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NHS financial sustainability


In its annual report on the financial sustainability of the NHS, the NAO concludes that the existence of substantial deficits in some parts of the system, offset by surpluses elsewhere coupled with growing waiting lists and year-on-year increases in waiting times, does not paint a picture that is sustainable. The recent NHS long-term plan sets out a prudent approach to achieving the priorities and tests set by the government in return for its long-term funding settlement but a number of risks remain to the delivery of the plan.

The long-term funding settlement equates to a 3.4% average real-terms increase in funding, from 2019-20 to 2023-24 and 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.

Previous NAO work also 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. While NHS England had an underspend of £1,183 million, clinical commissioning groups (CCGs) together reported an overspend of £213 million, and trusts reported a combined deficit of £991 million, leaving a combined deficit of £21 million. The provider sector has a self-reported underlying deficit of £1.85 billion.

Most of the combined trust deficit is accounted for by 10 trusts whose position deteriorated significantly in 2017-18. There are other indications that the underlying financial health in some trusts is getting worse. For example, the Department gave £3.2 billion in loans to support trusts in difficulty, for example, to help meet staff costs and pay suppliers, up from £2.8 billion 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.

Patient waiting times continue to slip. NHS performance against key access standards has steadily declined since 2012-13. In 2017-18, only 88% of accident and emergency patients were seen within four hours, against a target of 95%. There are also now 4.1 million patients on waiting lists for non-urgent treatment (up from 2.5 million in 2012-13). The NAO estimates it would cost £700 million to reduce the waiting list to the level last seen in March 2018, based on current trends.

The current funding flows in the NHS are complicated and do not support partnership working, integration and the better management of demand. Trusts also told the NAO that Sustainability and Transformation Fund payments made by NHS England have encouraged trusts to prioritise short-term gains over long-term sustainability which also resulted in reduced collaboration with other local bodies. However, this funding has helped most (210 of 232) trusts improve their reported performance although overall the trust sector failed to achieve its target deficit position again in 2017-18.

Capital investment, essential for maintaining quality of care and achieving long term transformation of the NHS, 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 (£1 billion of its £5.6 billion 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, which offers the foundations for a more strategic approach to meeting demand, is vulnerable, given that partnerships are not statutory bodies and face significant challenges. 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.

“As we head into the Spending Review the NHS will undoubtedly be the envy of other departments. 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.”

Amyas Morse, head of the NAO, 18 January 2019

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