Finances broadly in balance despite £960m provider deficit

05 June 2018 Seamus Ward

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However, with the commissioning sector reporting an aggregate underspend of £955m, it appears the NHS completed 2017/18 broadly in financial balance.

The provider deficit is nearly double the planned position – a £496m deficit, which was always seen as an ambitious target by NHS Improvement. The overall provider figure includes £1.8bn of sustainability and transformation funding.

The deficit is also lower than the £1.28bn deficit reported at the end of quarter three. Even so, the overall provider position deteriorated in 2017/18 compared with 2016/17, when it stood at £791m.Ian Dalton

NHS Improvement linked the year-end deficit directly to rising demand, particularly over the winter. It pointed out that, in aggregate, only the acute sector recorded a deficit (£1.7bn), while specialist, ambulance, community and mental health sectors had surpluses (totalling £631m).  

Higher than planned emergency activity and greater bed occupancy shifted the balance between income and costs, which contributed to the acute sector deficit, it said. In emergency work when activity exceeds plan, expenditure tends to exceed income. And greater bed occupancy affected trusts’ ability to admit elective patients, which led to lower than planned elective activity (where income tends to exceed expenditure).

Trusts overspent on pay (almost £1.5bn) and non-pay costs (£681m). The latter was partly due to buying healthcare from non-NHS bodies (£173m more than plan), reflecting capacity constraints during quarter four.

These additional costs were partially offset by income above plan – £955m of patient care income and just over £1bn of other income (including £25m of unallocated winter funding).

Overall, there was a combined shortfall in elective and outpatient income of £505m, partly due to winter pressures, NHS Improvement said.

The overspend on the pay bill was not just the result of the rise in activity. Around 100,000 vacancies in the NHS in England had to be managed. Overall, providers spent £52bn on pay, which was £1.5bn more than plan and, taking account of pay growth built into the tariff (2.1%), represents a real-terms increase of 1.2%. Some £1.3bn of the extra pay costs were due to the acute sector and most of the overspending related to frontline medical and nursing staff (86%).

Temporary staff spending was less than in 2016/17 (£67m less or 1.2%). Trusts spent less than planned on agency staff – £2.4bn compared with a planned £2.5bn – though bank staff spending was £976m more than planned. NHS Improvement said it expected the reduction in agency spending to continue in 2018/19, even in the face of ongoing pressure.

Despite the pressures, 132 of the 234 trusts (56%) recorded a surplus at year-end and 156 met or exceeded their year-end plans.

NHS Improvement chief executive Ian Dalton (pictured)  paid tribute to the resilience of the service in the face of the additional demand in 2017/18.

‘Despite epic challenges, NHS staff up and down the country displayed incredible resilience and saw more patients than ever before within four hours. More than two-thirds of providers ended the year on budget or better than planned. Given rising demand and record vacancies, this is an important achievement.’

Siva Anandaciva, King’s Fund chief analyst, insisted the health service’s financial difficulties were due to more than winter pressures. ‘While a difficult winter no doubt had some effect, the challenges facing the NHS are not the consequence of a few bad months – they are the result of rising demand for services, a prolonged funding squeeze and a growing workforce crisis.’

He added: ‘It is now an open secret that the system for managing NHS finances is fundamentally broken. Many NHS organisations are being set annual financial targets they have no realistic hope of achieving, while providers of community, mental health and ambulance services are effectively underwriting substantial overspends in acute hospitals.’

Chris Hopson, chief executive of NHS Providers, described the £960m deficit as a ‘creditable performance’ given the pressure on the system. ‘[These] figures show a substantial part of any additional spending on the NHS in the future will be spent on fixing the shortfalls that have built up in recent years,’ he said.

CIPs challenge

Providers did not meet the planned level of efficiency savings in 2017/18, but the sector did deliver cost improvements totalling £3.2bn (3.7%). This was £477m short of plan, mostly the result of under-delivery of planned pay savings (£521m or 30% behind plan), although there was also a shortfall in non-pay savings (£94m or 7%). These shortfalls were offset partially by income generation overperformance (£139m or 27% over plan).

Trusts reported significant underperformance against planned recurrent cost improvement programmes (CIPs). They delivered £2.37bn against a plan of £3.37bn; a 30% shortfall. However, non-recurrent CIPs saved 166% more than planned – £842m compared with a planned £316m. Although efficiencies were behind plan overall, trusts still reduced costs by £110m more than in 2016/17.