Prioritising the financial stability of local health economies has resulted in the Department of Health and NHS England making very slow progress towards allocating local commissioners of healthcare their fair share of funding, according to the National Audit Office.

A total of £79 billion has been allocated to local commissioners in 2014-15, equivalent to £1,400 per person. Following the reforms to the health system in 2013, the three different sets of commissioners (clinical commissioning groups, NHS England area teams and local authorities) receive separate funding allocations to commission services for their local populations.

Today’s report says that the approach of the Department and NHS England to allocating funding is generally sound. Decisions are informed by independent, expert advice and are increasingly transparent. However, the tighter financial position in recent years has made it difficult for the Department and NHS England to allocate funding in a way that achieves the twin aims of fairness and financial stability.

There is wide variation in the extent to which the funding received by local commissioners differs from their target allocations, which are based on relative need. In 2014-15, over three-quarters of local authorities, and nearly two-fifths of clinical commissioning groups, are more than five percentage points above or below their fair share of funding per person. Funding for clinical commissioning groups varies from £137 per person below target to £361 per person above target.

The Department’s and NHS England’s decisions about how quickly to move commissioners towards their target funding allocations are not based on evidence. The decisions are essentially a matter of judgement about the changes that local health economies can tolerate without being financially destabilised and about the effects of organisations not receiving their target allocations. Exploratory analysis by the National Audit Office suggests that local bodies may be able to tolerate changes in funding that are more significant that those currently allowed.

There is a clear relationship between the financial position of clinical commissioning groups and their distance from target funding allocations. Of the 20 groups with the tightest financial positions at 31 March 2014, 19 had received less than their target allocation. And, of the 20 groups with the largest surpluses, 18 had received more than their target allocation.

Local populations are taken into account when calculating target funding allocations, and NHS England has taken steps to address the risk that population changes may jeopardize financial stability. NHS England uses GP lists to estimate population size. Although this makes target allocations more responsive to changing needs, there is limited assurance about the accuracy of the data, with a tendency for lists to be inflated.