Financial sustainability of the NHS

The financial performance of NHS bodies worsened considerably in 2015-16 and this trend is not sustainable, according to the National Audit Office.

In 2015-16, NHS commissioners, NHS trusts and NHS foundation trusts reported a combined deficit of £1.85 billion, a greater than three-fold in crease in the deficit position of £574 million reported in 2014-15. Provider trusts’ overall deficit grew by 185% to £2.45 billion, up from £859 million in 2014-15, against total income of £75.97 billion.  In addition, two-thirds of NHS trusts (65%) and NHS foundation trusts (66%) reported deficits in 2015-16, up from 44% of NHS trusts and 51% of NHS foundation trusts in the previous financial year.  The number of clinical commissioning groups reporting cumulative deficits was 32 in 2015-16, up from 19 in both 2014-15 and 2013-14.

According to the NAO, the NHS entered the current financial year from a worse than expected starting point. This year’s plans were based on trusts ending 2015-16 with a combined deficit of £1.8 billion. The fact that trusts ended the year with an even larger deficit means that they will, overall, need to make more savings than planned to reach the intended starting position. Many of the savings made by NHS England in 2015-16 were one-off in nature.

NHS trusts and NHS foundation trusts under financial stress continue to rely on financial support from the Department and NHS England. The total amount of financial support funding provided by the Department and NHS England in the last financial year was £2.4 billion. This was an increase of 32% from £1.8 billion in 2014-15.

The Department has transferred £950 million of its £4.6 billion budget for capital projects, such as building works and IT, to funding for day-to-day spending. While this helped it to manage the NHS’ financial position in 2015-16, it could risk trusts’ ability to achieve sustainable service provision.

There are indications that financial stress is having an impact on access to services and quality of care. Trusts’ performance against important NHS access targets has worsened, and the NAO found an association between trusts’ financial performance and their overall Care Quality Commission rating, with those that achieved lower quality ratings also reporting poorer average financial performance. The 14 trusts rated ‘inadequate’ had a net deficit equal to 10.4% of their total income in 2015-16.

Trusts’ spending on agency and contract staff has slowed but is still significant at £3.7 billion in 2015-16, compared with £3.3 billion in 2014-15. According to the NAO, it may take years to resolve workforce issues that affect the successful recruitment and retention of permanent staff, and reduce the need for agency staff.

Together, the Department, NHS England and NHS Improvement estimate that they can make £6.7 billion of efficiencies by capping public sector pay, renegotiating contracts, implementing income generating activities, and reducing running costs. They estimate that trusts and commissioners can make a further £14.9 billion by moderating the growth in demand for healthcare services and achieving 2% productivity and efficiency improvements.

“With more than two-thirds of trusts in deficit in 2015-16 and an increasing number of clinical commissioning groups unable to keep their spending within budget, we repeat our view that financial problems are endemic and this is not sustainable. It is fair to say aggressive efficiency targets have helped to swell the ranks of trusts in deficit over the last few years. The Department, NHS England and NHS Improvement have put considerable effort and funding toward stabilising the system, but have a way to go to demonstrate that they have balanced resources and achieved stability as a result of this effort. Therefore, value for money from these collective actions has not yet been demonstrated.”

Amyas Morse, head of the National Audit Office, 22 November 2016

Notes for Editors

£1.85bn
Net deficit of NHS bodies (NHS England, clinical commissioning groups, NHS trusts and NHS foundation trusts) overall in 2015-16

£2.45bn
Net deficit of NHS trusts and NHS foundation trusts in 2015-16

66%
Percentage of NHS trusts and NHS foundation trusts (156 out of 238) in deficit in 2015-16

32 out of 209 (15%)
Number of clinical commissioning groups reporting a cumulative deficit in 2015-16

£2.4 billion
Additional funding given to NHS trusts and NHS foundation trusts in financial difficulty as a cash injection, loan or other financial support in 2015-16

£1.8 billion
Funding for financial sustainability available for trusts in 2016-17 from the £2.14 billion Sustainability and Transformation Fund

£461 million
Net deficit reported by NHS trusts and NHS foundation trusts in the first three months of 2016-17

£14.9 billion
Savings that NHS trusts, NHS foundation trusts and clinical commissioners need to make by 2020-21 to help close the estimated £22 billion gap between patients' needs and resources

1. Press notices and reports are available from the date of publication on the NAO website. Hard copies can be obtained by using the relevant links on our website.

2. The National Audit Office scrutinises public spending for Parliament and is independent of government. The Comptroller and Auditor General (C&AG), Sir Amyas Morse KCB, is an Officer of the House of Commons and leads the NAO, which employs some 785 people. The C&AG certifies the accounts of all government departments and many other public sector bodies. He has statutory authority to examine and report to Parliament on whether departments and the bodies they fund have used their resources efficiently, effectively, and with economy. Our studies evaluate the value for money of public spending, nationally and locally. Our recommendations and reports on good practice help government improve public services, and our work led to audited savings of £1.21 billion in 2015.

Contact

Angharad Thomas
Direct line: 020 7798 7208 Mobile: 07985 274421 Email: pressoffice@nao.gsi.gov.uk

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