1Managing financial performance
1.On the basis of a report by the Comptroller and Auditor General, we took evidence from the Department of Health (the Department), NHS England and NHS Improvement.1 We also took evidence from Yeovil District Hospital NHS Foundation Trust and the Healthcare Financial Management Association.
2.In 2014–15, the Department allocated £98 billion of its £111 billion budget to its largest arm’s-length body, NHS England, to plan and pay for NHS services. The 211 clinical commissioning groups spent the greatest share of this, largely buying healthcare from 90 NHS trusts and 150 NHS foundation trusts. The Department is ultimately responsible for securing value for money from this expenditure. In 2014–15, the Department came close to exceeding the £111 billion revenue expenditure budget authorised by Parliament, underspending by just £1.2 million or 0.001%.2
3.There has been significant change in the NHS since the introduction of the Health and Social Care Act 2012. These changes have come at a time of increased financial pressures in government arising from austerity. Health is an area of public spending that the government has protected in recent years compared with most other areas of government spending. However, finances have become increasingly tight with health funding rising at a historically low rate of 1.8% in real terms between 2010–11 and 2014–15.3
4.The NHS Five Year Forward View, published in October 2014, set out proposed changes to the provision of healthcare services to enable the NHS to respond to increasing patient demand and funding constraints. The Five Year Forward View estimated there will be a £30 billion gap between resources and patient needs by 2020–21. In November 2015, the government committed to increasing funding for the NHS by £8.4 billion by 2020, with £3.8 billion of this given to the NHS in 2016–17. This extra funding leaves an estimated £22 billion gap between resources and patient needs by 2020–21.4
5.The NHS must be financially sustainable for it to provide sustainable healthcare services to patients. In recent years, spending by NHS trusts and NHS foundation trusts has outpaced growth in their income and trusts’ are increasingly unable to keep their spending within budget.5
Deteriorating financial performance
6.The latest audited data shows that NHS trusts’ and NHS foundation trusts’ financial positions have significantly worsened since the previous Committee’s report in February 2015.6 NHS trusts and NHS foundation trusts together reported a £843 million deficit in 2014–15, which is a sharp decline from trusts’ £91 million deficit in 2013–14 and £592 million surplus in 2012–13. The percentage of NHS trusts and NHS foundation trusts in deficit increased from 10% in 2012–13, to 26% in 2013–14, rising to 48% in 2014–15. The Department and NHS England provided NHS trusts and NHS foundation trusts that were in financial difficulty with £1.8 billion of cash support in 2014–15 so that trusts had the money they needed to pay their suppliers and staff and to fund essential building works.7 We heard that Yeovil District Hospital NHS Foundation Trust received a loan from the Department in 2015–16, and would be requesting a further loan to cover its costs in 2016–17. It said it had not included the repayment of the loan in its five year financial plan that had been signed-off by Monitor.8
7.In the first six months of 2015–16, 76% of NHS trusts and NHS foundation trusts reported deficits.9 In November 2015, Monitor and the NHS Trust Development Authority forecast NHS trusts and NHS foundation trusts would have a £2.2 billion deficit by 31 March 2016.10 But at the time of our evidence session, NHS Improvement told us trusts were heading towards a deficit of more than £2.5 billion in the current financial year. However, the Department and NHS Improvement said that capital revenue transfers and accounting adjustments would reduce the 2015–16 deficit to £1.8 billion.11
8.We heard that, in 2016–17, trusts will have access to NHS England’s Sustainability and Transformation Fund of £2.14 billion. Of this, £1.8 billion will be spent on sustainability to stabilise NHS operational performance, and £340 million for transformation to continue the vanguard programme and other areas of the Five Year Forward View.12 NHS Improvement told us that the sustainability support will “bring organisations back into balance” in 2016–17 but will not clear the deficit accumulated in the current financial year.13
9.In response to our concerns about the 2015–16 planning process for trusts, NHS Improvement acknowledged that it was “not acceptable” that foundation trusts did not provide Monitor with their financial projections until October 2015, seven months into the financial year. As the new regulator bringing together Monitor and the NHS Trust Development Authority, NHS Improvement said that work to change how these organisations supported trusts was ongoing. It admitted that the 2015–16 “plans should have been earlier” and there should have been “more rigour” and “more challenge”.14 The Department explained that providers’ challenge of the tariff also had an impact on the planning timetable.15
