The National Audit Office measures the financial sustainability of the NHS, determining that it cannot reasonably be described as ‘sustainable’

policy digest

29 / 01 / 2019

NHS financial sustainability report

NAO, January 2019

This is the seventh report by the NAO. It covers 2017-18 and is aimed at examining whether the NHS is on track to achieve financial sustainability. The last NAO report in January 2018 concluded that financial problems in the NHS were ‘endemic and that extra in-year cash injections to trusts had been spent on coping with current pressures rather than the transformation required to put the health system on a sustainable footing.’

This report summarises the financial position of NHS England, CCGs and NHS Provider organisations. It looks at the financial flows and examines whether these encourage long-term financial sustainability. Furthermore, it looks at the progress made by local partnerships of health and care organisations and at the support being provided to them by government and national bodies. 

The report concludes that:

The system cannot be described as ‘sustainable’ when one looks at the growth in waiting lists and waiting times, as well as substantial deficits in some parts of the system, offset by surpluses elsewhere. But the report also recognises that the recent  long-term plan for the NHS is a commitment to longer-term stable growth in funding for NHS England, which they judge to be a positive development.

The long-term funding settlement does not cover key areas of health spending. The 3.4% average uplift in funding applies to the budget for NHS England and not to the Department’s entire budget. This includes most capital investment for buildings and equipment, prevention initiatives run by Public Health England and local authorities, and funding for doctors’ and nurses’ training. Spending in these areas could affect the NHS’s ability to deliver the priorities of the long-term plan, especially if funding for these areas reduces.

There is a risk that the NHS will be unable to use the extra funding optimally because of staff shortages.

  • In 2017-18, NHS commissioners and trusts reported a combined deficit of £21 million. This was made up of an NHS England achieving an underspend of £1,183 million, 4.1% of the £28,572 million available for its national functions and centrally commissioned services
  • CCGs together reporting an overspend of £213 million, 0.3% of the £80,964 million available for locally commissioned services; and
  • Trusts have reported a combined deficit of £991 million, 1.2% of their total income of £82,793 million
  • It is not clear that funding is reaching the right parts of the system.
  • Most of the combined trust deficit is accounted for by a small number of trusts, while the number of CCGs in deficit increased in 2017-18. The net trust deficit hides wide variation in performance between trusts, with 100 out of 232 trusts in deficit. In 2017-18.69% of the total trust deficit was accounted for by 10 trusts.

    The current funding flows in the NHS are complicated and do not support partnership working, integration and the better management of demand. Sustainability and Transformation Fund payments have helped most trusts improve their reported performance but encourage short-term gains over long-term sustainability. Capital budgets have been repeatedly raided to support revenue spending. More progress is needed in the joined-up approach to regulation that NHS England and NHS Improvement are adopting.

The report makes several recommendations, to ensure that the additional funding supporting the NHS long-term plan is spent wisely

  • The national bodies should test whether local plans to manage demand are realistic. Commissioners and trusts now set out the drivers of activity growth between years in their operational plans.
  • NHS England and NHS Improvement should design and implement a simpler payment system. This should be better aligned with the new structures, reduce transaction costs and promote greater collaboration and better management of demand. National bodies need to identify the behaviours they want to encourage in local bodies and ensure that the payment system and other incentives encourage these behaviours.
  • National bodies should set out a medium-term strategy for redesigning tariffs as part of a wider statement of any intended reform of how money flows around the NHS in relation to demand and costs.
  • The national bodies should review local plans to ensure consistency with the national long-term plan. They should assess whether 5 year plans are consistent with the long-term plan, ensuring key risks to delivery are identified and mitigated.
  • The Department and NHS Improvement should develop a sustainable long-term plan for supporting the worst financially performing trusts. The NAO believe that current support and incentives will not be sufficient to return these trusts to financial balance.
  • The Department and NHS Improvement should review the underlying cause of the problems experienced by trusts in severe financial difficulty and the Department could consider whether it should restructure the balance sheets in those trusts where there is little or no prospect of loans being repaid.
  • The national bodies’ review of how capital is allocated needs to ensure that investment is available for essential modernisation of health services. This review should examine how arrangements for accessing capital can be made simpler for all NHS bodies
  • NHS England and NHS Improvement should review how their regulatory and oversight approach is supporting collaborative working locally. This should include reviewing the changes necessary to support the development of integrated care systems if the legislative changes proposed in the long-term plan are not brought in.
  • NHS England and NHS Improvement should also publish an update on the progress being made by partnerships on integration and system-working.

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