NHS finances reliant on short-term fixes, warns NAO

The National Audit Office (NAO) has warned that short-term fixes have left the NHS ‘seriously financially unstable’

NHS trusts reported a combined deficit of £827m in 2018-19, excluding £256m of exceptional technical adjustments due to the financial collapse of Carillion in 2018, according to latest NAO NHS financial management and sustainability report.  

The NAO said the £256m Carillion adjustment, which was treated as a transfer of value as the assets were coming onto the balance sheet, affected the year end figures.

Following the liquidation of Carillion in 2018, the ownership of two part-constructed PFI hospitals at the Royal Liverpool and Broadgreen University Hospitals NHS Trust (£107m) and Sandwell and West Birmingham Hospitals NHS Trust (£149m) transferred to the public sector.

In both cases at the site the construction cost for works completed on site was greater than the capital prepayments made by the trusts. This difference was a part-donated asset to the NHS accounts.

Initial recognition of the assets was a cost in line with IAS 16 Property, Plant and Equipment. As a result, the cash price equivalent for cost included a part donated element up to the amount in the construction cost certificate of £256m.

Had this amount been included in the overall £827m deficit, it would have been reduced to £571m.

Given the exceptional nature of this, the NAO report has treated this figure separately from the rest of 'capital grants and donations' to make comparability between years more transparent.

Another issue is the ageing real estate; 14% of NHS buildings are older than when the NHS was set up in 1948. The backlog of maintenance work to get all buildings up to standard currently stands at about £6.5bn.

Over the last three years NHS Trusts have requested on average £1bn more for buildings and equipment than their spending limits allow.

Short-term loans

The NHS is treating more patients, but has not yet achieved the fundamental transformation in services and financial controls to meet rising demand. ‘Short-term fixes have made some parts of the NHS seriously financially unstable,’ the NAO report said.

Nearly half of NHS trusts, 104 out of 227 trusts (46%), reported a deficit, compared with 100 out of 232 trusts (43%) in 2017-18.

The 10 worst-performing trusts reported a combined deficit of £844m, up from £758m in 2017-18, representing 12% of their income.

Trusts are becoming more reliant on short-term measures, including one-off savings (rather than more permanent year-on-year savings) to meet yearly financial targets. In 2018-19, 31% of their savings were one-off, up from 26% in 2017-18.

Clinical Commissioning Groups (CCGs), holders of the purse strings for each NHS Trust, together reported an overspend of £150m in the financial year ending March 2019, 0.2% of the £84.3bn available for locally commissioned services.

Trusts in financial difficulty are increasingly relying on short-terms loans from the Department of Health & Social Care (DHSC). These are being treated as income by the trusts which have built up a level of unsustainable debt at £10.9bn by March 2019, NAO said.

Gareth Davies, head of the NAO said: ‘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.’

Performance

The financial performance of the 10 worst-performing trusts each year has continued to deteriorate. NHS England and NHS Improvement plans to deploy an accelerated turnaround process in the 30 worst-financially performing trusts.

The allocation of support funding from the Provider Sustainability Fund increased the levels of variation in trust performance. In 2018-19, only 38% of these payments helped trusts reduce or eliminate their deficits, compared with 46% in 2017-18.

It also set up a £1bn Financial Recovery Fund to support trusts in deficit in 2019-20.

NHS England and NHS Improvement has set a target for no NHS organisation to report a deficit by 2023-24.

NHS financial management and sustainability report

Further reading: NAO flags concerns over health of NHS finances

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