Q3 figures tell only part of the NHS finances story
The latest quarterly figures (Q3) for the NHS provider sector have just been published. The current deficit of £886m reflects the huge efforts that NHS trusts have made for the first three quarters of the year, as they attempt to turn around the provider sector’s finances following 2015/16’s £2.45bn deficit. However, the figures also forecast an end of year deficit closer to £873m rather than the desired target of -£580m set at the start of the financial year.
No matter what the headline figures and forecasts are, they only tell one part of the story of how NHS providers have to manage the money in these straitened times
But no matter what these headline figures and forecasts are, they only tell one part of the story of how NHS providers have to manage the money in these straitened times.
We surveyed NHS trust finance directors in early February to get their assessment of the financial performance of their trusts. Ninety-nine completed the survey and we will publish the full results shortly. But in advance of the Q3 figures, it is worth examining now what finance directors told us about forecast vs plan for 2016/17. The findings provide us with useful additional context as we head towards the end of the financial year.
One of the questions put to finance directors was whether or not they are on plan for the end of this financial year. Most of them were: almost two thirds (60%) were on plan, with 13% actually over-performing. Of course this still means over a quarter (27%) were under plan (figure 1). But given where the provider sector has been in recent times at this point in the year, this perhaps represents a qualified success.
But just how qualified?
To answer this we asked the finance directors how much their forecast end of year position would be dependent on one-off measures, such as non-recurrent savings, capital to revenue transfers, and balance sheet and accounting adjustments. The responses showed that NHS trusts will be leaning heavily on these to prop up their positions, with two thirds of respondents indicating they would be very (39%) or quite (27%) reliant on these types of approaches (figure 2).
The extent of this reliance is revealed by the overall figure that trusts said these one off savings amounted to. Adding together the 99 providers surveyed, this totalled some £340m (figure 3). The sample size represents just over 40% of the provider sector and our initial analysis indicates across the whole sector these one-off measures could account for as much as £1bn of savings this year. This is higher than the £622m forecast for non-recurrent savings in the official Q3 figures, which includes standard non-recurrent savings, but not the full range of adjustments that trusts will have to make.
If we put that £1bn figure into a broader context, it means the total amount saved in one-off measures could easily be the equivalent of the entire official aggregate deficit figure for 2016/17. The result is an underlying challenge significantly higher than what’s apparent in the top line official figures.
In the short term, this means the results for the whole service at the final quarter of the year still have the potential to be fragile. If we return to those trusts who are off plan, they have shown some substantial deterioration in their positions. Even those who are on plan said in our survey that maintaining finances going into the final quarter of the year will be a huge ask.
There is also a worsening financial situation for clinical commissioning groups. At Q3 they had forecast an overspend of £370m. Being realistic, we also do not know yet how much of the 1% of their budgets (supposed to equal £800m) that was meant to be held in reserve to cover a larger than plan provider-side deficit will actually be in place at the end of the year.
Even if we squeak through 2016/17, our survey shows serious risks will continue into next year
Finally, add into the mix that there are no more significant reserves left centrally either. This means the Department of Health is again at risk of exceeding its departmental expenditure limit, something which it only narrowly avoided last year.
So even if we squeak through 2016/17, our survey shows serious risks will continue into next year. The money is due to get even tighter and will be combined with a significant persistent underlying deficit. Therefore, asking providers to be responsible for covering the shortfall between funding and demand, essentially the current policy set by the government, will become unsustainable.
NHS trusts report that, having persistently used a range of one-off, non-recurrent approaches to deliver stretching financial targets over each of the last four years, they have now reached the natural limit of these approaches. Further savings require genuine transformation which, in turn, requires investment and management bandwidth - both of which are currently in very short supply.
And this means the ‘make do and mend’ approach that has allowed the provider sector to survive – just – up to this point, will have finally been exhausted. Instead, we will have reached the stage where a clear decision, at a political level, needs to be made about what can realistically be achieved by the NHS within the funding available.
This article was originally published by Public Finance on 20 February