Financial sustainability of the NHS Contents

1Recent 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 on the financial sustainability of the NHS.1 We also took evidence from NHS Enfield Clinical Commissioning Group and NHS Providers (the membership organisation and trade association for trusts).

2.In 2015–16, the Department allocated £100.9 billion to its largest arm’s-length body, NHS England, to plan and pay for NHS services. The 209 clinical commissioning groups spent the greatest share of this, largely buying healthcare from 86 NHS trusts and 152 NHS foundation trusts. The Department is accountable to Parliament for ensuring that all spending by the Department, NHS England, NHS Improvement, other arm’s-length bodies and by local NHS bodies is contained within the overall budget authorised by Parliament. The Department has made NHS England and NHS Improvement responsible for ensuring the NHS balances its budget.2

3.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. It estimated there would be a £30 billion gap between resources and patients’ needs in 2020–21 if no action was taken. In November 2015, the Government committed to increasing funding for the NHS by £8.4 billion. Included in this is £2.14 billion that the Department, NHS England and NHS Improvement set aside for the Sustainability and Transformation Fund in 2016–17, of which £1.8 billion will be used to help trusts sustain services and reduce deficits. The Department, NHS England and NHS Improvement estimate that the extra funding leaves a £22 billion efficiency gap between resources and patients’ needs by 2020–21.3

4.In December 2015, health and care leaders were asked to come together to produce five-year local sustainability and transformation plans. There will be 44 planning ‘footprints’ which will cover the period from October 2016 to March 2021. NHS England and NHS Improvement want sustainability and transformation plans to be a ‘route map’ for how local NHS bodies and their partners make a reality of the Five Year Forward View. Sustainability and transformation plans do not replace existing local bodies or change local accountabilities.4

Declining financial performance

5.The financial performance of NHS bodies has continued to deteriorate since our report in March 2016 (Sustainability and financial performance of acute hospital trusts) and the previous Committee’s report in February 2015 (Financial sustainability of NHS Bodies). NHS trusts and NHS foundation trusts reported a £2,447 million deficit in 2015–16, which is 185% higher than the £859 million deficit reported in 2014–15 and the £91 million deficit in 2013–14. Two-thirds of NHS trusts (65%) and NHS foundation trusts (66%) reported deficits, up from 44% of NHS trusts and 51% of NHS foundation trusts in 2014–15. The number of clinical commissioning groups reporting cumulative deficits was 32 in 2015–16, up from 19 in both 2014–15 and 2013–14.5

6.In 2015–16 the Department came extremely close to exceeding its £95.6 billion voted revenue expenditure budget authorised by Parliament, underspending by just £210 million or 0.22%.6 At the time of our oral evidence session in January 2017, the Department said it was expecting its expenditure to be within budget in 2016–17. It confirmed that clinical commissioning groups have been asked to hold back 1% of their budget to create a reserve of £800 million in 2016–17. This effectively means that the commissioning sector will be expected to underspend by £800 million to help offset the pressures in trusts.7

7.NHS Improvement told us in January 2016 that that the extra £1.8 billion of sustainability support that trusts received in 2016–17 would “bring organisations back into balance” in that year.8 Whilst there has been progress in reducing the size of the deficits in 2016–17, the deficits have not yet been eliminated as planned. Trusts reported a deficit of £461 million in the first three months of 2016–17, compared with a deficit of £930 million at the same point in 2015–16. The deficit in the first three months of 2016–17 included some £450 million of extra sustainability funding and without this the deficit would have been £911 million.9 The Department told us that its ‘reset’ plan for returning the NHS to financial balance aims to reduce the trusts’ deficit to about £600 million by the end of 2016–17. NHS Providers estimated that trusts will probably achieve a deficit of between £650 million and £700 million in 2016–17.10

8.In our report in March 2016, we noted that trusts’ spending on agency staff had contributed to their financial distress and that until the NHS solves its workforce planning issues it was unlikely to bring the deficit under control.11 NHS Improvement highlighted that there had since been progress in reducing trusts’ spending on agency staff, which it forecasts will be around £2.8 billion to £3.0 billion (5.5% to 5.9% of total staff pay) in 2016–1712, compared with £3.7 billion (7.6% of total staff pay) in 2015–16.13 It said there is now more transparency and data on rates of agency pay and trusts are working more closely to obtain better rates. However, it highlighted that there is still more work to do to reduce trusts’ spending on medical locums, by transferring the temporary workforce onto standard NHS contracts and rates of pay.14

9.The number of trusts in severe financial difficulty has increased and some 56 acute hospital trusts had deficits greater than 5% of their income in 2015–16, up from 26 the year before.15 In response to our questions about why the difficulties in some providers were so severe, NHS Improvement told us that the financial problems in these trusts had built up over a period of about 5 years. It told us the work it is doing with trusts that have recently been placed into financial special measures had been effective in addressing financial problems.16

10.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. NHS Improvement confirmed that there is no contingency in the system, meaning that if a trust spends more than it plans, they are spending another organisation’s money. It clarified that this in effect means the stronger organisations would need to bail out those that are struggling.17

Services to patients

11.Performance against key access targets is deteriorating, 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. For example, the percentage of A&E patients admitted, transferred or discharged within four hours of arrival fell from 95.9% in 2012–13 to 90.3% in the first three months of 2016–17, against a target of 95%.18 NHS Providers told us it is “very concerned” about A&E departments where in some areas the resilience of trusts has been worn away and there is a “significantly enhanced risk”.19

12.NHS Improvement highlighted the importance of the A&E standard as an indicator of how well the NHS is delivering overall. It said it is currently reviewing the standard to ensure it allows clinicians to focus on the sickest patients and to reflect new clinical practices which did not exist when the standard was first introduced.20 The Department told us that recent announcements about the A&E target had highlighted how “we need to have a conversation about how accident and emergency is used”. In response to our questions about whether this meant the standard was being dropped or downgraded, the Department said that “The four-hour target is staying”.21

13.The National Audit Office report found there is an association between trusts’ latest overall Care Quality Commission rating and trusts’ average financial performance in 2015–16. The trusts that achieved lower quality ratings also reported poorer average financial performance. 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.22 The Department acknowledged that there is an association between Care Quality Commission ratings on quality and deficits. It argued that managing the quality of care and managing finances go hand-in-hand and the way in which local NHS bodies achieve financial rigour is by performing better on quality.23

1 C&AG’s Report, Financial sustainability of the NHS, Session 2016–17, HC 785, 18 November 2016.

2 C&AG’s Report, paras 3 & 1.2

3 C&AG’s Report, para 4

4 C&AG’s Report, para 3.3–3.6

5 C&AG’s Report, para 1.3, 1.5 & 1.9

6 C&AG’s Report, para 1.21

8 Committee of Public Accounts, Sustainability and financial performance of acute hospital trusts, Session 2016–17, HC 709

9 C&AG’s Report, para 1.11

11 Committee of Public Accounts, Sustainability and financial performance of acute hospital trusts, Session 2015–16, HC 709

12 Department of Health (TFS0015) paragraph 16;

13 C&AG’s Report para 1.22, Figure 9

15 C&AG’s Report, appendix 4

18 C&AG’s Report, para 1.18 & figure 7.

22 C&AG’s Report, para 1.20

23 February 2017