Financial sustainability of the NHS Contents

2Risks to future performance

Using capital budgets to fund day-to-day spending

14.Capital budgets cover many areas of spending, ranging from keeping facilities up-to-date, rolling out new technologies and investing in new care models. In 2015–16, the Department moved £950 million out of its separate £4.5 billion capital budget to its revenue budget, to fund day-to-day activities. This is the second year the Department has used money originally intended for capital projects to cover a shortfall in its revenue budget. In 2014–15, the Department transferred £640 million out of the capital budget.24

15.NHS Providers said there are “real challenges” around whether there are sufficient investment funds at a time when capital budgets are being raided. They highlighted findings from a Care Quality Commission report, which found issues at St George’s Hospital in Tooting as a result of insufficient investment in its operating theatres.25 NHS England said that increasing infrastructure investment would pay off in terms of both financial savings and providing better services for patients in more modern facilities. But it admitted that pressures from day-to-day spending meant capital investment had been lower than what it had considered was necessary to deliver the Five Year Forward View.26

16.The Department accepted that moving money from capital to revenue is not “a sustainable or desirable approach for the long term”, but told us it will need to do so again to balance its budget in 2016–17 and future years.27 It clarified that its goal is to eliminate capital to revenue budget transfers by the end of the spending review period, which is in 2021. It said that, in its judgement, most of the transfers out of the capital budget in 2015–16 were made possible by the “natural slippage” of capital projects because they had overrun. However, it acknowledged that it is difficult to assess what the consequences will be for trusts that changed their capital investment plans.28

Delivering sustainability and transformation plans

17.NHS England and NHS Improvement see local sustainability and transformation plans as the ‘route map’ for how local NHS bodies will deliver the Five Year Forward View.29 NHS Providers highlighted that they are also a key mechanism for setting out how local NHS bodies will meet the challenging financial targets that they have been set. It said the move to planning as an area, and not just as an organisation, offers opportunities to allocate money across the whole system so that “you do not waste a whole lot of friction time contracting, with commissioners and providers arm wrestling”.30 This was echoed by NHS Enfield Clinical Commissioning Group, who said their local health economy had benefited as a result of NHS bodies and their regulators working more closely.31

18.All local NHS bodies submitted their plans to NHS England and NHS Improvement by the end of October.32 But NHS providers said 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. At the time of our oral evidence session in January 2017, NHS Providers expected it would take organisations another three to four months to develop credible plans for closing the gap. NHS Enfield Clinical Commissioning Group told us that it was “entirely possible” that it would achieve its plan, but said this relied on delivering the transformation of services included in the plan. It added that it considers its plan is realistic and credible if those changes occur.33 NHS England and NHS Improvement accepted that the quality of plans is variable and NHS Improvement said it would need to give “serious help” to those organisations that are struggling.34

19.It is important that the public understand the changes that are being made locally and are engaged in the implementation of plans if they are to improve the quality of services for patients. So far, there are no publicly available performance measures for assessing whether the groupings of local organisations are doing well, and NHS England and NHS Improvement have not yet published their analysis of the 44 sustainability and transformation footprints. NHS England said it would publish some performance measures in April 2017, which will include indicators for both health and social care.35 By March 2017, it will also publish its analysis of the 44 sustainability and transformation plans, including details of how the 44 local plans are contributing towards the £22 billion of efficiencies that need to be delivered nationally by 2021.36

Pressures in social care

20.Social care services are under significant 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 (£16.3 billion) and 2014–15 (£14.6 billion).37 In addition, people are living longer, and whilst in 1948 half of people died before the age of 65, this is now as low as 14%.38 NHS England told us that the social care system is not currently keeping up with demand and this is placing significant extra strains 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 in the last three years and this has reduced the capacity that is available in hospitals.39

21.The Department acknowledged the pressures in social care. It said the new social care precept (which allows councils to raise council tax by up to 3% in the next two years) and the transfer of money from the New Homes Bonus would raise up to £900 million in extra funding for social care.40 It also highlighted additional measures which include funding for adult social care from the Better Care Fund, which will be worth £1.5 billion by 2019–20, and an additional £240 million through the Adult Social Care Support Grant.41 NHS Providers said that the recent announcement, designed to enable local authorities to increase spending on social care, falls well short of what is needed to fully protect social care services.42 The Department also pointed to better integration between health and social care services as part of the answer to the challenges, but acknowledged that there is variability across the country in terms of how well these services are currently integrated.43 Despite both the Department and NHS England recognising the pressures in social care, they have not taken account of the impact this has on the NHS in their plans for closing the £22 billion black hole in NHS finances.44

