NAO flags concerns over health of NHS finances

The National Audit Office (NAO) warns that the current funding model for the NHS is not sustainable, despite the government’s pledge of an additional £20.5bn cash boost, because of the existence of substantial deficits in some parts of the system and the continued failure to hit performance targets

The watchdog says the long-term funding settlement agreed in June last year equates to a 3.4% average real-terms increase in funding, from 2019-20 to 2023-24, but points out it applies only to the budget for NHS England and not to the department’s entire budget.

Consequently, it does not cover some key areas of health spending such as education, public health and capital investment that could affect the NHS’s ability to deliver the priorities of the long-term plan. In addition, without a long-term funding settlement for social care, local NHS bodies are concerned that it will be very difficult to make the NHS sustainable.

The NAO points to previous work which highlights that in the past funding boosts have been spent on dealing with immediate, short-term pressures with less devoted to the changes required for long term sustainability. There is also a risk that the extra funding will not be used effectively due to staff shortages as more money may be used to pay expensive agency staff or will go unspent as individual healthcare providers may not be able to recruit the staff to deliver additional activity.

Although the NHS nearly achieved overall financial balance in 2017-18, it continues to offset surpluses and deficits, which hides local disparities in financial health and patient experience, the NAO found.

While NHS England had an underspend of £1.18bn, clinical commissioning groups (CCGs) together reported an overspend of £213m, and trusts reported a combined deficit of £991m, leaving a combined deficit of £21m. The provider sector has a self-reported underlying deficit of £1.85bn.

Most of the combined trust deficit is accounted for by 10 trusts whose position deteriorated significantly in 2017-18. The NAO says there are other indications that the underlying financial health in some trusts is getting worse. For example, the department gave £3.2bn in loans to support trusts in difficulty, to help meet staff costs and pay suppliers, up from £2.8bn in 2016-17. At the same time the number of CCGs in deficit is also increasing from 57 in 2016-17 to 75 in 2017-18.

The current funding flows in the NHS are complicated and do not support partnership working, integration and the better management of demand. Capital investment has been limited because of increasing pressure on operating budgets. Since 2014-15, the department has used money originally intended for capital projects to cover a shortfall in the revenue budget to fund day-to-day services (£1bn of its £5.6bn capital budget in 2017-18). This followed significant transfers in preceding years.  The department plans to reduce and then stop this practice from 2020-21.

Partnership working facing significant challenges, the NAO says, having calculated that three-quarters of partnerships have a deficit when the finances of their constituent trusts and CCGs are added together.

The NAO has made a number of recommendations to the department, NHS England and NHS Improvement to ensure additional funding is spent wisely. This includes testing whether local plans to manage demand are realistic; ensuring key risks to delivery of the long-term plan are identified; and developing a sustainable long-term plan to support trusts in severe financial difficulty.

Amyas Morse, NAO head, said: ‘The promise of longer-term sustained funding growth for NHS England, together with a long-term plan, is a positive and welcome development. This should enable a more strategic approach to spending and we can expect to see a less turbulent financial context than in the last few years, if the funding is spent wisely.

‘The plan we have seen so far seems to be based on prudent assumptions, but we will really be able to assess whether the ambitions set forth are supported by funding when we can see the results of the spending review for the non-NHS England parts of the health service, and the funding for social care.’

NAO report NHS Financial Stability is here.

Report by Pat Sweet

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