Financial sustainability of the NHS Contents

Conclusions and recommendations

1.Since our previous reports in 2015 and 2016 the financial performance of NHS bodies has worsened considerably and this trend is not sustainable. The financial health of NHS bodies has continued to deteriorate at an alarming rate, with trusts’ deficits reaching a colossal £2.5 billion in 2015–16, up from a £859 million deficit in 2014–15. Two-thirds of NHS trusts (65%) and NHS foundation trusts (66%) reported deficits in 2015–16, up from 44% of NHS trusts and 51% of NHS foundation trusts in the previous financial year. Furthermore, the number of clinical commissioning groups reporting cumulative deficits (the current year’s surplus or deficit added to the surpluses or deficits from previous years) was 32 in 2015–16, up from 19 in both 2014–15 and 2013–14. There has been progress in reducing the size of the trusts’ deficit in 2016–17, which is expected to be around £600 million by the end of the year. But the extra £1.8 billion of sustainability funding that trusts received in 2016–17 has not yet eliminated the trusts’ deficit as planned. The number of trusts in severe financial difficulty has also increased. Some 56 acute hospital trusts had deficits greater than 5% of their income in 2015–16, up from 26 the year before. The problems are not confined to trusts in difficulty as they may have a knock-on impact on the wider health economy. Specifically, in some sustainability and transformation plan areas, organisations with stronger finances have been grouped with those that are struggling, with the risk that some organisations may have to bail out others.

Recommendation: The Department, NHS England and NHS Improvement should set out a clear and transparent recovery plan by March 2017 which targets those NHS bodies and health economies in severe financial difficulty.

2.There are indications that measures taken to restore financial stability are affecting patients’ access to services and their overall experience of care. Performance against access targets continues to deteriorate, with worsening performance against the 4-hour waiting time target for A&E, the ambulance response time standard and the target to be treated within 18 weeks of referral. NHS Improvement is currently reviewing the 4-hour A&E standard to reflect latest clinical practices and help ensure that clinicians can focus on the sickest patients. The Department told us there was no intention to drop the target, but we remain concerned that the review might involve downgrading the target in certain areas. There is an association between trusts’ financial performance and trusts’ overall Care Quality Commission rating. Trusts that achieved lower quality ratings had poorer average financial performance, and the 14 trusts rated ‘inadequate’ together had a net deficit equal to 10.4% of their total income in 2015–16. The five top-rated trusts on quality had a combined net deficit equal to just 0.02% of their total income.

Recommendation: The Department and NHS England should report back to us by July 2017 on what they have done to understand the association between financial performance and the impact on patient care.

3.The repeated raids on investment funds in order to meet day-to-day spending could result in ill equipped and inefficient hospitals. Capital budgets cover many essential areas of spending, ranging from keeping facilities up-to-date, rolling out new technologies and investing in new care models. It is therefore concerning that the Department moved £950 million out of its separate £4.5 billion capital budget to its revenue budget in 2015–16, to fund day-to-day activities. The Department accepts that moving money from capital to revenue is not a desirable or sustainable approach, but tells us it will need to do so again to balance its budget in 2016–17 and future years. NHS Providers, the representative body for trusts, expressed serious concerns about the restrictions on capital spending. They highlighted the findings of a Care Quality Commission report, which found serious issues at St George’s Hospital Tooting as a result of insufficient investment in operating theatres. Furthermore, NHS England admitted that capital investment has fallen short of what it had considered was needed to deliver the NHS Five Year Forward View. Reducing investment in this important area risks making the NHS less sustainable in the longer-term and limits funding for investing in new community services.

Recommendation: The Department, NHS England and NHS Improvement should review and improve national and local planning for capital expenditure in order to call a halt to crisis driven transfers out of capital budgets to meet day to day revenue spending, which is not good value for the taxpayer or the future of the estate.

4.NHS England and NHS improvement have much more to do before the public can feel confident that local sustainability and transformation plans are about delivering transformation and efficiencies and not just a cover for cuts in services. The sustainability and transformation plans that health and care leaders have been required to produce for their area are key to driving improvements in health and care services and achieving financial balance. However, very few trusts think they have a credible, robust and rigorous plan for their area which sets out how they will meet the financial targets they have been set. It is vital that the public understand the changes that are being proposed locally and are engaged in the implementation of plans if they are to secure local support and improve the quality of services for patients. But so far, there are no publicly available performance measures for assessing whether the local organisations that have been grouped together have a track record of success. NHS England and NHS Improvement accepted that the quality of plans is variable and said they would need to give “serious help” to those organisations that are struggling. They have not yet published their analysis of the 44 sustainability and transformation plans, but committed to doing so by March 2017.

Recommendation: In its analysis of the 44 sustainability and transformation footprints, due by the end of March 2017, NHS England and NHS Improvement should set out how they will support organisations to deliver real transformation in the areas where plans fall short. They also need to convince the public of the benefits of the plans to them.

5.With extreme pressures on funding, the social care system is unable to meet demand, placing enormous extra pressure on NHS services. Social care services are under immense pressure as a result of increasing demand for services from an ageing population, combined with restrictions on funding. Local authority spending on adult social care fell by 10% in real terms between 2009–10 and 2014–15. NHS England confirmed that the social care system is not keeping up with demand and this is placing significant strain on NHS services. For example, the number of people experiencing delays in being discharged from hospital as a result of a lack of social care has doubled over the last three years. Both the Department and NHS England need to understand the true scale and nature of the problem if they are to manage these stresses, but there is currently no estimate of the financial impact of social care pressures on the NHS.

Recommendation: The Department and NHS England should assess the impact that financial pressure in social care is having on the NHS, so that it can better understand the nature of the problem and how it can be managed. It should publish the findings of its analysis by July 2017.

6.The Department, NHS England and NHS Improvement do not yet understand whether, and how, they can realistically expect local bodies to deliver all that is being asked of them. We recognise the efforts by the Department, NHS England and NHS Improvement to develop a plan for closing the £22 billion black hole in NHS finances. However, we remain concerned about whether plans are really achievable. NHS Improvement admitted that trusts will need to deliver efficiencies of around 4% in 2016–17, 2017–18 and 2018–19, despite telling us in January 2016 that efficiencies of this scale were unrealistic. Plans also assume that the growth in trusts’ acute hospital activity can be reduced from 2.9% to 1.3% per year, although demand for NHS services continues to grow. To reduce the demand for expensive hospital care, the NHS needs to invest in alternative care models, such as primary and community services. But NHS England told us that us that the deficits in trusts mean there is £800 million less money in 2016–17 to invest in out of hospital care and offset the increases in demand. There has been limited testing by the Department, NHS England and NHS Improvement of their estimates for how much they can generate from their savings programmes. Furthermore, local bodies are now facing new challenges, such as the repercussions of Brexit and the challenge of implementing 7-day services and NHS England acknowledged that the national bodies would need to update their plans to take account of these pressures. NHS Providers told us that it was not possible for the NHS to deliver all of its priorities within the resources that it has.

Recommendation: The Department, NHS England and NHS Improvement should publish by March 2017 its assessment of whether there is the capacity in NHS bodies to deliver everything they are expected to within the agreed timeframes.

23 February 2017