Systems to be held to planned level of agency spending

Financial guidance for the year has already trailed plans to move back towards compliance with agency control after two-years of a temporary financial framework to help the NHS focus on dealing with the Covid-19 pandemic. And in May, NHS England said that additional funds released to support in-year inflationary pressures would be contingent on having spending controls in place, including expenditure on agency staff.

A new letter this week to trust and integrated care board leaders, from chief financial officer Julian Kelly (pictured) and other NHS England directors, sets out how the controls will be implemented in the current year and provides details of systems’ spending limits.

Previous provider-level controls have focused on limiting agency spending to a prescribed percentage of the pay bill. But this has now been replaced with ceilings based on the reductions committed to in system plans. And although systems and trusts will not have known they were effectively setting their own agency spending ceilings when drawing up their plans, the delivery of agency reductions will be key to the broader delivery of balanced positions.  

However, the ceilings have been set to reduce spending across systems by at least 10% compared to 2021/22. In a small number of cases, this will require some systems to go beyond their current plans to reduce agency spending. Limits have also been set at a maximum reduction of 30%. This is not to stop systems from implementing more ambitious plans. It is instead a pragmatic measure to ensure that systems with more ambitious planned reductions are not penalised for marginal shortfalls against their 30%+ targets.

The NHS oversight framework now reflects that agency spending is a system level metric. NHS England said that meeting the system targets for reducing agency spending would bring agency spending to below pre-pandemic levels. The set limits amount to spending of £2.3bn in total.  In 2019/20, the NHS in England spent £2.4bn on agency staff, representing 4% of the overall NHS pay bill. This was itself a major reduction on the £3.6bn spent in 2015/16 (7.8% of the pay bill).

‘Where a system in aggregate is spending more than its established limit, this will act as a possible trigger to review a segment allocation decision,’ the letter said. However, performance against the system agency spending limit will be considered alongside other information including agency expenditure as a proportion of total pay, compliance with agency price caps and usage of off-framework agency staff.

The national body reiterated that NHS bodies should look to reduce agency bills by encouraging workers back into substantive and bank roles. Guidance already exists to support this. But opportunities for flexible working, including annualised hours contracts, would be an important component of local initiatives.

ICBs are being encouraged to develop or expand collaborative banks and the letter also asks providers to consider sharing their agency expenditure data and bank pay rates with system partners.

Further controls are being developed for introduction over the next 18 months.