2021/22 finance arrangements delayed to support Covid effort

01 March 2021 Seamus Ward

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Operational guidance issued to the service in January said: ‘Due to current pressures, we are planning to roll over current financial block contracts for Q1 2021/22 and therefore will not be initiating a planning and contracting round with a changed financial framework before the start of the year.’news_julian kelly_portrait

It added: ‘We cannot confirm total funding for Q1 as that will be subject to discussion with the government, but systems should not take any steps that would reduce capacity and the ability to respond to Covid-19 in anticipation.’

Under current arrangements, systems are allocated funding envelopes and expected to break even overall. Individual organisations can plan for a surplus or deficit with the agreement of the other organisations in the system. Funding flows to providers through block contracts.

The planned financial framework, including a move to blended payments, will be delayed. Engagement on the national tariff issued in February said the 2021/22 financial framework would support financial governance and cost control at a system level.

The introduction of blended payment and system top-up allocations to cover the cost of delivering services efficiently was among the measures planned to support this.

NHS England vice chair David Roberts said the decision to suspend operational planning for the first quarter was ‘sensible’ and the national bodies will start thinking again about the financial framework in the new financial year.

HFMA policy and research director Emma Knowles said: ‘In light of the current pressures on the health service, delaying the implementation of the 2021/22 framework is a reasonable and pragmatic step. However, finance managers will hope to see details of the system they will be operating after June as soon as possible, to give them some certainty when planning for the rest of the year.’

While future financial arrangements are aimed at further supporting the move to system-wide care, in February the government published greater detail on reforms that will make integrated care systems (ICSs) statutory bodies.

A white paper said ICSs would be made up of two bodies: the ICS NHS body, which will discharge most of the functions currently provided by clinical commissioning groups; and the ICS health and care partnership, a group of local health and social care organisations that will develop system plans.

NHS England will set financial allocations (capital and revenue) at system level, with the ICS allocating this funding according to its plans. ICS NHS bodies will not have power to direct trusts, which will remain separate, statutory bodies, retaining their current financial statutory duties.

But providers will have a new duty compelling them to have regard for system financial objectives, to ensure all local bodies have a stake in achieving financial control at system level, the white paper said.

There will be a new power for NHS England – as the merged NHS England and NHS Improvement will be known – to cap foundation trust capital spending.

This would only be used in response to a potential breach of spending limits. Capital spending controls are in place for NHS trusts and foundation trusts in financial distress only, though foundations’ capital spend counts against the Department of Health and Social Care’s capital departmental expenditure limit (CDEL).

If a foundation trust pressed ahead with a capital scheme without regard for system capital envelopes or national CDEL, other developments may have to be suspended, the Department said. And while negotiation was its preferred solution, there will be reserve powers to impose a legally binding capital limit on individual trusts. This differs from a 2019 proposal to place annual capital resource limits on all foundations.

Speaking in January about the NHS financial position at month 8, NHS England and NHS Improvement chief financial officer Julian Kelly (pictured) said he expected full year capital spending for 2020/21 to be in line with plan. At that point, providers had spent £2.8bn on capital schemes.

Covid-19 had cost the NHS in England £9.7bn more than its original mandate by month 8, he said – £2bn more than at month 6. This does not include most of the extra cost of personal protective equipment and NHS Test and Trace, which are being funded by the Department.

There were small underspends in CCGs and central admin and running costs, but the provider sector recorded an adverse impact of £5bn. Mr Kelly said the NHS was spending more than it would have received under the long-term plan mandate. ‘That is consistent with the trend we have seen through this year, as we have dealt with the impact of Covid, the extra capacity we’ve had to buy, financial arrangements for the discharge scheme, as well as the loss of income to the NHS that’s happened as a result of Covid.’

Central government supplementary supply estimates for 2020/21, published at the end of February, show that the Department of Health and Social Care received a net increase in its resource departmental expenditure limit of £57bn, largely to meet additional Covid-19 costs. This included £20bn for NHS Test and Trace, £15bn for personal protective equipment and £3bn for vaccine deployment. NHS England’s expenditure limit increased by £12bn.