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

Read the full report

NHS financial sustainability

Notes for editors

£991 million combined deficit of NHS trusts and NHS foundation trusts (trusts) in 2017-18 £1bn capital budget transferred to revenue budget in 2017-18 £3.2bn extra funding given to trusts as interest-bearing loans in 2017-18 £21 million net deficit of NHS bodies (NHS England, clinical commissioning groups (CCGs) and trusts) overall in 2017-18     £213 million combined deficit of CCGs in 2017-18 69% percentage of the combined deficit of trusts in 2017-18 accounted for by the 10 trusts with the largest deficits. 75 CCGs reported overspends against their planned position in 2017-18, up from 57 in 2016-17 32 number of the 44 sustainability and transformation partnerships that had a financial deficit in 2017-18, when trusts’ and CCGs’ finances within the partnerships were added together. £558 million deficit forecast by the trust sector in 2018-19 based on the first six months of the year 3.4% average annual real-terms growth in NHS funding in the five years, 2019-20 to 2023-24   1. In June 2018, the Prime Minister announced a long-term funding settlement for the NHS, which will see NHS England's budget rise by an extra £20.5 billion by 2023-24. From 2019-20 to 2023-24, this equates to an average annual real-terms increase of 3.4%. 2. This is the NAO’s seventh report on the financial sustainability of the NHS. 3. The Department of Health and Social Care (the Department) has overall responsibility for healthcare services. It is accountable to Parliament for ensuring that its spending, as well as spending by NHS England, NHS Improvement, other arm’s-length bodies and local NHS bodies is contained within the overall budget authorised by Parliament.  The Department's budget covers other important areas of health spending such as most capital investment for buildings and equipment, prevention initiatives run by Public Health England and local authorities and funding for doctors' and nurses' training. Spending in these areas could affect the NHS's ability to deliver the priorities of the 10-year plan, especially if funding for these areas reduces. The government will consider proposals in these areas as part of its 2019 Spending Review. 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 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. Our work led to audited savings of £741 million in 2017.

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