Comment / All systems go?

The news that NHS England ended 2021/22 with a £1.2bn underspend paints a confusing picture for the public, given wide-ranging reports of extreme financial pressures in the NHS.

In fact, about half of this underspend was in ringfenced Covid budgets, with the main component being the vaccination programme. A further £430m related to ever mysterious ‘technical adjustments’.

The reality in 2022/23 is that the financial pressures are very real and the efficiency ask is enormous.

The temporary financial regime that was introduced to support the service during the initial emergency phases of the Covid pandemic has come to an end. And the service has moved back to locally agreed contracts.

The announcement in May of an extra £1.5bn for the NHS on top of the numbers already announced in last autumn’s spending review will help.

This is to counter the significant rise in inflation compared with the assumptions underlying the spending review figures, as well as broader pressures. These additional costs have been very specifically calculated and come with a clear expectation that systems will now produce balanced plans.

Even with this funding, NHS systems face major financial pressures. The headline 1.1% efficiency built into allocations and tariff/contract prices is not a fair indication of the actual efficiency requirement facing systems. For a start, there is the convergence factor.

In previous years, the pace-of-change rules simply divided growth up on a differential basis, depending on a clinical commissioning group’s distance from its fair share of funding. This year, the convergence policy continues to move systems towards target.

But because the 2021/22 baselines were supported by non-recurrent funding, the convergence factor also brings allocations back within the budget set for the 2022/23 settlement.

Just four systems have positive convergence factors. For the majority, convergence is just a further efficiency requirement.

On top of this, Covid budgets have also been cut. Clearly, this should be in step with reducing costs.

But not all systems have seen the reduction in Covid activity that was assumed in planning. And it is not always straightforward to eliminate the costs associated with some of the Covid response put in place in the last two years.

There have also been renewed calls for systems to bear down on agency staff costs, with controls having relaxed in the last two years.

The whole service would sign up to this ambition. Reducing usage of agency staffing in many situations has both a quality and cost benefit. But use of temporary staff is tightly bound up with the high level of vacancies – 105,000 across England.

The NHS needs to improve retention and international recruitment can help, but the real solution to the current workforce crisis lies in additional staff, which will require serious planning and funding and can’t be delivered overnight.

All in all, the financial position provides a very difficult context for the launch of new integrated care boards and the move to system working. Despite this, there is real enthusiasm for system working.

The public may struggle with the new collection of names and organisations about to be launched – partnerships, systems, boards and places. But the new system leaders remain convinced that a collaborative approach is the only way to tackle the significant issues that are facing the service and to realise some major opportunities to improve services.

Systems will inevitably face the immediate demands of the recovery programme. But the challenge will be to also take strides towards broader ambitions of focusing on population health and prevention and addressing health inequalities.