In continuation of HC no. 742 of session 2006-07

The Department of Health (the 'Department') and the NHS achieved a surplus of £515 million in 2006-07, representing 0.6 per cent of total available resources. This followed two years of rising deficits, and the Department, working with the NHS, has done well in restoring overall financial balance. While the national picture is one of financial surplus there remain variations in financial performance. The surplus is concentrated in Strategic Health Authorities, whilst overall Primary Care Trusts and NHS Trusts remain in deficit Of the 372 NHS organisations, 82 recorded a deficit of £917 million, with 80 per cent of this being reported by just 10 per cent of NHS organisations. There are also regional variations, with the East of England Strategic Health Authority area having a deficit of £153 million and the North West achieving a £189 million surplus. Financial recovery is therefore inconsistent and more needs to be done so that all parts of the NHS achieve financial balance. The Committee concludes that the return to financial balance is the result of the Department's tighter performance management of NHS finances in the way funding flowed through the NHS together with a programme of support for local organisations with particular financial difficulties. In the short term, this largely centralist approach was appropriate. For the future if the NHS is to remain in financial balance more health organisations locally need to improve their financial management. Failure to keep a tight grip on financial performance will undermine health care for patients.

In the last financial year the Department of Health made financial recovery priority and managed to turn the deficits of 2005-06 to a surplus of £505 million in 2006-07. The Comptroller and Auditor General is the statutory auditor of the financial accounts of the NHS and has the duty to certify and report to Parliament on them. This report is published alongside in the NHS Summarised Accounts to provide more detail on the financial performance of the NHS, how it moved into balance and the challenges that face it in the future.

In continuation of HC no. 1092-II of session 2005-06

This joint report was prepared by the National Audit Office and the Audit Commission, and contains the findings from the NAO's audit of the NHS summarized accounts and the Audit Commission's appointed auditors' work on the 2003-04 accounts of individual NHS organizations. The report outlines the financial issues facing individual NHS organizations, with an overview of the effects of these issues at national level and how this will affect the national health economy. In 2003-04 the NHS spent a total of £63 billion, with expenditure costs in the NHS rising by 7.3 per cent each year. This will increase the costs to £76 billion for the 2005-06, and £93 billion for 2007-08 periods. Alongside this increasing expenditure, the Government has set out various reform plans, including the establishment of the NHS Foundation Trusts, new staffing contracts, the development of the information technology infrastructure, and the way hospitals are funded. In the Summary of the financial performance for 2003-04 period, the number of bodies failing to achieve a financial balance had increased, along with an increase in the number of bodies with significant financial deficits. In all, 106 NHS bodies failed to achieve an in-year financial balance, and 14% of the Primary Care Trusts failed to keep expenditure within their resource limit, also a small number of NHS bodies are struggling to manage large deficits. The report advocates four key themes for the improvement of financial management: the role of the Board - who should display better oversight and improve their financial acumen; forecasting - NHS bodies should continually test whether cost savings programmes are realistic, and take account more effectively for risk factors in their financial planning, as well as set realistic budgets at the beginning of the year; earlier preparation of accounts - improvements in financial reporting, and the provision of financial information throughout the year should closely reflect the standard and range of information required in the annual accounts; transparency - that boards, managers, stakeholders would benefit from clarity in the way the accounts are organized, and that the amount of financial support received by the trusts should be clearly stated. With the introduction of Payment by Results and the use of independent healthcare providers the income received by NHS Trusts is no longer certain. So overall improvements in their financial forecasting and modeling, with NHS Trusts in particular developing their commercial financial skills, would be beneficial especially if they intend to become foundation trusts.