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Financial Management in the NHS: Report on the NHS Summarised Accounts 2007-08

The NHS reported a surplus of £1.67 billion in 2007-08. According to a report jointly prepared by the Audit Commission and the National Audit Office and published today, the surplus achieved reflected good use of resources rather than a failure to deliver healthcare. The Department of Health (DH) has given a commitment that the NHS will be able to spend the surplus in future years.

However, the surplus was significantly higher than the original forecast of £916 million and more than three times that recorded in 2006-07 (£515 million).

According to today’s report in 2007-08 only 11 out of 340 NHS organisations, or 3 per cent, reported a deficit, compared with 22 per cent in 2006-07. In 2007-08, strategic health authorities (SHAs) delivered a surplus of £903 million, primary care trusts (PCTs) a surplus of £391 million and NHS trusts a surplus of £380 million. This is a key change from 2006-07, which saw the PCT and NHS trust sectors still in deficit overall. NHS foundation trusts delivered a further surplus of £395 million.

There were cash balances in the NHS totalling £0.9 billion at the financial year-end. NHS foundation trusts held an additional £2.3 billion. Auditors found that the capital underspend (see notes for editors) in 2007-08 was 22 per cent (£521 million) compared to a 43 per cent underspend in 2005-06, and a 40 per cent underspend in 2006-07.

Auditors’ findings show that the quality of financial management in the NHS improved overall during the year and performance has improved across all NHS sectors. NHS organisations made good progress in meeting national healthcare targets and the quality of healthcare, as rated by the Healthcare Commission, improved.

In 2006-07 the DH designated 17 NHS trusts as financially challenged. Seven trusts continued to be so classified at 31 March 2008. More work will need to be done by these organisations, in conjunction with their SHAs and the DH, to achieve sustainable financial operating performance.

The DH and NHS are facing a number of challenges for 2008-09: including changes to the financial strategy for the NHS, changes to the financial reporting framework and timetable, and further system reforms under which a quality element will be introduced into how NHS organisations are funded. The surplus generated and better financial management should, if maintained, help with the financial implications of meeting these challenges.

"The surplus of £1.67 billion is equivalent to about one week’s funding for the whole NHS. The organisations in the NHS are performing better financially and this surplus has created an element of certainty for financial planning that has not existed in recent years. This is especially reassuring given current financial pressures throughout the economy. "Auditors have found matters to be addressed, such as localised accounting issues, and there are long-standing financial problems affecting a minority of trusts. The significant challenges for the NHS next year are in meeting new International Financial Reporting Standards and tougher deadlines on closure of accounts, but it looks as though most NHS bodies are well placed to cope." Tim Burr, the head of the National Audit Office, said: "Good financial management is not just about achieving a surplus. It is also about meeting delivery targets within the resources available. The surplus was generated through good financial management: NHS bodies delivered more cost savings than expected while still delivering against targets and improving the quality of healthcare. But better forecasting of the outcome could enable resources to be deployed more flexibly in-year."

Steve Bundred, Chief Executive of the Audit Commission

Notes for Editors

  1. The NHS surplus, as reported in the Summarised Accounts, reflects the aggregate financial performance of SHAs, PCTs and NHS trusts. Paragraphs 2.27 to 2.30 of the report provide further detail on the financial performance of NHS foundation trusts.
  2. The Audit Commission’s Auditors’ Local Evaluation, published in October 2008, details the performance of NHS bodies against the Audit Commission’s minimum standards for both financial management and financial reporting. This shows that 96 per cent of NHS bodies met or exceeded these standards.
  3. In 2007-08 the NHS had resources of £4.6 billion available for capital expenditure, comprised of allocations from the DH of £4.2 billion and planned asset sales of £0.4 billion. In the NHS, capital and revenue budgets are kept separate and transfers of unspent resources between the two are not permitted.
  4. The NHS accounts for its income and expenditure on an accruals basis. The overall surplus reported is the difference between the income recorded and the expenditure incurred by the NHS, regardless of whether cash has been received or a payment made. The cash surplus is the total of cash held by NHS bodies. £0.9 billion is held by SHAs, PCTs and NHS trusts and £2.3 billion is held by NHS foundation trusts. Most of this cash is held in the government’s Office of the Paymaster General account.
  5. The Audit Commission is an independent watchdog, driving economy, efficiency and effectiveness in local public services to deliver better outcomes for everyone. The Commission’s work across local government, health, housing, community safety and fire and rescue services means that it has a unique perspective. It promotes value for money for taxpayers, auditing the £200 billion spent by 11,000 local public bodies. As a force for improvement, the Commission works in partnership to assess local public services and make practical recommendations for promoting a better quality of life for local people.
  6. The Comptroller and Auditor General, Tim Burr CB, is the head of the National Audit Office which employs some 850 staff. He and the NAO are totally independent of government. He certifies the accounts of all government departments and a wide range of other public sector bodies; and he has statutory authority to report to Parliament on the economy, efficiency and effectiveness with which departments and other bodies have used their resources.


National Audit Office media enquiries

Barry Lester: 020 7798 7937 or 07748 181 692

Audit Commission media enquiries

Nigel Watts: 020 7166 2129 or 07813 315538