We need joined-up thinking to ensure the health service’s sustainability

13 May 20

Short-term deficit fixes have made some parts of the NHS financially unsustainable, and new proposals to restructure and write off debt are only part of the solution, argues the Healthcare Financial Management Association’s Emma Knowles.


Even before the coronavirus outbreak, demand on NHS services was outpacing the increased activity being delivered. The financial regime put in place in 2015-16 to get the service back into balance has resulted in a widening financial gap between the best- and worst-performing provider bodies.

Clinical commissioning groups are faring a little better, but, according to the National Audit Office’s recent report, NHS Financial Management and Sustainability, they still reported a combined deficit of £150m in 2018-19. The NHS only managed to stay within the resources available to it because NHS England underspent against its budget, the NAO found.

By the end of March 2019, the Department of Health & Social Care reported that NHS trusts had £10.9bn of outstanding interim support loans – up from £2.3bn at the end of March 2016. These loans are used by trusts mainly to manage their working capital to deliver healthcare services. The NAO concluded that a reliance on loans from the centre simply to pay the bills “is not an acceptable or sustainable approach to the financial management of major public bodies”.

The DHSC is considering a transfer of those short-term working capital loans into public dividend capital – effectively a debt-to-equity swap. This would ease some of the burden of managing the loans and provide working capital, but may not reduce deficits – providers will be swapping interest payments for a PDC dividend payment instead.

Because of the way the dividend is calculated, it is impossible to estimate the impact on the bottom line without knowledge of the daily cash balances held by trusts – only the organisations themselves will be able to do that.

Separately, January’s NHS Operational Planning and Contracting Guidance 2020-21 proposed writing off the debt of CCGs with the highest historical overspends, subject to certain conditions.

Both actions will ease some of the pressure on affected bodies. However, neither address the source of the difficulties. The NAO recommended that the DHSC, NHS England and NHS Improvement should “develop a better understanding of how much of the deficits in trusts in severe financial difficulties are down to structural issues that cannot be addressed by local health systems”.

Without understanding and addressing the underlying issues, getting back to financial balance will not happen.

“Lack of certainty and funding in other parts of the public sector, particularly social care, has a knock-on effect on demand”  

The NAO added that the lack of a long-term capital settlement is hindering planning – limited capital resource is increasingly affecting the operational performance of NHS bodies. The government has promised a long-term capital settlement, which the NAO recommends should be the basis for the development of a coherent, long-term capital strategy for the whole of the NHS.

Staff shortages – alongside other policy measures, such as the apprenticeship levy and the annual allowance tax on pensions – have also had a financial impact on NHS bodies. Again, the NHS people plan is due out soon and will provide more detail on how workforce issues will be managed.

Unlike any other part of the public sector, the NHS has benefited from a five-year revenue settlement and is grateful for that. However, lack of certainty and funding in other parts of the public sector, particularly social care, has a knock-on effect on demand.

The NHS long-term plan makes it clear that ‘system working’ is the way forward – NHS bodies should work together and with other public sector colleagues in place-based systems to provide the best care possible. This will involve new models of care and pathways to meet rising demand in different ways.

By working together to provide an integrated service, the best possible value can be achieved from the resources available. 

Image credit | Alamy


  • Emma Knowles

    Emma Knowles is director of policy and research at the Healthcare Financial Management Association

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