Select Committee on Public Accounts Seventeenth Report

3  What are the implications for organisations as a result of being in financial deficit?

26. NHS organisations are required to meet a large number of targets relating to healthcare services. Those bodies in deficit face the significant challenge of maintaining these services whilst managing and recovering these deficits. This challenge increases as the NHS continues to implement the reform programme, both in terms of restructuring and with the introduction of major initiatives. Dealing with financial pressures diverts resources away from normal strategic and operational priorities. If a body's management are concerned chiefly with recovering a deficit and managing its side effects, they may be unable to give sufficient attention to issues such as clinical performance or current NHS re-structuring.[25]

27. Some measures taken to return to financial balance have resulted in a rationalisation in the capacity of the NHS. The Department confirmed to us that 903 compulsory redundancies had been made in the six month period to 30 September 2006. Decisions on service reconfiguration are a matter for local NHS bodies, but the Department were satisfied that essential services were being protected, if not improved in the current year.[26]

28. Large cuts have been made in the workforce and training budgets. Some graduates currently could not get jobs, but there could be a shortage in future and unless staff planning is considered alongside financial planning in order to avoid this situation. The Department conceded that it needed to review workforce planning arrangements in the NHS to avoid a boom-and bust position.[27]

29. Organisations that have significant deficits are also likely to be short of cash, which will affect their ability to meet their financial commitments. In 2004-05, a small number of NHS bodies considered deferring payment of tax and social security to HM Revenue and Customs, with a handful even struggling to pay staff wages. On average, NHS Trusts with a deficit of over £5 million in 2004-05 paid only 75% of invoices to non-NHS bodies within 30 days, some 8% below the national NHS average. The Better Payment Practice Code requires them to pay all such invoices within a 30-day period.[28]

30. The NHS funding regime has traditionally allowed the movement of funds from one body to another, often in the form of financial support and adjustments to service level agreements. This movement of cash around the system was used in some cases in 2004-05 to ensure that the financial commitments of NHS bodies in financial difficulties could be met. There were concerns within the NHS that the principles of the system are not applied consistently to local bodies however, and its effect on their financial performance is not sufficiently transparent. From 2006-07, the Department is to replace these practices with a more transparent system of loans and deposits. Under the new arrangements it is likely that bodies in deficit incurring loans will not be required to repay them the following year, with appropriate terms and conditions being negotiated with the Strategic Health Authority. The Department acknowledged, however, that more changes were needed to further improve cash management..[29]

25   C&AG's Report, Summary, paras 32-34; paras 3.19-3.27, 5.8-5.16, 5.24-5.29, 5.35 Back

26   Department of Health, NHS Redundancy Figures, 30 October 2006; Qq 6-7, 76-77, 131-132 Back

27   Qq 27-28 Back

28   C&AG's Report, Summary, para 9; paras 3.22-3.24; Qq 144 Back

29   C&AG's Report, Summary, paras 5, 16; paras 2.16-2.27, 3.7-3.8; Qq 19, 73-75, 145 Back

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