Central funds rescue NHS deficit

22 Feb 07
The NHS will improve on its 2005/06 deficit of £547m by just £110m, a Department of Health report has forecast, despite staff cutbacks and rationing of patient services.

23 February 2007

The NHS will improve on its 2005/06 deficit of £547m by just £110m, a Department of Health report has forecast, despite staff cutbacks and rationing of patient services.

Yet NHS chief executive David Nicholson maintained that NHS finances were 'on track to deliver net financial balance by the end of the [financial] year'.

The February 20 report, NHS financial performance quarter three 2006/07, by DoH head of finance and investment Richard Douglas, states that the NHS is now forecasting a net surplus of £13m by April 2007, compared with a net deficit of £547m in 2005/06.

But the £13m surplus is created from £450m of ring-fenced savings out of central budgets, which were not available to the NHS in the past financial year. Those have been at the centre of controversy, as they include 'raids' on funds previously dedicated to public health and GP out-of-hours services.

Without this contingency fund, the NHS would be heading for a net deficit of £437m, Douglas admitted in his report – indicating that efforts to turn around local NHS spending had only reduced net overspending by £110m, or 20%.

Referring to Health Secretary Patricia Hewitt's staking of her political reputation on the NHS's financial recovery, her Conservative shadow Andrew Lansley said: 'The surplus they have generated is a sham. There are more NHS organisations, saddled with worse deficits, than last year. Patricia Hewitt's skin is being saved only by savage cuts to centrally held budgets.'

Douglas's report indicated that efforts to stem overspending were struggling. The last report on the period July-September 2006 forecast a net deficit of £94m by April 2007, but soothed concerns by stating that a further £100m of central savings and £80m of local savings through a new pharmacy contract had yet to be factored in.

In the intervening four months, the £100m of central savings was secured, increasing the contingency fund from £350m to £450m. But all but £7m of the anticipated local savings had disappeared, reducing a possible £86m surplus to just £13m.

The percentage of NHS organisations forecasting a deficit has also slightly worsened. In 2005/06, 33% reported a deficit. Now 35% forecast an overspend.

Douglas said that this in part reflected a policy of strategic health authorities to 'top slice' primary care trust funds to help ease deficits.

But he added: 'Nevertheless, it remains a cause for concern and… we are paying particular attention to commissioning and financial management issues.'

PFfeb2007

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