NHS capital expenditure and financial management Contents

1Resuming NHS services following the COVID-19 crisis

1.On the basis of two reports by the Comptroller and Auditor General, we took evidence from the Department of Health & Social Care (the Department), NHS England & NHS Improvement on capital expenditure1 and the financial sustainability of the NHS.2

2.The Department has overall responsibility for healthcare services. It is accountable to Parliament for ensuring that its spending, as well as spending by NHS England, NHS Improvement, other arm’s-length bodies and local NHS bodies, is contained within the overall budget authorised by Parliament. The Department is responsible for ensuring that those organisations perform effectively and have governance and controls in place to ensure that they provide value for money. It made NHS England and NHS Improvement responsible for ensuring that the NHS balances its budget. From April 2019, NHS England and NHS Improvement came together to act as a single organisation, NHSE&I.3

3.Most of the funding allocated to the Department is given to NHS England to plan and pay for NHS services. In 2018–19, this amounted to £113.6 billion. Most of NHS England’s budget was spent by 195 CCGs, which purchased healthcare services from 227 trusts. These trusts deliver acute, community, ambulance, specialist, mental health and disability services.4

4.In June 2018, the Prime Minister announced a long-term funding settlement for the NHS, which will see NHS England’s budget grow by an average 3.4% a year in real terms over the next five years. This amounts to a £33.9 billion increase in cash terms by 2023–24, compared to 2018–19. In January 2019, the NHS published the NHS Long Term Plan. This set out how it aims to achieve the range of priorities and five financial tests set by the government in return for the long-term funding settlement. These priorities included: making progress towards agreed waiting times; improving cancer outcomes; better access to mental health services; better integration of health and social care; and focusing on preventing ill-health. Local partnerships, known as sustainability and transformation partnerships (STPs) and integrated care systems (ICSs) are charged with delivering the Plan in their local areas.5

5.The Department also sets an annual NHS capital budget based on local spending trends and central initiatives. The NHS capital budget is for the construction of new buildings and the replacement of medical and other equipment. It is also used to enhance existing assets and to develop the infrastructure for transforming services. Capital investment is essential for modernising and improving the quality of care and for achieving the changes that will make the NHS sustainable in the longer term. Overall, the Department is responsible for ensuring that the capital limit is not exceeded while NHSE&I works with trusts to set out their capital needs in business plans.6

Service transformation

6.This Committee has been reporting on the financial and service sustainability of NHS bodies every year since 2011, highlighting a range of challenges faced by the NHS, including rising demand, lack of capital investment, tackling trust deficits and workforce issues.7 These challenges are still there today. For example, in 2018–19, NHS commissioners and trusts reported a combined surplus of £89 million, but financial balance was only achieved with significant underspends by NHS England. Trusts were unable to contain their combined deficit to NHSE&I’s ambition in 2018–19, and commissioners failed to achieve financial balance. Trusts as a sector has not achieved financial balance since 2012–13.8

7.The NHS has sought to transform its services and reduce the rise in demand for NHS services through its last long-term plan—the Five Year Forward View—which was published in 2014. However, the NHS has not fully achieved its vision to reduce the rise in demand for NHS services to support a sustainable NHS in its Five Year Forward View.9 For example, it planned to strengthening care out of hospitals. However, from 2015–16 to 2018–19, total spending on primary medical and community health services as a proportion of the NHS expenditure decreased from 20.0% to 19.4%. This plan has since been replaced by the NHS Long Term Plan published in 2019.10

8.Written evidence from NHS Providers noted that the five-year funding settlement introduced from 2019–20 falls short of what is needed to recover performance and transform services within the health service. The NAO also raised concerns that the NHS may struggle to deliver all the commitments in its long-term plan with the additional money available.11 In addition, a lack of clarity persists on key areas of health and care spending that are likely to affect the NHS’s ability to deliver The NHS Long Term Plan, including capital, education and training and social care.12 The 2019 Spending Review originally intended to set day-to-day budgets for three years and capital budgets for four years. However, it only provided budgets for one year. The Department was unable to provide an update on the timing of the next spending review due to the uncertainties brought about by the COVID-19 response.13

