Where's the NHS get-out-of-debt card?

14 Jul 14
Andy McKeon

The NHS’ financial position is shaky and deteriorating fast. Just hoping, Mr Micawber-style, that something will turn up is no answer to a likely £2bn shortfall

The Nuffield Trust report, Into the red? The state of the NHS finances, sets out the facts on NHS expenditure between 2010 and 2014. It is clear on figures for 2013/14 from Monitor and the NHS Trust Development Authority, that, subject to audit, NHS providers will post a small overall deficit of £100 million. Equivalent figures from NHS England show that the commissioning side will produce a small surplus. The overall result for the entire NHS is likely to be happiness in Mr Micawber’s terms.

Like Mr Micawber, the NHS and, more particularly the government, might also want to concentrate on the moment rather than worry too much about financial trends and the future. Just as Mr Micawber found, this would be a mistake. The headline figures for 2013/14 hide significant deterioration.

The provisional figures for 2013/14 show 66 trusts in deficit including financial support. Most are in the acute sector. The comparable figure for 2012/13 is 25 (45 after stripping out financial support). Trusts received some £200 million of financial support in 2012/13, and, after stripping that out, NHS providers posted a surplus of some £380 million. Last year, NHS trusts alone received some £360 million of financial support. So, after stripping that out, the underlying position looks like a deficit of some £460 million, rather than the £100 million in the headline figure.

In other words, NHS providers experienced an £800 million turnaround in their underlying financial position. Add to this the £200m of financial support that Monitor say has been given to foundation trusts in 2013/14, and we could be looking at a £1bn turnaround.

Commissioners also experienced something similar. PCTs posted a surplus of £679 million in 2012/13 and kept past savings more or less intact. Together, CCGs and NHS England posted a surplus of £256 million in 2013/14 but drew on some £400 million of past PCT savings in doing so.

Whichever way one looks at it, the NHS’ financial position is shaky and deteriorating quickly. Commentators and even government ministers have pointed to ‘being really up against it’ in 2015/16. But it is quite likely that the funding crisis will emerge in 2014/15.

All this has led to me being asked what the position is likely to be in 2014/15 and how much extra money will the NHS need next year and the year after. Here is where my crystal ball comes in. It certainly isn’t scientific and we will obviously know more as the year progresses.

Given there isn’t any more money in real terms in 2014/15 or pay increases for staff the issues are what will happen to demand, will there be further requirements for quality improvements  (most notably in staffing) and can trusts make the broadly 4 per cent savings necessary to square the circle.

There doesn’t seem to be any let up in demand. Quite the contrary – according to recent NHS England figures, emergency admissions rose by 74,000 in the first quarter of this financial year compared with the same period in 2013/14. A staggering 5.8 per cent increase, despite the attention and effort paid to cutting them.

Acute trusts may have made their major investment in staffing following response to the Francis Report, but there will be full year costs to be met, NICE has yet to issue its final guidance on staffing and CQC inspections are rolling out, including in mental health trusts with what seem like frequent adverse comments about staffing levels. So I expect further investment – probably similar to that in 2013/14.

Can trusts make the savings? Not on past performance. Savings levels fell in 2013/14 and I expect the same to happen in 2014/15, even if only slightly.

All told, and especially if demand keeps rising as it did in the first quarter I would expect a further deterioration of at least £1 billion and probably more, giving a £1.5 to £2 billion gap at the end of the year between the real costs of running the service and day to day income.

How much does the NHS need in the future? Whole reports have been written on this subject (remember Wanless?) and doubtless will be again. My approach in this blog is particularly unsophisticated. But here goes.

4 per cent a year demand pressures, including giving staff relatively modest real terms pay increase,  isn’t an unreasonable broad brush figure. I am old enough to remember the Roy Griffiths mantra that any self- respecting organisation could achieve 2 per cent savings each year. Current real achievement looks a little above that but 2 per cent would be a realistic long term view.

Assuming continued real terms flat funding, the gap between pressures and savings is therefore 2 per cent – roughly £2 billion. Coincidentally, as you will have noticed it may also not be far off where we finish at the end of 2014/15. Also coincidentally £2 billion a year over and above general inflation would keep the share of GDP spent on health more or less constant given GDP growth forecasts.

Mr Micawber after a spell in debtors’ prison eventually went off to live a prosperous and well-ordered life in Australia. The NHS will need its own get out of (debtors) gaol card. 

Andy McKeon is senior policy fellow at the Nuffield Trust. This post first appeared on the Nuffield Trust website

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