Closing the £22 billion efficiency gap

22.In our March 2016 report we found that there was not yet a convincing plan for closing the £22 billion efficiency gap and avoiding a ‘black hole’ in NHS finances.45 Since then, the Department, NHS England and NHS Improvement have agreed their responsibilities for delivering the efficiencies to close this gap. They estimate that national bodies will deliver £6.7 billion of efficiencies by capping public sector pay, renegotiating contracts, implementing income-generating activities and reducing running costs. They estimate that trusts and commissioners can make a further £14.9 billion by moderating the growth in demand for healthcare services and achieving efficiency and productivity improvements.46

23.The plan to close the £22 billion efficiency gap is based on a number of assumptions and estimates about how much the savings programmes can generate. But there has been limited testing by the Department, NHS England and NHS Improvement of their estimates of expected savings, which raises concerns about whether planned savings can be achieved.47 Similarly, NHS Providers told us that trusts were starting from a worse than expected starting point, and questioned whether the assumptions that had been made were realistic.48 For example, NHS Improvement confirmed that trusts will need to generate efficiencies of around 4% in 2017–18 and 2018–19,49 despite telling us in January 2016 that the 4% efficiency target for 2014–15 was unrealistic.50 The efficiency requirement in the national tariff payment that trusts receive was 2% in 2016–17, but NHS Improvement explained that trusts will need to achieve efficiencies of around 4% in order to meet their financial plans. It told us that no system in the world can deliver this level of efficiency over the longer-term and admitted that it “would rather it be lower”.51

24.Plans also assume that the growth in acute trusts’ hospital activity can be reduced from 2.9% per year to 1.3% per year, but we heard concerns about whether this was achievable.52 NHS Providers said that there are some “real challenges” about whether primary and social care services are strong enough to move care out of hospital and reduce demand to the extent that is needed.53 NHS England told us that in its activity modelling for the Five Year Forward View, it had assumed that activity would rise in the early stages until the benefits of other investments kicked in. But it admitted that some of the investments had not happened, due to the financial difficulties in trusts.54 For example, clinical commissioning groups have been asked to hold back £800 million of their budget in 2016–17 to offset the deficits in trusts, but this could otherwise have been invested in primary and community services. Similarly, £1.8 billion of the £2.14 billion Sustainability and Transformation Fund was used as sustainability support in 2016–17, rather than invested in transforming services.55 The Department said that they expected hospitals to get busier every year, but over the last year demand has been higher than anticipated.56

25.Local bodies are also facing new challenges, such as the repercussions of Brexit and the challenge of implementing 7-day services, which are not yet factored into plans for closing the £22 billion efficiency gap.57 For example, the Department said that there are a number of implications from leaving the European Union, such as the impact on the workforce, which currently has a large proportion of employees from the European Union.58 NHS Providers argued that there is a gap between the priorities and demands being placed on the NHS and the funding available, and called on the NHS to set out what it was not going to do.59 NHS England recognised that it needed to take stock and ask “Given where we are, what practically are the things the health service needs to do and can itself offer over the course of the next two years?” NHS England said it would be doing that and publishing an update of its delivery plans by the end of March 2017. It said that the published update would cover the Five Year Forward View delivery plan for the next 2 years, meaning 2017–18 and 2018–19, but potentially also with some elements of 2019–20.60

24 C&AG’s Report, para 1.27 & 1.28

29 C&AG’s Report, paras 3.5 and 3.6

32 C&AG’s Report, para 3.9.

37 C&AG’s Report, para 2.9

41 Department of Health (TFS0015) paragraph 16

42 NHS Providers (TFS0010) para 6.2

44 C&AG’s Report, para 2.9

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

46 C&AG’s Report, paras 2.2 and 2.3

47 C&AG’s Report, para 2.6

50 Committee of Public Accounts, Oral evidence: Sustainability & Financial Performance of Acute Hospital Trusts, Session 2015–16, HC 709

52 C&AG’s Report, Figure 11

57 C&AG’s Report, para 2.6

23 February 2017