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NHS financial management and sustainability

The NHS is treating more patients, but has not yet achieved the fundamental transformation in services and finance regime needed to meet rising demand. Short-term fixes have made some parts of the NHS seriously financially unstable, according to the NAO.

The National Audit Office has today published two reports. The first, NHS financial management and sustainabilitylooks at the financial and operational performance of the NHS as a whole as well as the financial performance of local NHS organisations. The second, Review of capital expenditure in the NHS, examines the use of the NHS capital budget, which is for replacing and maintaining equipment and buildings.

NHS provider trusts reported a combined deficit of £827 million and clinical commissioning groups1 (CCGs) failed to balance their books again, reporting a £150 million deficit in the financial year ending 31 March 2019. Trusts are becoming increasingly reliant on short-term measures, including one-off savings (rather than more permanent year-on-year savings) to meet yearly financial targets.2 These deficits were offset by a centrally managed NHS England underspend.

The NAO finds that the extra money brought in by government to stabilise the finances of individual NHS bodies has not been fully effective. Although the NHS treated more people in 2018-19, it has struggled to transform services. Patient waiting times continue to get worse and the number of people waiting for treatment continues to increase. Trusts in financial difficulty are increasingly relying on short-terms loans from the Department of Health & Social Care (DHSC). These are effectively being treated as income by these organisations and they have built up a level of unsustainable debts (£10.9 billion in March 2019) which they are unlikely to ever repay.

In the past five years, the government has transferred £4.3 billion from capital to revenue budgets to cope with day to day pressures facing the NHS. It has been unable to clearly say how this has affected patient services and acknowledges its approach to capital funding requires reform. The rising demand for capital spending and the growing maintenance backlog means there is an increasing risk of harm to patients.

Over the last three years, NHS providers have requested on average £1.1 billion more for buildings and equipment than their spending limits allow. Fourteen per cent of NHS buildings are older than when the NHS was formed (in 1948). The backlog of maintenance work to get all buildings up to standard currently stands at about £6.5 billion.3

The NAO concludes that DHSC, NHS England and NHS Improvement should revamp the way the system is funded. This includes developing a clear long-term capital funding strategy and establishing a more stable funding system that is not reliant on loans.

“The short-term fixes that were introduced to manage the NHS’ finances are not sustainable. The Department of Health and Social Care continues to provide some trusts with short-term loans just to meet their day-to-day costs with little hope they will be repaid. This is not a sustainable way to run public bodies.

“To bring about lasting stability, the Department and NHS England and NHS Improvement need to move away from short-term financial fixes and provide longer-term solutions.”

Gareth Davies, head of the NAO

Notes for Editors

  1. Clinical commissioning groups (CCGs) were created following the Health and Social Care Act in 2012, and replaced primary care trusts on 1 April 2013. They are clinically-led statutory NHS bodies responsible for the planning and commissioning of health care services for their local area. Extra financial support to trusts in difficulty has continued to increase year-on-year. Most of this support (£3.3 billion out of £3.6 billion issued in 2018-19) is interim revenue support, rather than ‘normal course of business’ loans. By 31 March 2019, outstanding debt issued by the Department to these trusts was £10.9 billion, up from £8.0 billion on 31 March 2018.
  2. In 2018-19, 31% of their savings were one-off, up from 26% in 2017-18.
  3. This was reported by NHS Digital in October 2019.
  4. 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.
  5. The National Audit Office (NAO) helps Parliament hold government to account for the way it spends public money. It is independent of government and the civil service. The Comptroller and Auditor General (C&AG), Gareth Davies, is an Officer of the House of Commons and leads the NAO. 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 government is delivering value for money on behalf of the public, concluding on whether resources have been used efficiently, effectively and with economy. The NAO identifies ways that government can make better use of public money to improve people's lives. It measures this impact annually. In 2018 the NAO's work led to a positive financial impact through reduced costs, improved service delivery, or other benefits to citizens, of £539 million.

Contact

NAO Press Office
+44 (0)20 7798 7400 or email pressoffice@nao.org.uk

PN: 07/20