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The financial sustainability of the NHS in England

Published Monday, November 21, 2016

This House of Commons Library briefing provides background on the current funding settlement for the NHS in England, the financial and operational performance of the health service, and measures being taken to ensure its future sustainability, including Sustainability of Transformation Plans. The briefing also provides background on the Department of Health’s Annual Report and Accounts for 2015/16 and ongoing Select Committee scrutiny of NHS funding.

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Summary

The NHS is facing significant financial challenges as a consequence of the ageing and growing population, the rising cost of new drugs and treatments and the need to maintain safe staffing and access to care. Although health spending has been protected relative to other public services, there are concerns that increasing demand and costs threaten the financial stability and sustainability of the NHS.

In December 2013 NHS England outlined projected budget allocations to 2020/21 and forecast that the NHS would face a funding gap of around £30 billion between 2013/14 and 2020/21 (The NHS belongs to the people: A Call to Action – The Technical Annex). The NHS Five Year Forward View (FYFV), published in October 2014, set out further detail on possible funding scenarios for the period to 2020/21. The FYFV estimated that if the NHS in England received £8 billion of additional funding, over the 5 years to 2020/21, the remaining £22 billion gap could be found through efficiencies. In response, the Department of Health's settlement at the Spending Review 2015 included the commitment to a £10 billion real terms increase in NHS funding in England, between 2014/15 and 2020/21. A number of commentators have expressed concern over whether the £22 billion figure of efficiencies is realistic, and about the actual value of the Government’s funding commitment. In particular, the additional £10 billion is being allocated to NHS England, not to total health spending, and part of the increase in NHS England’s funding is from reductions in other areas of the Department of Health budget.

The National Audit Office report Sustainability and financial performance of acute hospital trusts, published in December 2015, found that running a deficit was becoming normal for acute trusts. Primary care, mental health and community providers also remain under significant financial pressure.

The Department of Health’s accounts for 2015/16 reported that NHS trusts and foundation trusts had a combined net financial deficit of £2.45 billion, a significant deterioration on the financial position of the sector compared to previous years. The trust deficit in 2015/16 was partly balanced by underspends in the Department of Health and NHS England budgets but the Department only avoided overspending its overall budget due to higher than expected National Insurance payments.

In July 2016 NHS Improvement and NHS England announced a “financial reset”: a suite of new measures for providers and commissioners to restore financial discipline and help ensure ongoing financial sustainability for the NHS. The actions are designed to achieve financial sustainability and improve operational performance. £1.8 billion will be provided to help challenged hospitals to achieve financial balance. This £1.8 billion forms part of the Sustainability and Transformation Fund which committed £2.1 billion in 2016/17. Financial control totals have been introduced, representing the minimum level of financial performance, against which trusts must deliver in 2016/17. With the introduction of the Sustainability and Transformation Fund and other measures there has been both a reduction in the size of the net deficit and in the number of organisations in deficit when compared to 2015/16. Financial performance information from providers record a year-to-date deficit of £648 million in the first half of the year, on an operating revenue of around £39 billion. While NHS Improvement estimate the deficit can be brought down to £580 million, if providers met their savings targets in full over the remaining half of 2016/17, the aim for the sector as a whole is to get the net deficit down to £250 million. However, the Health Service Journal has collected data from NHS trusts for Q2 of 2016/17 which suggests a year-end deficit could be around £850 million.

In December 2015 NHS Shared Planning Guidance was published which asked local NHS organisations in England to come together to create five year plans to support service and financial sustainability, and to accelerate implementation of the vision set out in the NHS Five Year Forward View. 44 areas of England have now developed Sustainability and Transformation Plans (STPs), which aim to improve care quality and efficiency through new models of care and a greater focus on prevention. There have been concerns about lack of transparency and public involvement in the development of STPs so far and STPs were debated in the House of Commons on Wednesday 14 September 2016. To date around half of the 44 STP areas have published plans.

In a number of reports and hearings over the past year, the Health Select Committee and the Public Accounts Committee have raised concerns about the sustainability of the current NHS budget. In advance of the 2016 Autumn Statement, these two Committees, as well as leading health think tanks, and organisations representing NHS staff and providers, have called on the Government to revisit the financial settlement for health and social care.

The issue of the NHS’s future sustainability is also the subject of a current inquiry by the House of Lords’ Long-Term Sustainability of the NHS Committee, which is scheduled to report by 31 March 2017. The inquiry is looking at the health service, including social care and prevention, and how it can remain sustainable beyond the next 15 to 20 years.

Commons Briefing papers CBP-7791

Authors: Tom Powell; Claire Fears

Topics: Health finance, Health services

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