has a lot of catching up to do, just to deliver the standards of care the NHS constitution requires.”

Also, CIPFA (Chartered Institute of Public Finance and Accountancy) chief executive, Rob Whitman, explains that the extra cash would fail to deliver long-term change and the NHS is likely to “remain relatively starved of capital”. This suggests that the extra funding will do little to improve the state of NHS finances over the next few years.

Read more response to the funding announcment here.

No plan for black hole in finances

Parliament’s own spending watchdog reported in March 2016 that the NHS in England did not have a convincing plan to fill the £22 billion “black hole” in its finances by 2020/2021.  The report noted the “serious and persistent financial distress” that some acute trusts are in, that deficits were “spiralling” and the current payment system is “not fit for purpose”.

As well as relying heavily on expensive agency staff the NHS trusts were trying to meet unrealistic savings targets. Meg Hillier, the chair of the committee, said the government had done little to support trusts facing financial problems.

“Without urgent action to put struggling trusts on a firmer financial footing there is further serious risk to services and the public purse,” she said. The report also noted that the targets for 4% efficiency savings set by Monitor and NHS England were “unrealistic and have caused long-term damage to trusts’ finances”.

In 2018, council leaders across the country announced that they could face an £8 billion funding black hole by the middle of the next decade. This black hole means that despite any extra funding for the NHS, spending cuts in across local councils will see a continuation of deficits in public health programmes and adult and children’s social care.

Reorganisation spreads debt

As part of the government's Five Year Forward plan to 2020/21, the government has required health and care systems in distinct geographical areas to produce a multi-year Sustainability and Transformation Plan (STP). This should show how local services will evolve and become sustainable over the next five years. There are 44 of these STP areas, however according to the HSJ some of these STP areas are in such financial difficulties that they will struggle to get out of deficit.

A National Audit Office (NAO) spending review revealed that the extra £1.8 billion sustainability and transformation fund announced in 2016/17 to give the NHS ‘breathing space’ has instead been used to cope with immediate pressures and day-to-day costs in the NHS.

62 commissioning groups reported a cumulative deficit in 2016-17, almost doubling from 32 in 2015-16. The NAO also reported that the effectiveness of STPs varied as their financial difficulties meant it was hard to shift focus from alleviation of day-to-day pressures to more long term transformation plans.

As deficits across NHS organisations continue, aims for long-term transformation within the service are made more difficult to achieve. Meanwhile, services continue to be cut to try and meet tough financial targets.

Read more on STPs here.