Capital shouldn’t be an afterthought

There is growing recognition that the NHS needs more capital resources to ensure its buildings and equipment are up to the job of delivering the high-quality and cost-effective integrated services envisaged by the NHS long-term plan. But the overall size of the funding pot is not the only thing that needs attention.

This is not a new phenomenon, nor is it something the government has been blindsided on. The finance function and NHS leaders in general have been raising concerns for years. The Naylor review of capital even put a figure of £10bn on the investment needed – a mixture of Treasury funding, income from sales and private finance (for primary care).

However, concerned voices have rightly reached fever pitch recently. In part, this reflects the fact that the revenue budget is now largely settled for the next five years – while there is still an opportunity to influence future capital spending.

The likely delay of the spending review hasn’t settled nerves. Expectations that long-term capital, training and public health budgets would be unveiled this year – along with all important social care funding – are now having to be revisited.

The deficit in capital funding is glaring. According to the Health Foundation, the UK spends just 0.27% of GDP on healthcare capital, compared with an average of 0.51% across countries in the Organisation for Economic Co-operation and Development (OECD).

NHS England and NHS Improvement made virtually the same point in its fourth quarter report in June. The UK has the fifth lowest rate of capital expenditure as a percentage of total health expenditure out of 34 OECD countries with comparable data. The 2018/19 capital departmental expenditure limit spend was just 4.5% of revenue spend – half the OECD average.

NHS England chief executive Simon Stevens told last month’s NHS Confederation conference that capital investment per member of staff has fallen by 17% since 2010.

But while high-level recognition of the problem is encouraging, it is no substitute for funding. And the situation is compounded by continuing capital to revenue transfers. Although these are supposed to be phased out, reports suggest these transfers are now higher than originally planned for 2019/20.

On top of this, the mixed messages that are being given to providers don’t help. Providers were offered increased rewards from the sustainability funds in recent years if they could improve on agreed control totals.

The bargain was spelled out as, effectively: cut back more on revenue now and you can increase funds for future capital investment.

This promise of future capital expenditure helped to get clinicians on side with further belt tightening measures.

But then this year’s capital limits were not sufficient to accommodate trusts’ plans – with providers asked to defer spending where it wasn’t essential or where there were no contractual commitments.

Away from the funding issues, there are other problems. As the HFMA has said at some length (see briefing, NHS capital – a system in distress?), the way capital is allocated and controlled needs to be overhauled and made far more transparent. Trusts have capital resource limits, foundation trusts don’t. Providers with the most internally generated funds aren’t necessarily the ones most in need of investment. And the criteria for choosing one project over another for a capital loan are far from clear – with the lack of transparency seen as a major obstacle to taking a long-term approach to planning.

If we really do want sustainable services delivered across whole systems, then we need to stop taking a short-sighted approach to capital funding.

Sufficient capital funding should really be the first step - not an afterthought. And it needs to be wrapped in a process that is open to scrutiny, simple to navigate and facilitates planning for the long term.