Finance regime to support deficit and surplus trusts

In a letter to the service, the national bodies said they will introduce a two-part incentive scheme for providers achieving breakeven or a surplus, alongside measures to help trusts that are in deficit. The aim is to improve the financial position of individual organisations and the NHS as a whole – the provider sector has been set a target of being in aggregate balance in 2020/21, while all providers and commissioners should break even by 2023/24.

The reset of the financial and regulatory regimes is being led by NHS England and NHS Improvement chief financial officer Julian Kelly (pictured), who has stressed the need for the service to return to financial balance.

The measures build on changes to the financial framework in the current financial year to encourage system working and build up to the removal of control totals from 2020/21. The letter said these include moving £1bn from the provider sustainability fund (PSF) into national prices, reducing the value of CQUIN quality and efficiency payments, and introducing the financial recovery fund (FRF).

The letter included details of organisations’ financial improvement trajectory and indicative FRF allocations to inform strategic plans, which are to be submitted in the middle of this month.

‘The FRF has been allocated to minimise the number of organisations that would require loan financing if they hit their deficit recovery trajectories, while at the same time ensuring that organisations requiring loan financing also receive an appropriate share of the funding available,’ the letter said.

As previously indicated, any remaining PSF balance will be transferred to the FRF from 2020/21, supplemented by the Commissioner Sustainability Fund. And although clinical commissioning groups, as well as providers, will be eligible for support through the FRF, NHS England and NHS Improvement expect most of the funding to flow to providers.

‘Crucially, this will allow us to begin to move away from nationally mandated surplus control totals, and, as a result, reset our regulatory relationship with organisations which are at least in balance,’ the letter continued.

‘We believe that such organisations should have the freedom to determine the levels of surplus appropriate to their circumstances and commensurate with their own investment and transformation plans. We will continue discussions with the sector on the supporting architecture and, in particular, the operation of the capital and loan funding regimes.’

Providers in surplus will not be eligible for FRF allocations and the PSF is coming to an end. However, they will have access to a new incentive in 2020/21. The first element of the incentive scheme will offer a one-year transitional reward payment of 0.5% of relevant income for providers in surplus (before sustainability funding) and that deliver a surplus in 2020/21.

Deficit providers that achieve break even during the planning period will also receive 0.5% at year-end and at the end of the subsequent year if they maintain their financial performance.