Briefing / Managing public money: implications for NHS bodies

12 June 2024 Debbie Paterson
1 CPD hour

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Unusual and innovative financial arrangements are, by their very nature, rare. However, when entering into such arrangements NHS bodies need to consider legality, regularity and probity. NHS bodies’ auditors have issued qualified opinions in relation to payments that they consider to be irregular. It is important that NHS bodies understand what processes they should put in place when considering such payments. It is important that resources are not spent inappropriately. 


HM Treasury’s Managing public moneyHM Treasury, Managing public money, updated May 2023 (MPM) sets out the principles for how public sector organisations in the UK should manage their resources. It is intended to help public sector bodies think through their fiduciary duties, both on a daily basis but particularly when considering innovative or unusual transactions. 

MPM is written for government departments, but its principles should be adopted by NHS bodies. In recent years, the Department of Health and Social Care (DHSC), NHS England and individual NHS bodies have received qualified audit reports due to a failure to meet its requirements.

This briefing summarises the guidance and highlights its impact on NHS bodies. HFMA briefings are written for members who generally work in finance teams. However, this briefing is intended to be useful to individuals outside of the finance department, such as those working in human resources, estates and procurement, who may enter into arrangements that need to be considered in the light of MPM.

Applicability of MPM to NHS bodies

As part of the DHSC group, all NHS bodies in England are expected to follow the guidance set out by the DHSC and NHS England. 

Paragraph 2.85 of the DHSC’s Group accounting manualDHSC, Group accounting manuals, last updated April 2024 provides a list of wider guidance that NHS bodies are expected to follow – this makes it clear that MPM applies to all entities within the group.

Chief executives

The chief executive of integrated care boards (ICBs) and NHS trusts are accountable officers responsible, via the chief executive of NHS England, to the accounting officer of the DHSC who is responsible to the Public Accounts Committee and Parliament. Chapter three of MPM sets out the personal responsibilities of all accounting officers in central government.

For NHS foundation trusts, the chief executive is the accounting officer directly responsible to Parliament, again via the Public Accounts CommitteeFor further detail on the governance arrangements for NHS bodies see HFMA, Introductory guide to NHS finance, updated April 2024. The Accounting officer memorandumMonitor, NHS foundation trust accounting officer memorandum, August 2015 for chief executives of NHS foundation trusts states that they have personal responsibility for prudent and economical administration in line with the principles set out in MPM.

In the Statement of chief executive’s responsibilities as accountable officerNHS England, NHS trusts annual governance statement and year-end requirements, May 2023, chief executives of NHS trusts and ICBs make an explicit statement that the expenditure and income of the body has been applied to the purposes intended by Parliament and conforms to the authorities which govern them. For NHS foundation trusts, the equivalent statement refers to ensuring that the use of public funds complies with relevant legislation, delegated authorities and guidance. Those authorities include MPM, as set out in the Accounting officer memorandum. 

Legality, regularity and propriety

NHS bodies are creatures of statute which means that they can only do things that they have statutory powers to do. Those powers are generally very wide:

  • section 2 of the NHS Act 2026 says ‘NHS England or an integrated care board may do anything which is calculated to facilitate, or is conducive or incidental to, the discharge of any of its functions.’
  • section 47(1) of the NHS Act 2006 says ‘An NHS foundation trust may do anything which appears to it to be necessary or expedient for the purpose of or in connection with its functions.’
  • paragraph 14(1) of Schedule 4 of the NHS Act 2006 says ‘An NHS trust may do anything which appears to it to be necessary or expedient for the purposes of or in connection with its functions’.

While these powers are wide, these powers relate to NHS bodies’ functions that are also set out in statute. All NHS bodies also have a duty to make proper arrangements for securing economy, efficiency, and effectiveness in its use of resources. Therefore, any transaction needs to be considered in relation to its value. 

When NHS bodies are considering taking action that is innovative or unusual, they may seek legal advice. That advice is likely to focus on the legal powers that are set out in the legislation relating to NHS bodies.

