1 Fairness of funding allocations
1. On the basis of a report by the Comptroller and
Auditor General, we took evidence from the Department of Health
(the Department) and NHS England about how funding is allocated
to local healthcare commissioners in England.[1]
Following the reforms to the health system in 2013, there are
now three separate funding allocations.[2]
In 2014-15, a total of £79 billion was allocated to local
commissioners of healthcare, equivalent to £1,400 per person.
The Department allocated £2.8 billion to 152 local authorities
to commission public health services, such as smoking cessation
programmes. NHS England, the Department's largest arm's-length
body, allocated £64.3 billion to 211 clinical commissioning
groups to commission hospital, community and mental health services;
and NHS England also allocated £12.0 billion to its 25 area
teams to commission primary care.[3]
2. The first step in allocating funding involves
the Department or NHS England calculating a 'target funding allocation'
for each local commissioner. This represents their fair share
of the money that is available. The Department of Health and NHS
England have changed the way that they allocate health funding
to local commissioners. The aim is to give those local areas with
greater healthcare needs—defined in the main by population
age with some weighting for health inequalities—a larger
share of the available funding.[4]
In deciding actual funding allocations, the Department and NHS
England seek to ensure that local health economies are not destabilised.
They therefore move local commissioners gradually from their current
funding levels towards their target allocations.
[5]
3. In 2014-15, nearly two-fifths of clinical commissioning
groups and over three-quarters of local authorities remain more
than 5 percentage points above or below their target funding allocation.[6]
This means that these areas are receiving substantially more or
less than their fair share. For clinical commissioning groups,
funding varies from £137 per person below target in Corby
to £361 per person above target in West London; for local
authorities, funding varies from £28 per person below target
in Slough to £156 per person above target in the City of
London.[7]
4. Whether or not local commissioners receive their
target funding allocations is one of the factors that may affect
their financial sustainability, and there is a clear link between
the financial positions of clinical commissioning groups and whether
they are under- or over-funded. For example, of the 20 groups
with the tightest financial positions at 31 March 2014, 19 received
less than their target funding allocation; whereas, of the 20
groups with the largest financial surpluses, 18 received more
than their target allocation. The National Audit Office's exploratory
work suggested that, on average, for every £100 a clinical
commissioning group was below target its financial position worsened
by around an estimated £10 to £17.[8]
5. Progress in moving commissioners towards their
target funding allocations has been very slow. NHS England highlighted
that it is more difficult to move allocations towards the shares
determined by the formula when, as now, the overall financial
position is tight and there is less money to go around.[9]
The National Audit Office calculated that, at the current pace
of change, it would take approximately six years before no clinical
commissioning group remained below its target allocation by more
than 5%. For local authorities and the expenditure on public health,
this would take 10 years. However, it would take much longer before
no commissioner remained above its target allocation by more than
5% (60 years for clinical commissioning groups and 80 years for
local authorities).[10]
6. The Department and NHS England told us that there
are trade-offs between moving commissioners more quickly towards
their target funding allocations and maintaining the stability
of local health economies. NHS England said that making faster
progress would mean real-term reductions in funding in some parts
of the country, which has not happened in the past. The Department
told us that it had decided that it should not reduce the amount
of money that had previously been spent on public health by local
NHS bodies, at the point it transferred responsibility for these
services to local authorities.[11]
7. NHS England said that it would like to make faster
progress in moving areas towards their target funding allocations.
Specifically, it would like to get to a position within a year
or two where no clinical commissioning group was more than 5%
from its target allocation, although this would depend, to some
extent, on the size of the total health budget.[12]
The Department also said that it hoped to move local authorities'
public health allocations to within 5% of target more quickly.
However, it said it could not commit to a timetable because decisions
about public health allocations and the pace of change were a
policy matter for the government of the day.[13]
8. Whereas previously primary care trusts received
a unified allocation for local health services, since the
reforms to the health system in 2013 funding has been fragmented
into three pots with separate allocations for clinical commissioning
groups, primary care and public health.[14]
Addressing the needs of local populations requires an integrated
approach to commissioning healthcare. However, the Department
and NHS England decided current funding allocations without fully
considering the combined effect on local areas.[15]
NHS England accepted that the separate health allocations had
been made in isolation of each other but said that it wanted to
move towards 'place-based' funding formulae, incorporating its
allocations for clinical commissioning groups and primary care
and, potentially, the Department's allocations to local authorities
for public health.[16]
The Department, however, did not think it would necessarily be
appropriate to have a single formula, citing the different nature
of public health funding, which largely concerns the population's
health in the future while the funding allocated by NHS England
is largely intended to meet current healthcare needs.[17]
9. The National Audit Office report highlighted an
association between health funding and social care spending. Many
people receive both healthcare and social care, and lower spending
in one of these sectors might be expected to case additional costs
in the other. A survey in June 2014 identified that nearly a third
of clinical commissioning group chief financial officers considered
that cost pressures in social care were causing cost pressures
in their organisation.[18]
The Department acknowledged that there was a clear link between
health and social care but said that the causal relationships
between the two were not clear. However, in making decisions about
2014-15 health funding allocations, neither the Department of
Health nor NHS England took account of local authority spending
on social care or the Department for Communities and Local Government's
plans for funding for local authorities.[19]
10. The Department and NHS England also referred
to the Better Care Fund which will help to test how the NHS and
local government can pool funding. They told us that the Fund
is intended to increase integration between health and social
care, help services deal with the pressures they are facing and
improve understanding about the interaction between the two sectors.[20]
1 C&AG's Report, Funding healthcare: Making
allocations to local areas, Session 2014-15, HC 625, 11 September
2014 Back
2
C&AG's Report, paras 8, 1.9-1.10 Back
3
C&AG's Report, paras 2, 1.2-1.3 Back
4
Qq 88-89, 90-92 Back
5
C&AG's Report, paras 3, 2.1-2.3 Back
6
Qq 7, 34; C&AG's Report, paras 11, 2.3 Back
7
Q 14; C&AG's Report, paras 11, 2.3, Allocations to local
commissioners online appendix Figure 1 Back
8
Q 96, C&AG's Report, paras 15, 2.21-2.22 Back
9
Q 3, C&AG's Report, paras 13, 2.9-2.10 Back
10
Q 2, C&AG's Report, para 2.14 Back
11
Qq 3, 4, 7 Back
12
Qq 5, 13-15, 37 Back
13
Qq 34-36, 39-40 Back
14
C&AG's Report, para 8, 1.9-1.10 Back
15
C&AG's Report, paras 16, 2.25-2.26 Back
16
Qq 53-54, 93 Back
17
Q 76 Back
18
Q79, C&AG's Report, para 2.29 Back
19
Q 79-80, C&AG's Report, paras 2.30 Back
20
Qq 12, 79-81 Back
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