Briefing / How it works: The Department of Health and NHS England allocation process

This briefing is the first in the HFMA’s How it works series and looks at the process of allocating money and funding flow through the NHS in England.

The briefing sets out how the total funding for healthcare in England is agreed via the spending review process, and how this is subsequently addressed through the government’s Budget process. 

The Department of Health is set a limit by HM Treasury on the amount of capital and revenue expenditure bodies in its consolidated group can spend. Bodies in the Department of Health’s consolidated group include NHS England and all clinical commissioning groups (CCGs). The Department of Health sets limits on revenue and capital expenditure that NHS England must remain within and NHS England in turn sets similar limits for CCGs. 

This briefing explains how those limits for the Department of Health and NHS England are agreed, and our briefing How it works: The clinical commissioning group allocation process explains how these are set for CCGs. The briefing explains how the mandate and financial directions are set (the documents which agree what NHS England must deliver for the funding it receives). The funding can be changed in-year in exceptional circumstances, the briefing sets out the process for this.

In 2015/16 the Department of Health was close to breaching its revenue expenditure limit, being only £210m in surplus on a budget of nearly £115bn. The briefing shows how without additional funding over and above what had originally been agreed by HM Treasury this surplus would have been a deficit, and it explains how this increase in funding was the result of an administrative error.

The briefing notes that NHS England was £599m in surplus in 2015/16, but had it only broken even this would have been enough to cause the Department of Health to breach its limit on revenue expenditure in year. This serves to underline how finely balanced healthcare budgets have been in recent years.