National Audit Office report on NHS Financial Management and Sustainability

The National Audit Office has today published two reports. The first, NHS financial management and sustainability, looks at the financial and operational performance of the NHS as a whole as well as the financial performance of local NHS organisations. The second, Review of capital expenditure in the NHS, examines the use of the NHS capital budget, which is for replacing and maintaining equipment and buildings.

NHS provider trusts reported a combined deficit of £827 million and clinical commissioning groups1 (CCGs) failed to balance their books again, reporting a £150 million deficit in the financial year ending 31 March 2019. Trusts are becoming increasingly reliant on short-term measures, including one-off savings (rather than more permanent year-on-year savings) to meet yearly financial targets.2 These deficits were offset by a centrally managed NHS England underspend.

The NAO finds that the extra money brought in by government to stabilise the finances of individual NHS bodies has not been fully effective. Although the NHS treated more people in 2018-19, it has struggled to transform services. Patient waiting times continue to get worse and the number of people waiting for treatment continues to increase. Trusts in financial difficulty are increasingly relying on short-terms loans from the Department of Health & Social Care (DHSC). These are effectively being treated as income by these organisations and they have built up a level of unsustainable debts (£10.9 billion in March 2019) which they are unlikely to ever repay.

In the past five years, the government has transferred £4.3 billion from capital to revenue budgets to cope with day to day pressures facing the NHS. It has been unable to clearly say how this has affected patient services and acknowledges its approach to capital funding requires reform. The rising demand for capital spending and the growing maintenance backlog means there is an increasing risk of harm to patients. 

Over the last three years, NHS providers have requested on average £1.1 billion more for buildings and equipment than their spending limits allow. Fourteen per cent of NHS buildings are older than when the NHS was formed (in 1948). The backlog of maintenance work to get all buildings up to standard currently stands at about £6.5 billion.3

The NAO concludes that DHSC, NHS England and NHS Improvement should revamp the way the system is funded. This includes developing a clear long-term capital funding strategy and establishing a more stable funding system that is not reliant on loans. 

Gareth Davies, head of the NAO, said: “The short-term fixes that were introduced to manage the NHS’ finances are not sustainable. The Department of Health and Social Care continues to provide some trusts with short-term loans just to meet their day-to-day costs with little hope they will be repaid. This is not a sustainable way to run public bodies. 

“To bring about lasting stability, the Department and NHS England and NHS Improvement need to move away from short-term financial fixes and provide longer-term solutions.”

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Notes for Editors 

1. Clinical commissioning groups (CCGs) were created following the Health and Social Care Act in 2012, and replaced primary care trusts on 1 April 2013. They are clinically-led statutory NHS bodies responsible for the planning and commissioning of health care services for their local area. Extra financial support to trusts in difficulty has continued to increase year-on-year. Most of this support (£3.3 billion out of £3.6 billion issued in 2018-19) is interim revenue support, rather than ‘normal course of business’ loans. By 31 March 2019, outstanding debt issued by the Department to these trusts was £10.9 billion, up from £8.0 billion on 31 March 2018.
2. In 2018-19, 31% of their savings were one-off, up from 26% in 2017-18. 
3. This was reported by NHS Digital in October 2019.