Additional funding, aimed to help the NHS get on a financially sustainable footing, has instead been spent on coping with existing pressures, according to the National Audit Office’s (NAO) report, published today.

The NHS received an additional £1.8 billion Sustainability and Transformation Fund in 2016-17 to give it breathing space to set itself up to survive on significantly less funding growth from 2017-18 onwards. It was also intended to give it stability to improve performance and transform services, to achieve a sustainable health system.

The Fund has helped the NHS improve its financial position from a £1,848 million deficit in 2015-16 to a £111 million surplus in 2016-17[1]. Within the overall position, the combined trust deficit reduced to £791 million in 2016-17 from £2,447 million in 2015-16. There has also been an improved underspend of £154 million across clinical commissioning groups, yet 62 groups reported a cumulative deficit in 2016-17, up from 32 in 2015-16.

Despite its overall financial position improving, the NHS is struggling to manage increased activity and demand within its budget and has not met NHS access targets. Furthermore, measures it took to rebalance its finances have restricted money available for longer-term transformation, which is essential for the NHS to meet demand, drive efficiencies and improve the service. For example, the Department transferred £1.2 billion of its £5.8 billion budget for capital projects to fund the day-to-day activities of NHS bodies.

On top of this funding, many trusts are receiving large levels of in-year cash injections, most of which are loans from the Department, which have worsened rather than improved their financial performance. Extra cash support increased from £2.4 billion in 2015-16 to £3.1 billion in 2016-17.

Clinical commissioning groups and trusts are increasingly reliant on one-off measures to deliver savings, rather than recurrent savings that are realised each year. Between 2014-15 and 2016-17 the percentage of savings that were non-recurrent increased from 14% to 17% for commissioners, and from 14% to 22% for trusts. This poses a significant risk to the financial sustainability of the NHS in the future.

Progress has been made in setting up 44 new partnership arrangements across health and local government, which are laying the foundations for a more strategic approach to meeting the demand for health services within the resources available. In reality, partnerships’ effectiveness varies and their tight financial positions make it difficult for them to shift focus from short-term day-to-day pressures to delivering transformation of services.

The NAO has made a number of recommendations to the Department, NHS England and NHS Improvement, which includes moving further and faster towards aligning nationwide incentives, regulation and processes, as well as reassessing how best to allocate the sustainability and transformation funding.

"The NHS has received extra funding, but this has mostly been used to cope with current pressures and has not provided the stable platform intended from which to transform services. Repeated short-term funding-boosts could turn into the new normal, when the public purse may be better served by a long-term funding settlement that provides a stable platform for sustained improvements".

Amyas Morse, head of the National Audit Office, said today

Read the full report

NHS financial management and sustainability 2018

Notes for editors

£791m Combined deficit of NHS trusts and NHS foundation trusts (trusts) in 2016-17 £1.8bn Sustainability and transformation funding for trusts in 2016-17 £2.7bn Extra revenue funding given to trusts as interest-bearing loans in 2016-17 £111m Net surplus of NHS bodies (NHS England, clinical commissioning groups, and trusts) overall in 2016-17, before additional spending adjustments needed to report against the NHS revenue spending control limit 66 Clinical commissioning groups reported a cumulative deficit in 2016-17, up from 32 in 2015-16 44 Number of sustainability and transformation partnerships set up to improve system-wide strategic planning £10bn Independent estimate of the extra capital needed to implement sustainability and transformation partnerships' plans £1.2bn Capital budget transferred to revenue budget in 2016-17 £623m Net deficit forecast by the trust sector in 2017-18 based on the first six months of the year
  1. [1] The trust deficit position does not include £144 million in adjustments needed to report against the Department’s budget for day-to-day resources and administration costs, including adjustments relating to income and depreciation of donated assets, private finance initiative (PFI) spending and provisions. Against this budget, NHS bodies overspent by £33 million.
  2. This is the NAO’s sixth report on the financial sustainability of the NHS.
  3. The Department of Health and Social Care (the Department) has overall responsibility for healthcare services. It is accountable to Parliament for ensuring that its spending, as well as spending by NHS England, NHS Improvement, other arm’s-length bodies and local NHS bodies is contained within the overall budget authorised by Parliament. It is responsible for ensuring that those organisations perform effectively and have governance and controls in place to ensure that they provide value for money. The Department has made NHS England and NHS Improvement responsible for ensuring that the NHS balances its budget.
  4. Since the NHS was formed in 1948, health spending in real terms has increased by 3.7% a year on average. Between 2014-15 and 2020-21, the NHS England budget will increase by an average of 1.9% a year. Between 2014-15 and 2016-17, it saw larger increases in funding, compared with 2017-18 onwards. A proportion of these increases covered rising unit costs. Page reference: 14
  5. The Department estimates that population and demographic changes increased demand for health services by 1.3% in 2016-17. Activity carried out by acute trusts increased at a greater rate. For example, hospital admissions increased by 1.9%. Trusts are struggling to manage this activity within their budgets. Performance against key access targets declined further in 2016-17, for instance only 89% of accident and emergency patients were seen within four hours, against a target of 95% and a rate in 2015-16 of 92%. The NAO found that, on average, trusts in deficit performed worse against key access targets than trusts in surplus. Reference: Page reference: 24
  6. Press notices and reports are available from the date of publication on the NAO website. Hard copies can be obtained by using the relevant links on our website.
  7. The National Audit Office scrutinises public spending for Parliament and is independent of government. The Comptroller and Auditor General (C&AG), Sir Amyas Morse KCB, is an Officer of the House of Commons and leads the NAO. The C&AG certifies the accounts of all government departments and many other public sector bodies. He has statutory authority to examine and report to Parliament on whether departments and the bodies they fund, nationally and locally, have used their resources efficiently, effectively, and with economy.  The C&AG does this through a range of outputs including value for money reports on matters of public interest; investigations to establish the underlying facts in circumstances where concerns have been raised by others or observed through our wider work; landscape reviews to aid transparency and good practice guides.  Our work ensures that those responsible for the use of public money are held to account and helps government to improve public services, leading to audited savings of £734 million in 2016.

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