However, MPM makes it clear that two other principles should be considered alongside legality. They are closely linked, but not the same and may not be explicitly considered in legal advice.

The first is regularity – this is defined in box 2.4 of MPM as being:

‘compliant with the relevant legislation and wider legal principles such as subsidy control and procurement law, delegated authorities and following the guidance in this document.’ 

Auditors of spending bodies, the DHSC, NHS England and ICBs are required to include their view on the regularity of the body’s income and expenditure in their audit reports. This requirement does not apply to auditors of provider bodies. However, if they identify irregular expenditure auditors of provider bodies may raise the issue in their value for money opinion. 

Practice note 10: Audit of financial statements and regularity of public sector bodies in the UKPublic Audit Forum, Statement of recommended practice - practice note 10, revised 2022 provides guidance to auditors on the work that they should do in order to reach a view on regularity. The statement that auditors make is an opinion on whether, in all material respects, the expenditure and income have been applied for the purposes intended by Parliament. Paragraph 2-7 of the practice note refers to MPM as part of the framework that NHS bodies must conform to.

MPM sets out examples of when additional approval may be required to ensure that the expenditure, or more unusually the income, is applied for the purposes intended by Parliament. A transaction that requires approval from HM Treasury is likely to be deemed irregular without that prior approval.

The second principle is propriety – this relates more to standards of conduct and governance rather than the transaction itself. It therefore links to the principles of public lifeCommittee on standards in public life, The seven principles of public life, 1995:

  • selflessness
  • integrity
  • objectivity
  • accountability
  • openness
  • honesty
  • leadership.

MPM defines propriety as: 

‘Meeting high standards of public conduct, including robust governance and the relevant parliamentary expectations, especially transparency.’

It is therefore important that there are appropriate controls in place to ensure that the senior management consider the legality, regularity and probity of unusual and innovative transactions before they are agreed or entered into. 

Issues raised by MPM

MPM sets out the arrangements for ensuring that expenditure has Parliamentary authority:

  • that there is budgetary cover through the estimates process
  • that expenditure is regular and proper
  • that there are sufficient legal powers.

Sometimes, for these to be met, HM Treasury authorisation is required ahead of expenditure being incurred.

Government departments need to have HM Treasury consent before committing themselves to expenditure. On a day-to-day basis, this is managed through a series of delegations. In the NHS, the DHSC delegates authority to spend to NHS England.

However, HM Treasury cannot delegate responsibility for transactions that set precedents, are novel, contentious or repercussive. Box 2.3 of MPM provides these examples of the types of payment that always require consent from HM Treasury before they are even offered to the third party:

  • extra statutory payments similar to, but outside, statutory schemes
  • ephemeral ex gratia payment schemes, for example payments to compensate for official errors
  • extra statutory payments similar to, but outside, statutory schemes
  • special severance payments, for example compromise agreements in excess of contractual commitments
  • non-standard payments in kind
  • unusual financial transactions, for example imposing lasting commitments or using tax avoidance
  • unusual schemes or policies using novel techniques.

HM Treasury will look for evidence that the proposal is in the public interest and achieves value for money before giving approval. That will be a consideration of value for money for the wider public sector, not just the entity seeking to enter into the transaction – so the consequences for other government departments need to be considered as well as for the NHS body itself.

Recent NHS examples of payments that should have been approved by HM Treasury but were not include:

