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NHS faces £2.2bn funding black hole, National Audit Office warns

Published 16/12/2015

NAO: The deterioration in the financial position of NHS trusts and NHS foundation trusts has been severe and worse than expected
NAO: The deterioration in the financial position of NHS trusts and NHS foundation trusts has been severe and worse than expected

The NHS faces an unprecedented funding black hole, with trusts in England forecast to run up deficits of more than £2.2 billion this year, according to a public spending watchdog.

The financial positions of NHS trusts and foundation trusts have significantly deteriorated since 2014-15, when their deficits stood at £843 million, the National Audit Office (NAO) says.

The NAO raised particular concern about acute trusts responsible for major hospitals, which ran a net deficit of £958 million in 2014-15.

The Government has committed to pump an extra £8.4 billion a year into the NHS by 2020, which could be a "significant step towards financial sustainability", but the NAO warned it was not yet clear that there was a coherent plan to get trusts' finances back on track.

NAO chief Amyas Morse warned that the position was unsustainable, with too many trusts relying on running a deficit.

He said: "Running a deficit seems to be becoming normal practice for acute trusts.

"There is a risk that poor financial performance is seen as the least worst option compared with poor healthcare provision.

"The Department, NHS England, Monitor and the NHS Trust Development Authority must take a rounded view of how to improve trusts' finances.

"The Government's commitment to give the NHS more funding, with almost half of this coming upfront, could be a significant step towards financial sustainability, if this funding can be devoted to improving the financial position of trusts rather than dealing with new costs.

"Continued demand for healthcare services means that the pressure on acute trusts will not go away.

"Until there is a clear pathway for trusts to get back to financial stability, we cannot be confident that value for money will be achieved."

Commons Public Accounts Committee chairwoman Meg Hillier said the financial position of acute trusts was "simply unacceptable".

In a bleak assessment, the NAO report said: "The deterioration in the financial position of NHS trusts and NHS foundation trusts has been severe and worse than expected."

The spending watchdog said financial problems in the health service were "endemic".

The £2.2 billion deficit forecast for this year follows shortfalls of £843 million in 2014-15 and £91 million in 2013-14, while in 2012-13 there was a £592 million surplus.

The number of trusts reporting a deficit rose by 80% between 2013-14 and 2014-15, from 64 to 115, out of a total of 240.

The picture appears to be getting worse, with 181 trusts reporting deficits in the first six months of 2015-16.

Among the factors driving increased deficits in acute trusts were a failure to meet savings targets and an increase in spending on agency staff.

Overall, acute trusts achieved just 83% of their planned efficiencies for 2014-15, whereas if the target had been met the overall deficit would have been more than halved.

The NAO report also noted that spending by hospital trusts on temporary staff as a share of their total income rose by 24% between 2012-13 and 2014-15.

Health regulator Monitor has reported that the rise in spending on agency staff has been exacerbated by recruitment difficulties and new requirements on safe staffing levels.

The NAO noted there were 26 acute trusts in 2014-15 with deficits that made up more than 5% of their income.

The biggest deficit as a share of income was recorded by Peterborough and Stamford Hospitals NHS Trust, which had a deficit of £38.5 million in 2014-15, 15.5% of its income.

Milton Keynes NHS Foundation Trust had a deficit of £24.9 million in 2014-15, 13.9% of income, but the gap is set to rise to £36.2 million this year.

Medway NHS Foundation Trust had a deficit of £34 million, 13.6% of income.

In total, £1.8 billion in bailout funding came from Whitehall for trusts in difficulty last year.

Measures aimed at curbing trusts' deficits were introduced in June, but the NAO said they "might come too late to improve the 2015-16 financial position".

The NAO also expressed doubt about the overall £22 billion of savings the NHS needs to find by 2020-21.

"It is not clear how the NHS will close this gap," the report said.

It would be "challenging" to make the savings through the planned new models of providing healthcare, the NAO cautioned.

The cut in public health funding "could make it even more challenging for local health economies to deliver efficiency improvements".

The NAO also noted that health funding had risen at a "historically low rate" of 1.8% in real terms between 2010-11 and 2014-15.

Labour MP Ms Hillier said: "It is simply unacceptable that the finances of acute hospital trusts have deteriorated at such a severe and rapid pace."

She added: "The strain placed on NHS trusts and foundation trusts shows no sign of abating. With an estimated £22 billion gap between resources and patient demand by 2020, the NHS faces huge pressures to find savings to close this gap but the well of sustainable efficiency savings is running dry."

Health minister Lord Prior, said: "This Government is committed to the values of the NHS, which is why we're investing £10 billion in its own plan for the future - including £6 billion upfront by next year.

"Hospitals must now show tight financial grip and fully introduce our measures to reduce expensive temporary staffing and drive through the productivity and efficiency improvements identified by Lord Carter.

"The impact of these measures will be reflected later in the year and NHS finances will be in a much stronger position in 2016-17."

TUC General Secretary Frances O'Grady warned the NHS would be "stretched to the limit" over the coming years, adding: "This is a crisis of the Government's own making. Over the last five years it has failed to provide the necessary funding the NHS needs.

"The squeeze is set to continue, with inadequate funding increases over the next five years and a £22 billion efficiency target that few think can be achieved."

Shadow health secretary Heidi Alexander said: "This year, hospitals are facing a £2.2 billion deficit and the extra money announced at the spending review is simply going to get sucked into the black hole that has emerged in hospitals finances under the Tories."

She added: "Cuts to nurse training places have forced hospitals to drain resources hiring expensive agency staff, while cuts to social care services has led to rising demand on hospitals.

"The NAO's report raises serious concerns about whether the actions being taken by ministers are going to be enough to fix the damage they've done.

"However ministers try to spin this, these figures show that Tory NHS polices are failing hospitals and failing patients."

The Government will today announce that it is creating a £1.8bn "transformation fund" for "challenged NHS trusts".

The money, which is part of a £3.8bn settlement for the NHS already announced by the Chancellor, will go towards reducing deficits in trusts so they can focus on delivering seven-day care.

But the money will only be given out if they meet certain strict criteria, which will be announced in full today, the Department of Health said.

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