NHS faces new cash emergency

16 Mar 00
The health service's financial problems look set to deepen, with health authorities and hospitals predicting major deficits for 2000/01, despite ministers' hopes of a return to financial balance.

17 March 2000

Service and financial frameworks (Saffs), which set out the activity and funding levels agreed between health authorities and NHS trusts for next year, were submitted to NHS Executive regional offices on March 10.

This represented the second attempt at drawing up plans this year. Although a final revision is expected in May, Public Finance understands health bodies in many parts of the country are showing significant deficits.

The process of negotiating Saffs has proved an uphill struggle, as the government has once again refused to relax waiting list targets or the requirement to reach financial balance. As Public Finance went to press, teaching hospitals had still not been informed of their teaching and research funding inflation levels, which account for up to 30% of their income.

Some of the country's leading teaching hospitals are predicting that individual deficits for next year will be between £3m and £5m.

Regions have taken different approaches to the Saff round, with some setting out the general cost pressures that health authorities should recognise. Others have left the decisions to local negotiations.

But even where regions have taken a more prescriptive approach, trusts report that health authorities are failing to recognise in-built cost pressures such as pay and the working time directive.

Public Finance now understands that despite an additional £140m ploughed into the system in December, the in-year deficit for 1999/2000 is still likely to hit £200m – more than £100m in excess of that predicted at the start of the financial year.

Major concerns are now emerging over the service's cash position. The NHS's cumulative deficit stood at £500m in April last year.

The overall figure takes account of surpluses due to revaluation of assets and provisions for long-running clinical negligence claims as well as short-term liabilities and debts owed to creditors.

These creditor liabilities have been rising. According to published figures for 1997/98, the service's net external debt – money owed to contractors outside the NHS – amounted to some £600m. Although that figure may have been stabilised during 1998/99, the expected deficit this year could take those net external NHS debts close to the £800m mark.

The NHS Executive is concerned about the liquidity of the service as a whole particularly with a target of 95% of non-NHS invoices to be paid within 30 days. There are fears that a point could be reached where there is not enough cash in the system to cover debts due for payment.


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