  • gifts made to NHS charities. In 2022/23, two NHS foundation trusts made sizable gifts to their associated NHS charities to allow the charity to invest in capital. Although legal advice was taken, approval from HM Treasury was not sought ahead of the gifts being made. The chief secretary to the Treasury declined to grant retrospective approval. A letterNHS England, Letter to chief financial officers about payments to NHS charities, April 2024 was sent to all NHS chief finance officers on 25 April 2024 setting out the reasons for this and making it clear that HM Treasury should be consulted in relation to equivalent payments in advance of them being made via the regional teams and NHS England. The issue was raised by both trusts’ auditors in their value for money report as well as in the consolidated provider accountsNHS England, Consolidated NHS provider annual report and accounts 2022/23 (page 101), January 2024.
  • severance payments. In 2020/21, a number of CCGs’ regularity opinions were qualified because special severance payments were made to employees as they left the organisation over and above the amount that they were due to be paid under their contractsNHS England, NHS England annual report and accounts 2021/22 (paragraphs 686 to 694), January 2023. There are clear arrangements in place for NHS bodies to follow when considering making a special severance paymentNHS England, NHS England annual report and accounts 2022/23 (page 125), January 2024.
  • overpayments. In 2021/22 and 2022/23, NHS England’s regularity opinion was qualified in relation to over payments made to suspended medical practitioners. Some suspended medical practitioners may be entitled to payments for a limited time – cases were identified where payments were made to practitioners who were either not entitled to the payment or that were made beyond the entitlement period.
  • exceeding resource limits. Regularity opinions are always qualified when commissioning bodies spend more than their resource allocation. As resource limits are set by Parliament, expenditure exceeding these limits by even £1 is considered irregular as it is not in accordance with the wishes of Parliament.

MPM sets out other examples of where NHS bodies should consider its requirements and potentially seek approval.

Payments in advance of need, including vesting certificates, should be exceptional and should only be made to achieve value for money. Even where demonstrating value for money, payments in advance of need require HM Treasury approval, and should not be made to circumvent expenditure controls or budgetary limits. 

The focus of MPM is avoiding cost to the public sector from higher financing costs, due to having made payments earlier than is required. This is particularly the case where effectively providing financing to contractors through payment before they have delivered equivalent value to the public sector in return. Even if there is a discount or other benefit that means this is value for money, approval is required.

Some normal commercial arrangements require payment in advance, and this is acceptable, examples include quarterly payments for service or maintenance contracts where services can be called on from the data that the payment is made, subscriptions, and payments for training courses. But prepayments that are not these normal commercial arrangements require HM Treasury approval in advance.

Equally, MPM is clear that deferring payments is not good value for money so deliberate plans to make late payments are potentially novel and contentious.

NHS bodies should follow HM Treasury specific guidance on special severance paymentsHM Treasury, Public sector exit payments: guidance on special severance payments, June 2021 and NHS England has issued clarification on payments of small discretionary awards to staffNHS England, Financial accounting and reporting updates, 3 May 2024
In short, any arrangements that: 

  • are made to circumvent financial controls, such as limits on expenditure
  • could be considered tax avoidance
  • put NHS money at risk, such as payments in advance or use of vesting certificates
  • are made to achieve a particular financial position, particularly at the year-end
  • are a result of a failure in controls, such as ex-gratia payments to compensate for an error

should be reviewed against the requirements of MPM. If in doubt, NHS England should be consulted ahead of a decision being made.

Losses and special payments

MPM requires all public sector bodies to make disclosures relating to losses and special payments in their annual report. This is the way that they are brought to the attention of Parliament so this disclosure could be the subject of questions at the Public Accounts Committee.

Losses and special payments are not in accordance with the wishes of Parliament, but they are not necessarily irregular. However, in these financially constrained times, it is important that they are avoided where possible.

MPM states that it is good practice to consider whether any cases reveal concerns about the soundness of financial control systems and how they are operating so that weaknesses can be corrected. 

In 2022/23, the DHSC reported total losses for the whole group of £2,334m (£899m in 2021/22). Some of these relate to the Covid-19 pandemic, such as protective personal equipment being written off, unused capacity for clinical trials, and medicines written off. However, many losses are avoidable, such as:

  • abandoned VAT claims due to delays in processing invoices
  • fruitless payments relating to the incorrect interpretation of IR35 (off-payroll) status of contractors
  • fruitless payments as a result of unidentified output VAT charged in respect of supply of staff
  • write off of outstanding invoices due from an overseas visitors and local authorities
  • pharmacy and obsolete stock write-offs
  • breach of procurement regulations.
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