Alastair Whitington looks at the findings of the latest National Audit Office report on the financial sustainability of the NHS, and the fiscal challenges it faces
As the saying goes: ‘any fool can spend money, the wise invest.’ This principle has often governed increases in investment in the health service, as pressure grows for the NHS to do as much as it can within available funding. However, for many providers, just maintaining the current level of service can be challenging, and struggling finances discourage long-term investment in efficiency and improvement—at a time when short-term costs can seem insurmountable on their own.
… just maintaining the current level of service can be challenging …
In January 2019, the National Audit Office (NAO) issued its seventh report on financial sustainability in the NHS,1 which provides an insight into the current state of play in the NHS’s finances. This article will summarise the report’s findings and highlight the challenges the NHS faces to become sustainable.
The previous three reports in December 2015, November 2016, and January 2018 concluded that endemic financial problems in the NHS caused extra cash to be used to cope with in‑year pressures, rather than investing in transformation to a health system that is sustainable in the long term.
The funding settlement announced in June 2018 underpins the NHS long-term plan, which will see NHS England’s budget rise by an extra £20.5 billion by 2023–24, an average real-term increase of 3.4% over the next 5 years (see Figure 1).2
Long term plan
The NHS long-term plan, published in January 2019, was designed to show how the NHS aims to achieve several priorities set by the government. These priorities include:1,2
- making progress towards agreed waiting times
- improving cancer outcomes
- better access to mental health services
- better integration of health and social care
- focusing on preventing ill health.
In 2017–18, the NHS budget amounted to £109.5 billion (£114 billion in 2018–19).3 Most of this budget was spent by 207 CCGs that paid for services from 232 NHS trusts and NHS foundation trusts, which were responsible for delivering acute, ambulance, community, specialist, mental health, and disability services.¹
Balancing the books
Overall, the NHS nearly balanced its budget in 2017–18, with NHS England, CCGs, and trusts together reporting a combined deficit of £21 million. However, NHS England had an underspend of nearly £1.2 billion, which broadly offset the large deficits of trusts (£991 million; see Figure 2) and CCGs (£213 million).¹
Overall, the NHS nearly balanced its budget in 2017–18 …
In 2017–18, the NAO found significant variation in financial performance across trusts, ranging from a £77 million surplus to a £141 million deficit. Of 232 trusts, 100 were in deficit; but only 10 trusts accounted for 69% of the combined net trust deficit. In 2017–18, 75 CCGs reported an overspend compared with their planned position—18 more than in the previous year. The Department of Health and Social Care (DHSC) also loaned £3.2 billion to support struggling trusts in 2017–18.¹
There is now understood to be in excess of £11 billion in distressed loans on the provider balance sheet, and a seemingly unrealistic profile of loan and interest repayments, with £4.5 billion of loan repayments due in 2020 alone.1,4 The biggest deficit was in acute trusts (see Figure 3), which face increasing demand for hospital services from an ageing and growing population, particularly in elective and emergency admissions. However, other factors (such as unmet health needs and medical advancements) account for more than half of increased hospital activity overall.
The 10 trusts with the biggest net deficit have been deteriorating in performance, which suggests that the plans in place to balance the books of these trusts are not working.¹
Since 2014–15, the DHSC has raided capital budgets to cover shortfalls in the revenue budget. This peaked at £1.2 billion in 2016–17, but is now reducing (£1 billion in 2017–18); the DHSC has said that it plans to cease such transfers from 2020–21. However, in 2017–18, trusts estimated that they had accumulated a £6 billion backlog in maintenance costs, an increase of £2 billion since 2012–13.¹ This is unsustainable: part of the long-term settlement will need to address crumbling buildings and redundant equipment.
… part of the long‑term settlement will need to address crumbling buildings and redundant equipment
To regain their financial sustainability, many acute trusts will be relying on increasing capacity to meet rising demand, and thereby earn additional revenue. However, with around 100,000 vacancies across the NHS, including around 40,000 vacancies for nurses,⁴ it seems unrealistic that trusts will be able to resource the facilities to generate enough activity to earn themselves out of their financial problems.