Setting informed targets
10.The Department’s team led by Lord Carter of Coles is examining how acute trusts can make savings and has reported that the NHS could save £5 billion every year by 2020 by making better use of staff, using medicines more effectively and getting better value from the products it buys. For example, the Department told us that Lord Carter’s work has “revealed huge variation” in how NHS staff are deployed and this could be improved through changes to the way rosters are run, and making sure sick leave and other absences are better managed.16 We asked if the Department is using its position as a large landowner to help government meet targets to build affordable homes and it told us that Lord Carter’s team is looking at how the NHS estate is used. The Department said that is looking to generate around £2 billion of capital receipts from estate disposals in this parliament, partly to free up money for investement in transformation and partly to support wider the government initiative to dispose of public land and make it available for new homes. It also told us it will start to implement Lord Carter’s savings targets for acute trusts in 2016–17.17
11.While it is positive that the Department is taking steps to identify how trusts can make savings, we have serious concerns about the accuracy of the data supporting these targets, which is primarily based on reference costs—the average unit cost to the NHS of providing healthcare. The National Audit Office reported that the quality of reference costs data relies on accurate data being submitted by trusts, and a recent audit by Monitor of reference costs for 2013–14 found that 49% of trusts sending these data had made ‘materially inaccurate’ submissions. NHS Improvement told us that in the past reference cost data was not well-used and so trusts did not put effort into ensuring its quality. We note that Lord Carter’s work uses reference costs data collected in 2014–15.18
12.There was general agreement that good data was a key part of improving financial management in trusts.19 Time and again this Committee has seen how inadequate data collection, by health bodies and more widely across government, impacts on decision making.20 For example, we recently reported that data gaps are affecting the Department and NHS England’s ability to make well-informed decisions on how to improve access to general practice or where to direct their limited resources.21 NHS Improvement told us that it has a huge job to improve the quality of data and to make it more meaningful. It said organisations needed to agree how to get accurate costings to set savings targets and it argued that costings data will become more accurate each year it is used as trusts see its benefits.22
13.The NHS has historically achieved annual efficiency savings of 0.8% which have increased to 1.5–2% in recent years, against a target of 4% set by Monitor and NHS England.23 NHS Improvement told us that trusts had not believed that 4% efficiency savings was achievable.24 The National Audit Office reported that acute trusts made fewer efficiencies in 2014–15 than in 2013–14, £2.2 billion compared with £2.3 billion, and that acute trusts’ have increasingly planned to make non-recurrent efficiencies.25 We heard from Yeovil District Hospital NHS Foundation Trust that the “easier things to make efficiencies on have been done”.26 The Department noted, however, that Lord Carter’s work had revealed big variations in how trusts use their resources and there was scope for some trusts to exceed the target of 4%.27
14.The Department, NHS England and NHS Improvement acknowledged that the efficiency target of 4% was driven by the shortage of resources across the NHS overall. NHS England explained that in 2015–16 the efficiency target for acute hospital trusts was closer to 3.5% than 4% for those that had opted for the ‘enhanced tariff option’ payment arrangements.28
15.In response to our concerns that the overly ambitious efficiency target had damaged trusts’ financial positions, NHS England agreed that the target had created pressure in the system and that it was logical to assume this had damaged trusts’ financial positions.29 In 2016–17, Monitor and NHS England will reduce the efficiency target to 2% and this was described by NHS Improvement as a “more reasonable” requirement for trusts to deliver.30
1 C&AG’s Report, Sustainability and financial performance of acute hospital trusts, Session 2015–16, HC 611, 16 December 2015
6 Committee of Public Accounts, Financial sustainability of NHS bodies, Session 2014–15, HC 736, 3 February 2015
20 Q 105; Committee of Public Accounts, The work of the Committee of Public Accounts 2010–15, Fifty-second Report of Session 2014–15, HC 1141, 23 March 2015
© Parliamentary copyright 2015
Prepared 10 March 2016