Guidance sets out how FT capital resource limits will work

The Health and Social Care Act 2022 included a new discretionary power allowing NHS England to make an order imposing a limit on the capital spending of an NHS foundation trust. Guidance issued this week sets out how this system will operate in practice.

Under existing licence conditions, foundation trusts can determine their own levels of capital spend each year, with the ability to finance a project being the only constraint. However capital spending by NHS trusts and foundation trusts counts against the DHSC’s CDEL.

Without further controls, the DHSC would compensate for higher-than-anticipated spending by foundation trusts by constraining spending in other areas including spending by NHS trusts. The guidance argued that this created uncertainty about whether certain investments could proceed until late in the financial year, limited the ability to provide capital financing to organisations with urgent capital priorities, and led to poor prioritisation of projects funded from the overall capital pot. Effectively foundation trusts could jump th4e queue in terms of prioritisation.

The guidance also suggested that the ‘risk of solvent foundation trusts spending more capital annually than is budgeted for centrally has grown with recent increases in the availability of finance to them’. It references two sources of this finance: increased cash reserves from the revenue regime operated during the first two years of the Covid-19 pandemic; and the willingness of lenders to offer attractive interest rates for foundation trust borrowing.

To counter this the Health and Social Care Act introduces a new discretionary power to impose a limit on a foundation trust’s capital spending. The guidance states that the power will be used ‘as a last resort’ where a foundation trust capital spending threatens to push the DHSC over its CDEL limit.

In practice foundation trusts will be given notional capital resource limits, notified through the monthly provider finance return. Spending against this notional limit will inform NHS England’s assessment of whether a formal limit is needed.

Finance managers said informal limits already existed as foundation trusts had to agree capital spending levels so that total spending across the local system remained within the system’s capital envelope. One finance manager said NHS England had also paid close attention to capital spending and the potential impact on the national CDEL. The new guidance simply gave the national body ‘more teeth’, he said.

The is general consensus is that the capital budget is too small to meet all the service’s capital requirements – for maintaining existing facilities, building new premises and investing in digital technology.

Director of policy and strategy at NHS Providers, Miriam Deakin (pictured), that foundation trusts recognised the need for careful capital prioritisation across systems within a tight national financial envelope. During the passage of last year’s health and care bill, a robust set of safeguards were negotiated with the government and NHS England around the use of new powers for capital limits. These included ensuring that they could not apply for longer than a financial year and that the power must only be used as a last resort.

‘However, trusts have also raised long-standing concerns with us over the restrictive nature of system capital limits which constrain their capacity to invest in estates to maintain the right quality of care for their patients,’ she said. ‘Now that these guidelines have been published, trust leaders would welcome further clarity on the extent to which retained surpluses can be reinvested in trusts’ estates in the future.’

She added that ‘the fundamental issue remains that there is insufficient capital funding available at the system level’.

Speaking at the end of last year, NHS Confederation chief executive Matthew Taylor claimed that the lack of investment in capital was inhibiting the service’s ability to tackle the elective backlog. ‘Ten years of under-investment in capital has seen much NHS estate and equipment crumble into a state of disrepair, undermining the ability of healthcare leaders and their staff to work as efficiently as they could,’ he said.

The new guidance sets out the steps that would be taken to impose a limit and the opportunity for foundation trusts to respond. Any limit issued would remain in place for a single financial year.