25 / 09 / 2020
In April 2020, the health and social care secretary announced that over £13bn of debt held by NHS trusts would be written off. All of the debts to be written-off are internal between NHS trusts and the Department of Health and Social Care, so the process does not include borrowing from external sources. The government plans to change the debt to a form of equity (public dividend capital), which will help trusts over the long term. It also potentially removes a barrier to capital investment in highly indebted trusts.
But while the policy will help many trusts with struggling finances, it only resets previous years’ deficits and borrowings. For trusts that face an ongoing gap between revenue and expenditure, the loan write-off will make little difference in the short term and action will still be needed to address the underlying and ongoing problems of financial balance. Going forward, there needs to be additional support and planning for trusts in financial distress to enable a proper reset of NHS financial management.
This briefing, which was developed in partnership with the Health Foundation, explores the detail behind the numbers and what the write-off means in practice – both now and in the long term.
- The debt write-off forms part of a wide range of financial measures the government has brought in for health and social care during the current pandemic. However, this measure had been considered for some time. The National Audit Office had previously noted a solution was required to address NHS trusts’ debt, as there were many loans that had no prospect of being repaid.
- All of the loans that are being written off are internal debts between NHS trusts and the Department of Health and Social Care (DHSC). This means it is a transaction within the DHSC and does not change overall public borrowing – it is not a cash injection. Additional funding for COVID-19 will be provided to trusts through emergency and other funding rather than this write-off.
- Interest charges for these loans ceased as of 1 April 2020.
- The debt will be converted into equity, known as public dividend capital (PDC). While PDC does not need to be repaid, it incurs an annual cost as a return on the investment. This is currently set at 3.5 per cent of the relevant net assets of the trust and this money goes from trusts to the DHSC.
- Recently, the DHSC and NHS England and NHS Improvement announced the PDC charge will be reviewed later in the year.
- This policy should help increase the amount of longer-term capital investments and other improvements in vital services. Without this debt, trusts can make stronger business cases for investment in their estates, along with possibly stronger finances to self-finance investment.
- While this is a positive step, concerns remain about the financial situation of many trusts. As noted by government, this provides a financial reset for these trusts. However, even without the current pandemic, further plans will be needed to address the problems that caused these debts.
Download the briefing.