09 June 2006
The NHS overspent its budget by more than £500m in 2005/06 and now has an underlying historic net deficit of £1.1bn, according to Department of Health figures.
Whilst the scale of last year's net overspends now appear to be less than earlier departmental estimates of £623m, this was only because more NHS bodies were now reporting in-year surpluses.
The current gross overspend estimate has now grown from £816m in December to £1.3bn.
Health Secretary Patricia Hewitt welcomed the revised figures, saying: 'The first thing that any organisation in financial difficulty has to do is actually acknowledge that it's got a problem… [These organisations] have now got the realistic and full grasp of the situation. One of the results is that they've sometimes realised they were worse than had originally been thought.'
But acting NHS chief executive Sir Ian Carruthers emphasised that the overspends were concentrated in just 30% of NHS bodies and on a net basis represented just 0.8% of the NHS's allocated revenue budget for 2005/06. This was equivalent to a £160 overspend for someone living on an annual income of £20,000.
'Would you say you were in meltdown? You wouldn't. If you went on overspending by £160 over five years – which a lot of these organisations have been doing – then you'd have a problem. But let's keep this in perspective,' he said.
Carruthers and Hewitt said that the NHS now aimed to achieve net in-year balance by the end of March 2007. For organisations with the worst overspends, the target was to return to at least a monthly balance by then. Hewitt admitted that would 'involve some difficult decisions'.
The DoH's new estimates on the 2005/06 financial performance coincided with the Audit Commission and National Audit Office's release of a detailed analysis of financial management in 2004/05.
Comparing the two financial years, the commission's managing director for health Andy McKeon said: 'It's not the fact that the number of bodies with deficits has increased significantly between 2004/05 and 2005/06 but that their deficits have worsened; that's the problem.'
McKeon said his joint report with the NAO, Financial management in the NHS, had not identified any one cause. But auditors now had 'concerns' about the ability of a number of those organisations with deficits to cope with the new challenges of payment by results, practice-based commissioning and, most significantly, primary care trust restructuring.
The report was also concerned about the skills and resources of finance staff at 30% of NHS organisations, and that the net overspend of £251m for 2004/05 had initially been under-accounted for by £117m.
PFjun2006
