Report

Beyond bricks and mortar: capital funding for the NHS

Insufficient capital funding may hamper the government’s plans for the NHS, impacting safety standards, digital innovations and worsening inequalities

15 October 2021

Key points

  • In early September, the government announced additional service funding for the NHS to manage pandemic cost pressures – the funding did not include a capital settlement for the NHS. Capital investment drives productivity improvements and insufficient funding is likely to hamper the government’s plans for the NHS. And investment in new technology will be key to the NHS meeting its goal to become a carbon net zero health system.
  • Ahead of the Spending Review on 27 October, we surveyed healthcare leaders across the NHS in England to understand their capital needs. We found that 96 per cent of healthcare leaders fear they will not receive enough capital money at the forthcoming Spending Review. Leaders are concerned that it may impact their ability to uphold safety standards, because they cannot sufficiently maintain their estate; embed positive digital innovations; and reduce the elective backlog without further worsening inequalities.
  • Healthcare leaders have highlighted numerous ways that capital helps to provide better care. This includes how building a new mental health facility will improve efficiency, how a new cancer centre will join up care, and how a new ambulance fleet will decrease time spent on maintenance so more time can be spent on patient care.
  • Leaders also describe a disjointed and opaque capital application system, and unresolved issues about how integrated care systems will allocate and prioritise capital spend. This could undermine the health and care bill’s intent to collaboratively integrate care.
  • Capital funding announcements have historically neglected certain parts of the NHS, such as mental health, community, ambulance services and primary care.
  • Therefore, the government should increase the capital budget by at least £1.8bn per annum from £8.53bn in 2021/22 to £10.3bn by 2024/25, as part of a cross-NHS multi-year strategy that considers all parts of the NHS estate. It will also need to improve the process for applying for capital spending and address early concerns about prioritisation among integrated care systems.

Background

Capital investment drives productivity improvements in the NHS. It is how the system buys new IT equipment for diagnostics, new estates to expand and integrate care, and upgrade older estates to help fight health inequalities. Many areas of the country with the worst health outcomes have older estates. Research shows that capital investment is positively associated with better productivity in healthcare; 1 and digital technology improves health outcomes. 2 New technologies, such as genomic sequencing and artificial intelligence, offer ways to further improve productivity and deliver better patient outcomes. 3   Moreover, it is essential to meet the activity goals the government set as part of the new funding settlement. All of this requires investment. 

Capital ‘deepening’, where the amount of capital investment increases per worker, improves productivity as healthcare workers can use the right technology and tools to treat more patients more quickly and safely. Put simply, investment saves lives. And yet the UK has lagged other developed countries in overall capital investment and is well below OECD peers in the number of per capita CT and MRI scanners. 4 Latest figures show the NHS maintenance backlog reached £9.2bn in 2020/21. 5  

Ahead of the Spending Review on 27 October, we surveyed healthcare leaders across the NHS in England to understand their capital needs. The flash survey ran from 24 September to 3 October and was sent to healthcare leaders across the service, including chief executives, finance directors and chief financial officers. We received 48 completed responses from a range of organisations, including acute, primary care, mental health, ambulance and community providers, as well as responses from integrated case systems (ICSs) and clinical commissioning groups. All NHS regions were represented. We are grateful to the Healthcare Financial Management Association (HFMA) for their input in the design of the survey.

This report is part of a suite of activities we have undertaken ahead of the Spending Review, including a joint briefing with NHS Providers on revenue funding, and our full representation to HM Treasury.

Chapter footnotes

  1. 1. Macdonnell M, Darzi A. A key to slower health spending growth worldwide will be unlocking innovation to reduce the labor-intensity of care. Health Affairs. 2013; 32: 653–60
  2. 2. Lin SC, Jha AK, Adler-Milstein J. Electronic Health Records associated with lower hospital mortality after systems have time to mature. Health Affairs. 2013; 37: 1128–35.
  3. 3. Health Foundation (2019), Failing to Capitalise, https://www.health.org.uk/sites/default/files/upload/publications/2019/Failing-to-capitalise.pdf
  4. 4. Richards M, Thorlby R, Fisher R et al. Unfinished Business: An Assessment of the National Approach to Improving Cancer Services in England 1995–2015. Health Foundation; 2018 www.health.org.uk/sites/default/files/upload/ publications/2018/Unfinished-business-an-assessment-of-the-national-approach-to-improving-cancer-servicesin-england-1995-2015.pdf
  5. 5. NHS Digital (2021) Estates Returns Information Collection - Summary page and dataset for ERIC 2020/21 https://digital.nhs.uk/data-and-information/publications/statistical/estates-returns-information-collection/england-2020-21

