Progress made by the provider sector to reduce financial deficits will be put at risk if the current £1.8bn of sustainability and transformation funding allocated to providers is not protected beyond 2018/19, leaders of NHS trusts have warned in a new report. 

The report by NHS Providers titled Recovering provider deficits: has it worked and at what cost? draws on survey responses from 109 trust chief executives and finance directors, 47% of the sector. It is the first report to look at the detailed operation of the STF and control total regime since it was introduced in December 2015.

The report finds that use of control totals and sustainability and transformation funding (STF) has played a key role in helping the provider sector stabilise its financial position, reducing the sector deficit from £2.45 billion in 2015/16 to £791 million in 2016/17.

However, the report argues that the STF and control total regime has not addressed the financial unsustainability of the sector; has masked the underlying financial problems providers now face; and that the £1.8 billion STF has become a key part of provider sector finances.

The report calls on the government to confirm that the £1.8bn STF will continue to be directly allocated to providers beyond 2018/19, when current commitments on the use of the fund run out.

The report calls on the government to confirm that the £1.8bn STF will continue to be directly allocated to providers beyond 2018/19, when current commitments on the use of the fund run out.

The report seeks to provide a balanced judgement on how well the STF and control total regime has worked. The survey showed that just over half of respondents agreed that the introduction of control totals had improved financial management within the provider sector. 52 per cent of respondents considered that it had improved their focus on driving savings. 31 per cent considered that it had improved their accuracy of financial forecasting. 38 per cent suggested that it improved their focus on achieving mandated performance targets.

However, despite these successes, trusts raised a number of concerns about the STF and control total regime in its current form:

• The level of savings required of trusts that sign up to control totals is unsustainable, forcing trusts to rely on non-recurrent measures, such as land sales and balance sheet and accounting adjustments to meet their savings target. Trusts signing up to a control total needed to realise 4% savings in 2016/17 and are now required to realise 4.2% savings in 2017/18. No advanced Western health economy has consistently realized savings of this size.

• Control totals risk eroding provider autonomy, with 36 per cent of respondents saying that central imposition of individual trust control totals has diminished their sense of ownership of their own financial plans;

• Trusts argue that requirements to meet control totals in order to secure STF support could discourage full frankness in reporting underlying financial challenges;

• The regime, including the allocation of bonus and incentive payments at year end, risks polarising the sector, widening the financial gap between trusts, and exacerbating the financial problems of challenged trusts.

Commenting on the report findings, the chief executive of NHS Providers, Chris Hopson, said:

“Last financial year, trusts worked incredibly hard to reduce the provider sector deficit from its 2015/16 high watermark of £2.45 billion to £791 million. The STF and control totals regime played a key part in this turnaround.

If the STF is taken away from trusts in 2019/20 when current commitments on the use of the fund end, the provider deficit will simply balloon again.

“But it means that the STF £1.8 billion is now an integral part of provider funding. If the STF is taken away from trusts in 2019/20 when current commitments on the use of the fund end, the provider deficit will simply balloon again.

“The STF and control totals are also hiding the underlying financial problems the sector faces. As the Nuffield Trust has recently shown, the real underlying provider sector deficit is closer to £3.7 billion. We shouldn’t pretend that providers can keep on realising levels of recurrent savings that no other Western health economy has ever consistently realised. We can’t keep on raiding the capital budget and selling the family silver to make the annual budget add up. As the NAO has pointed out, the NHS at a local level remains under considerable financial pressure and the NHS still has a long way to go before we can regard it as being on a sustainable footing again.

We shouldn’t pretend that providers can keep on realising levels of recurrent savings that no other Western health economy has ever consistently realised.

“Providers will do everything they can to provide outstanding patient care within the NHS budget. Our report highlights three key areas where NHS system leaders need to give their support:

• A commitment that the £1.8 billion STF will continue to be directly allocated to providers in 2019/20 and beyond;

• A review of the detailed operation of the STF and control totals regime, conducted in partnership with the provider sector to determine how the regime will work beyond 2018/19;

• Explicit recognition that the current financial regime, depending as it does on non recurrent savings, is unsustainable in the long term”.

Read our accompanying blog from Tim Connolly, policy advisor - finances, NHS Providers.

See Health Service Journal coverage of our report.