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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