What we found

Healthcare leaders described many of the ways that capital investment saves them time and money so they can focus on better patient care. Examples included a new mental health facility to improve efficiency, a new cancer centre based on the principle of joined-up care, and a new ambulance fleet to decrease time spent on maintenance and improve ambulance response times:

“Our next capital project is to increase our ambulance fleet and refresh our existing ambulances. We have an ageing fleet which means increased maintenance requirements which is impacting on operational capacity and has a direct impact on our response times.” Director of Finance, ambulance trust

“[We’re looking to] build a new mental health inpatient facility which will help us significantly improve safety and also quality of care and outcomes, thereby improving efficiency and reducing out of area placements and special observation staffing costs. We also want to improve running costs, significantly reduce emergency and routine maintenance costs and eradicate £68m backlog maintenance costs. As part of our green plan we are looking to achieve zero carbon facilities.” Director of Finance, mental health trust in the North East and Yorkshire

However, 96 per cent of healthcare leaders tell us they do not think the NHS will receive enough money for capital at the Spending Review, limiting future similar opportunities to better focus on patient care. This will have real-world effects: 81 per cent of leaders said an insufficient capital settlement could impact their ability to meet estate or service safety requirements, and 69 per cent said it would affect their ability to meet their regular maintenance of their estate. This is despite research showing that design and maintenance of estates affects healthcare workers’ efficiency. 6  


“The trust is planning to build new community hubs which will allow [building of] smaller more agile and efficient buildings to be sourced. If not progressed, care will be provided out of buildings which are not fit for purpose and in poor condition, in buildings which have poor space utilisation and are not energy efficient, and do not promote the bringing together of providers to provide more integrated care.” Chief Financial Officer, community trust in the Midlands

“[More capital funding will mean more] digital investment to move to upgrade from paper or from old digital systems. This would improve safety and productivity and allow our limited workforce to maximise the number of patients they can care for.” Chief Executive Officer, acute trust in the Southeast

A key area where greater capital funding will impact is by allowing the NHS to embed recent digital innovations accelerated by the pandemic. Currently, health and care staff use a plethora of legacy IT systems, many of which do not work with other systems across the NHS, hampering successful digital integration and better patient outcomes.

IT remains one of the best ways to increase healthcare efficiencies and safeguard future NHS capacity. Many of the most positive development during the pandemic include rapid advancements in the availability of digital consultations. These gains are at risk, with 69 per cent of leaders saying a poor capital settlement threatens their ability to fully embed digital transformation in their care, and even hampers efforts to maintain staff levels or keep appropriate records of patients who need elective care. 

“As a rural primary care network, digital is the key enabler to all our work. Our IT infrastructure is not fit for purpose now and is very unreliable. This impacts on patients and service delivery multiple times a day. Our GP practices no longer have space or adequate facilities and so cannot accommodate the Additional Roles Reimbursement Scheme (ARRS) allied health professionals or train new staff, clinical and non-clinical. Other community estate is in even worse condition, hampering integrated working.” Clinical Director, primary care network in the North East and Yorkshire

“We are beginning to fall behind on digital. We have lost some of our workforce due to 'out of date' IT and we fear losing more, which is difficult in the context of struggling to recruit new staff.” Director of Finance, mental health trust in the East of England

The government has set reducing the elective backlog as the most important task for the NHS in the coming years. But doing so requires investment in upgrades – new estates to expand capacity and new equipment to quicky diagnose patients – that will pay off in faster turnaround times and reduced waiting times. However almost half (48 per cent) of leaders tells us that lack of capital access threatens their elective backlog plans. This could, in turn worsen existing health inequalities.

“There’s a huge potential to increase inequalities and inequity as based on the ability and skill of system partners/organisations to influence and negotiate, rather than objective fair neutral assessment of need.” Clinical Director, primary care network in the North East and Yorkshire

"Insufficient CDEL (Capital Departmental Expenditure Limits) and capital funding restrict ability year on year to invest in replacement equipment and backlog maintenance which impact on delivery of patient care." Strategic Finance Lead, acute trust in the South West

"We have very poor quality accommodation across some of our sites, lack of CQC compliant mental health facilities, lack of single room facilities (IP&C), need emergency capital for sterile services facilities replacement (impact of equipment failure could be significant). We could create arrangements for protected elective facilities but do not have means to do so." Chief Executive, ICS in the South West

The health and care bill creates integrated care systems to collaboratively work together to provide better care to their communities. Doing so depends on systems working together to share money efficiently and effectively within an overall ‘envelope’.  However, members tell us the current process for prioritising and approving capital plans is opaque, potentially undermining one of the central tenets of systems: that sharing funding allows money to follow patients more effectively. 

