News / Inflation funding tied to renewed efficiency drive

At the NHS England and NHS Improvement board meeting in May, chief financial officer Julian Kelly (pictured) said systems would get an extra £1.5bn due to the cost pressures. His team had worked with commissioners and providers to identify excess costs, which totalled £1.5bn.

‘We are saying to the NHS we want financially balanced plans that deliver the performance and activity goals set out in the planning guidance in December, consistent with the assumptions we set out in December,’ he said.

‘Clearly one of the things that has really moved since then is inflation, which is running at much higher levels than anticipated in the spending round last November. We’ve said to the NHS we need to deal with that nationally but, setting that aside, we need balanced plans.’

The operational and financial paper tabled at the meeting outlined some of the cost pressures compared with the December assumptions. These included an extra £485m in energy costs, £350m in care costs related to the increase in local authority-funded prices, and £110m on private finance initiative deals where payments were inflation-linked.

Other pressures accounted for £405m, while additional costs faced by the ambulance service included fuel and the financial impact of the settlement in the Flowers case on overtime and holiday pay, totalling £150m.

In a letter issued following the board meeting, Mr Kelly set out further details on the allocation of the funding. There will be three components:

• Funding for system and regional commissioners to increase the tariff uplift factor, including for providers in other systems and outside the NHS
• Funding in recognition of broader commissioning pressures as a result of higher social care costs, increases in NHS-funded nursing care and better care fund contributions
• Extra money for ambulance services to reflect service pressures, the higher cost of fuel, and the hiring of additional call handlers.

The conditions for receipt of the funds would help the NHS collectively to live within its means. All systems have been asked to:

• Reflect in their plans the cost and productivity improvements as a result of implementing the new infection prevention and control measures and testing arrangements
• Set out evidence for the key lines of enquiry the national bodies have produced for plans
• Ensure plans reflect and commit to delivering recurrent efficiency schemes from quarter three, achieving a full-year effect in 2023/24. This should compensate for non-recurrent measures required to achieve 2022/23 plans
• Engage in national pay and non-pay savings programmes that will be launched in the next few months, including national agreements for medicines and other non-pay purchasing in particular.

A number of control measures that were suspended during the pandemic will be resumed, including the monitoring of agency usage, conditions on agency and bank spending, and NHS England and NHS Improvement approval for consultancy spending over £50,000 and non-clinical agency use.

Additionally, systems and organisations will be required to commission internal audit to report to the audit committee based on the HFMA’s Improving NHS financial sustainability: are you getting the basics right? by the end of August. The report will highlight areas of weaknesses in financial governance and set out remedial actions. By 31 August systems should also review excess inflation figures in their plans.

There are additional controls for systems with a deficit plan, applicable until the deficit is resolved. The letter said that the funding is being made available on the condition that the gap is closed, and reporting and oversight will be increased, possibly including the requirement for central sign-off of new investments over an agreed threshold.

Capital funding for some programmes will be restricted, and the system will be required to produce a detailed workforce analysis.

At the board meeting, Mr Kelly also reported the 2021/22 year-end position, which showed a £1.2bn underspend.

Specialised commissioning warning