NHS Deficits : Sixth report of session 2005-06, Vol. 2: Written Evidence

This report examines in detail the 2004-05 revenue situation of NHS organisations and considers key financial management and reporting issues facing the NHS both currently and in the future. Jointly prepared by the National Audit Office and the Audit Commission, the report incorporates the findings of their audit work on the NHS summarised accounts, the consolidated account of NHS foundation trusts, the Department of Health's resource account and the accounts of individual NHS organisations, as well as the unaudited NHS revenue out-turn for 2005-06 as reported by the Department of Health and Monitor. Findings include that in 2004-05, the Department reported a deficit across the NHS as a whole for the first time since 1999-2000, with an aggregate overspend for all NHS bodies of £251.2 million, with 171 out of 615 bodies recording a deficit or overspend, with 68 out of 259 NHS trusts failing to break even, and with 90 out of 303 primary care trusts exceeding their revenue resource limits.

Spending on the NHS is the fastest growing area of public expenditure, with a budget for 2004-05 of £69.7 billion, rising to £76.4 billion in 2005-06 and £92.6 billion in 2007-08. Despite the increased resources, the NHS reported an overall deficit of £251 million (including Foundation Trusts) in 2004-05, the first time since 1999-2000 that the NHS as a whole had overspent. In 2005-06, the overall deficit increased to £570 million, with a rise in both the number of NHS organisations (Strategic Health Authorities, Primary Care Trusts, NHS Trusts and NHS Foundation Trusts) reporting a deficit and the proportion of those bodies reporting a deficit. Following on from a report (HC 1059-I, session 2005-06; ISBN 9780102938159) published in June 2006, jointly prepared by the National Audit Office and the Audit Commission, the Committee's report examines three main issues: the factors that led to the deficits, the impact on the organisations involved, and the steps taken to recover the deficits. Amongst its findings, the Committee concludes that there are a number of reasons why NHS bodies are in deficit, with most organisations in deficit tending to have had a deficit the previous year. Bodies already in deficit looking to turn their financial position around can be disadvantaged as they are expected to recover that deficit in the next financial period. The NHS has been under significant financial pressure to meet the costs of national pay initiatives which the Department of Health had not fully costed, and as some NHS bodies have coped better than others in managing these cost pressures, this indicates that the standard of financial management expertise varies across the NHS, as does the level of clinical engagement in financial matters.

Staffing costs account for 70 per cent of NHS funding and the effectiveness of its workforce in large part determines the overall effectiveness of the health service. Workforce planning is the key means for the NHS to understand and anticipate the impact of demographic, technological and policy trends on future service requirements. However, workforce planning in also a challenging and complex issue, in light of social and technological changes, as well as the lengthy timescale involved in training staff (at least three years for most health professions and up to twenty years for some senior doctors). The Committee's report examines the effectiveness of current workforce planning activities, including clinical and managerial staff, particularly in the light of reported deficits in NHS organisations, and how it should be done in the future, including the following issues: workforce developments since 1999, the impact of the European Work Time Directive and increasing international competition for staff, retention and recruitment issues, examples of good practice, how to ensure flexibility in system arrangements, and whether planning should be centralised or decentralised.

Dated May 2007. On cover: Departmental report. The health and personal social services programmes

Although in 2011-12 there was a surplus of £2.1 billion across the NHS as a whole, there is also some financial distress, particularly in some hospital trusts. In the long term, achieving financially sustainable healthcare is likely to mean changes to how and where people access services, and some local commissioners are already consulting on and developing plans to do this. Currently, some organisations have relied on additional financial support from within the NHS. 10 NHS trusts, 21 NHS foundation trusts, and three Primary Care Trusts (PCTs) have reported a combined deficit of £356 million. There are four foundation trusts and 17 NHS trusts which between 2006-07 and 2011-12 needed injections of working capital from the Department of Health totalling £1 billion. The Department anticipates that NHS trusts and NHS foundation trusts are likely to need around £300 million more public dividend capital in 2012-13. 51 per cent of PCTs reported concern about the financial sustainability of their healthcare providers. Previously, PCTs and Strategic Health Authorities (SHAs) have been able to support otherwise weak providers. It is not yet clear whether clinical commissioning groups and the NHS Commissioning Board will agree to provide financial support to providers in this way. The NAO concludes that it is hard to see how continuing to give financial support to organisations in difficulty will be a sustainable way of reconciling growing demand for healthcare with the size of efficiency gains required within the NHS