For example, 71 per cent disagreed with the statement that it was straightforward to get their organisation’s capital project approved, and 77 per cent said they could not get their project funded in a timely way. This unnecessary and unclear bureaucracy will undermine attempts to integrate care by April 2022. 

“There is a tension between backlog maintenance versus new developments.  If system capital is equal to depreciation or thereabouts, then presumably it won't fund much ‘new stuff’.  So, if ‘new stuff’ is going to be funded by national streams, there needs to be a multi-year settlement and a radically quicker approvals process.” Chief Financial Officer, acute trust in the South West

“The system capital envelopes tend to be too small for the capital requirements of the system. Once backlog issues are funded, there is little remaining capital for transformational schemes. There is a real gap in how schemes of £25- 50m will be funded. These schemes are reliant on national funding which requires a bidding process, we really need more capital resources devolved to a regional level, with a three to five year allocation, so systems can plan and prioritise better." Chief Financial Officer, community trust in the Midlands

Healthcare leaders describe a fragmented approach across the NHS, with several different unconnected strategies that fail to account for the role played by non-secondary care providers, such as primary care and mental health. Integrating care will not happen if the overall capital envelopes for systems are not big enough, or if the mechanisms for prioritising among trusts are poorly designed or incomplete. This is a particular issue for ambulance trusts, many of which stretch over multiple system boundaries.  

“Ambulance trusts often serve multiple ICSs and therefore create pressures/are subject to pressures in one specific ICS area financially but operate across many services – the money flows/incentives aren't representative of the service realities.” Director of Finance, ambulance trust

“We’re worried about competing priorities within the ICS, with acute provider requirements taking priority over the ambulance service. It’s difficult for the development of hubs to be seen as a priority against critical care capacity and the significant historic backlog of maintenance in the acute sector.” Director of Finance, ambulance trust
 

Chapter footnotes

  1. 6. Morgan M. Poor hospital design has an impact on staff, patients and healthcare. British Medical Journal. 2018; 360: k288

How the government can support the NHS

The government has invested a further £500m into the NHS to support elective recovery and cancer services for the second half of 2021/22. 7 This is a helpful addition as trusts work towards reducing caseloads even during a difficult winter. However, this increase is both non-recurrent and falls short of what members say they need. 

Insufficient capital funding hampers the government’s plans across the NHS. It undermines both mental health and primary care with the changes to the Mental Health Act and the growth in primary care services respectively, while acute trusts’ efforts to treat more patients safely while also treating COVID-19 patients cannot happen without upgrading their estate.  

And yet the government has focused narrowly on new hospitals as part of its Health Infrastructure Plan. While new hospitals are welcome, we need a more ambitious health infrastructure plan focusing on supporting productivity throughout the entirety of the NHS, that is easy to access, extends over multiple years, and ensures fair access for all. It is essential that the capital settlement is multi-year to allow systems to plan upgrades and care effectively over the long term. 

To do this, at the bare minimum, the NHS’ capital budget must increase by at least £1.8bn per annum from £8.53bn in 2021/22 to £10.3bn by 2024/25. 8

Chapter footnotes

  1. 7. NHS England and NHS Improvement, 2021/22 priorities and operational planning guidance: October 2021 to March 2022, https://www.england.nhs.uk/wp-content/uploads/2021/09/C1400-2122-priorites-and-operational-planning-guidance-oct21-march21.pdf
  2. 8. The 2024/25 figure is based on Health Foundation REAL CENTRE analysis for a projected ‘recovery’ scenario in Health and social care funding to 2024/25, See table 13 on page 65 in https://www.health.org.uk/publications/health-and-social-care-funding-projections-2021 . The Health Foundation’s starting point for their analysis was based on the 2021/22 capital spend value in Budget 2021. Since then, a more recent estimate for 2021/22 capital spend is available from Estimate Memorandum 2021-22. We use this more recent figure. https://committees.parliament.uk/committee/81/health-and-social-care- committee/publications/10/estimate-memoranda/