… many acute trusts will be relying on increasing capacity to meet rising demand, and thereby earn additional revenue
To achieve a balanced budget, NHS England has relied on ambitious savings and efficiencies targets for trusts. However, the NAO report indicates that, over recent years, provider organisations have typically done no better than achieving 90% of planned savings, and CCGs typically managed 80–86% (see Figure 4).¹
Since 2012–13, NHS performance against key access standards has steadily declined (see Figure 5). In 2017–18, only 88% of accident and emergency patients were seen within 4 hours, against a target of 95%. The waiting list for non-urgent treatment has also grown from 2.5 million in 2013–13 to 4.1 million; the NAO estimates that it would cost £700 million to reduce the waiting list to the same level as March 2018, based on current trends.¹
Despite planning guidance expecting an improvement in performance,⁵ it appears that performance standards are unlikely to be met even with extra funding in 2018–19; trusts suggest that this is due to difficulties in recruiting staff.¹
The NAO report includes a number of recommendations for action to the DHSC, NHS England, and NHS Improvement to ensure additional funding is spent wisely:
- test whether local plans to manage demand are realistic
- design and implement a simpler payment system
- ensure local plans are consistent with the national long-term plan, and that key risks to delivery of the long-term plan are identified
- develop a sustainable long-term plan to support trusts in severe financial difficulty
- review how capital is allocated to ensure that it is used effectively
- ensure the approach to regulatory and oversight is supporting collaborative working locally.
The proposed real-term increase in funding and NHS long-term plan will hopefully address some of the underlying issues highlighted in the NAO report. However, improvement in performance will also be reliant upon the settlement made to other parts of the healthcare system (e.g. public health and local authorities) not covered by the NHS funding uplift.
- In the year of 2017–18, the overall net deficit of NHS bodies was £21 million
- NHS England underspent by £1.2 billion
- the combined deficit of all CCGs was £213 million
- the combined deficit of NHS trusts and NHS foundation trusts (trusts) was £991 million
- The forecast for the total deficit of trusts in 2018–19 is £558 million based on the first six months of the year
- The financial performance of the NHS has varied significantly in 2017–18:
- the variance in the budget of trusts ranged from a £77 million surplus to a deficit of £141 million
- 75 CCGs reported an overspend against their planned position, 18 more than the previous year
- 10 trusts accounted for 69% of the combined deficit of all trusts
- In 2017–18, the Department of Health and Social Care:
- issued £3.2 billion of interest-bearing loans
- reallocated £1 billion of capital budget to revenue budget, but plans to stop the practice by 2020–21
- Trusts estimated a backlog of £6 billion in maintenance costs in 2017–18
- Performance standards are unlikely to be met even with extra funding in 2018–19.
- National Audit Office. NHS financial sustainability. NAO, 2019. Available at: www.nao.org.uk/report/nhs-financial-sustainability/
- NHS England. The NHS long-term plan. NHS England, 2019. Available at: www.longtermplan.nhs.uk/
- NHS England. Allocation of resources to NHS England and the commissioning sector for 2019/20 to 2023/24. NHS England, 2019. Available at: www.england.nhs.uk/wp-content/uploads/2019/01/04-pb-31-01-2019-ccg-allocations-board-paper.pdf
- House of Commons Committee of Public Accounts. NHS financial sustainability: progress review—ninety-first report of session 2017–19. UK Parliament, 2019. Available at: publications.parliament.uk/pa/cm201719/cmselect/cmpubacc/1743/1743.pdf
- NHS England, NHS Improvement. Technical guidance—refreshing NHS plans for 2018/19. NHS England, 2018. Available at: www.england.nhs.uk/wp-content/uploads/2018/04/technical-guidance-refreshing-nhs-plans-18-19.pdf