9.Before the COVID-19 crisis, NHSE&I was working with NHS local bodies to develop the implementation plans for the NHS Long Term Plan. It intended to publish the implementation plan in December 2019 but that was delayed.14 In response to COVID-19, NHSE&I was given additional powers to coordinate services nationally. In March 2020, it suspended the implementation of the NHS Long Term Plan. It also moved funding for trusts from the activity-based tariff system before the crisis to one with fixed funding under block contracts until July 2020. These changes have resulted in a shift from moving more towards more decision making at a local level back towards a command and control system coordinated directly by national bodies.15 NHS Providers noted that some of the measures introduced were welcomed by trust leaders. However, it warned that these measures were temporary, and that it is not yet clear how trusts will return to normal financial arrangements.16 NHSE&I told us that it is unlikely to go back to the previous regime after the crisis, that a move towards a more blended payment system is likely, and that it would set out its arrangements for the rest of the year in July.17

Supporting trusts with financial difficulties

10.In 2018–19, 106 out of 227 trusts reported a deficit. The gap in financial performance between the best- and worst-performing trusts (i.e. with the largest surplus and the largest deficit) increased from £218 million in 2017–18 to £282 million in 2018–19. Over the last few years, the Department and NHSE&I have introduced several short-term support funds to help stabilise the finances of NHS bodies, but the extra money brought in has continued to drive volatility and variability.18 The Department acknowledged that it had focused on achieving balance as a whole and some techniques used in the past had perverse effects. NSE&I told us that it was on track to halve the number of trusts in deficit in 2019–20 compared to 2018–19.19

11.Financially distressed trusts are increasingly relying on loans from the Department to meet their running costs, with little or no prospect of paying them back. By 31 March 2019, outstanding debt issued by the Department to these trusts was £10.9 billion, up from £8 billion the previous year.20 In April 2020, the Department announced that it would be writing off £13.4 billion of loans owed by trusts and replacing this with non-repayable public dividend capital. The Department explained that the decision to write off that level of debt was taken alongside plans to return the provider sector in aggregate to financial balance.21 Although welcomed by NHS Providers, it told us that it would like to see more detail on how the write-off will work in practice, and that financial issues will only be fixed when the underlying financial problems of trusts are addressed.22 The Department noted that once the provider sector is returned to financial balance in aggregate, the focus will shift to individual trusts that have structural financial issues.23

12.In 2018–19, the 10 trusts with the worst financial results reported a combined deficit of £844 million, representing 31% of the combined total of all trusts reporting a deficit, up from £758 million in 2017–18. The financial performance of these trusts each year has continued to deteriorate over several years. The NAO highlighted that the underlying reasons for deficits in these trusts are not always fully understood.24 NHSE&I did not clarify how it will better understand the underlying issues and address them, but said that it has been discussing with trusts and local health systems about what further support could be provided to see those deficits reduce.25

Ensuring timely access to services

13.For several years now this Committee has been reporting on the increasingly poor performance against waiting times standards for A&E and cancer, and the growing waiting lists for elective treatments.26 Although the NHS delivered increased activity in 2018–19, patient waiting times continued to slip. For example, performance against the target that 95% of patients should be seen within four hours fell to 88.1% from 88.3% in 2017–18.27 NHSE&I explained that a clinical review of standards for urgent and emergency care, mental health, elective care and cancer services has been ongoing for nearly two years. It told us that the review is focussing on whether the standards set to measure care are appropriate for the service being provided, but that this work has been put on hold during the COVID-19 pandemic.28

14.Before the COVID-19 pandemic, the number of patients on waiting lists for non-urgent treatment continued to rise, from 3.85 million in 2017–18 to 4.23 million in 2018–19.29 As a response to the pandemic, elective (non-urgent) treatment was suspended to focus on releasing beds for patients with COVID-19, although NHSE&I emphasised that it intended to maintain access to cancer services and A&E.30 However, the NHS has seen reduced numbers of cancer referrals and people with urgent needs accessing emergency services. NHSE&I confirmed that A&E admissions fell to about 56% of what would normally be expected but had since picked up and now stood at about 80%. NHSE&I told us that it launched a campaign to ensure patients were aware that emergency services had remained open and have observed an increase in the number of people using emergency services.31

15.NHSE&I noted that there is going to be a backlog of patients requiring treatment, for headline conditions as well as routine operations, at a time when more hospital beds and critical care facilities will be required on standby for a potential new peak of COVID-19 cases. NHSE&I recognised the importance of stepping up elective cases again as quickly as possible, given there is potential harm to delaying treatment.32 It told us that it is working with the medical Royal Colleges and others, to identify the services that need to be prioritised and restarted across the country.33 NHSE&I recognises that services cannot go back to the way they were delivered before due to the risk of the virus and that additional capacity will be required just to treat the same number of patients as before. However, neither the Department nor NHSE&I were able to confirm whether adequate resources would be made available for trusts to cope with these increased pressures. NHSE&I stressed however that this was more of a capacity issue in terms of what the NHS can do than a financial issue.34

1 Report by the Comptroller and Auditor General, Review of capital expenditure in the NHS, Session 2019–20, HC 43, 5 February 2020

2 Report by the Comptroller and Auditor General, NHS financial management and sustainability, Session 2019–20, HC 44, 5 February 2020

3 C&AG’s Report NHS financial management and sustainability, para 2

4 C&AG’s Report NHS financial management and sustainability, para 1.2

5 C&AG’s Report NHS financial management and sustainability, para 3 and Figure 1

6 C&AG’s Report Review of capital expenditure in the NHS, paras 2 and 3

7 Committee of Public Accounts, NHS financial sustainability: progress review, Ninety-First Report of Session 2017–19, HC 1743, 3 April 2019; Committee of Public Accounts, Sustainability and transformation in the NHS, Twenty-Ninth Report of Session 2017–19, HC 793, 27 March 2018

8 C&AG’s Report NHS financial management and sustainability, Figure 5

9 C&AG’s Report NHS financial management and sustainability, paras 16, 3.2–3.8

10 Q43; C&AG’s Report NHS financial management and sustainability, para 3

11 NHS Providers’ written evidence; C&AG’s Report NHS financial management and sustainability, para 17

12 Qq 53, 60

13 Q74; C&AG’s Report NHS financial management and sustainability, para 20

14 NHS England and NHS Improvement, NHS Long Term Plan Implementation Framework, para 9.1, June 2019

16 NHS Providers’ written evidence

17 Q52

18 C&AG’s Report NHS financial management and sustainability, paras 14, 22, 3.14–3.15 and Figures 6 and 7

19 Qq 38, 48

20 C&AG’s Report NHS financial management and sustainability, para 13

21 Q19

22 NHS providers’ written evidence

23 Q19

24 Q48; C&AG’s Report NHS financial management and sustainability, paras 14, 2.7

25 Qq 19, 48

26 Committee of Public Accounts, NHS financial sustainability: progress review, Ninety-First Report of Session 2017–19, HC 1743, 3 April 2019; Committee of Public Accounts, NHS waiting times for elective and cancer treatment, One Hundredth Report of Session 2017–19, HC 1750, 12 June 2019

27 C&AG’s Report NHS financial management and sustainability, para 8

28 Q42

29 C&AG’s Report NHS financial management and sustainability, para 8

30 NHS England and NHS Improvement’s letter to senior figures in the NHS and local authorities: Next steps on the NHS response to COVID-19, 17 March 2020.

31 Qq 24–27

32 Q25

33 Q27

34 Qq 24, 25, 27–33

Published: 8 July 2020