The future of NHS system finances

Olivia O'Brien profile picture

06 December 2021

Olivia O'Brien
Policy Officer
NHS Providers

The shift to system finances has already started. At the start of 2020/21, NHS England and NHS Improvement set capital spending limits at integrated care system (ICS) level. In October 2020, as part of the NHS' response to COVID-19, ICSs were given revenue funding envelopes to share between their constituent organisations. With integrated care boards (ICBs) expected to be given more financial responsibility from April 2022, we have been speaking to trust leaders about the challenges and opportunities this presents, and what NHS England and NHS Improvement needs to consider ahead of confirming the final financial framework as part of 2022/23 planning guidance.

Are systems ready?

Trust leaders support the general direction of travel for system finances and welcome the opportunities to improve population health, tackle inequalities, and ensure collective resources are used effectively and efficiently. However, ICSs are developing from different starting points and at varying pace. When we surveyed trust finance directors in June 2021, most respondents (63%) felt that their ICSs were slightly or somewhat developed, with 25% saying moderately developed and only 9% saying extremely developed. One trust told us that their ICS currently has no formal financial governance structure to work to, so local relationships are not as well developed as they could be and there is a lack of understanding of who to turn to when things go wrong. Despite these challenges, overall, trust leaders are optimistic that giving ICBs formal financial responsibilities can work, as long as there is clear guidance to support governance and accountability arrangements.

That said, even the more mature ICSs, many of which have made good progress over the past two years managing their capital and revenue budgets as systems, are worried about a potential 'cliff-edge' come April 2022. When asked about their confidence in their local ICSs' financial governance and allocation capabilities, 45% of trusts felt very confident or confident that their ICS will have strong system financial governance arrangements in place from 1 April 2022, with a third (33%) very unconfident or unconfident. As trusts emerge from COVID-19 funding arrangements, they are still developing an understanding of what 'good' system finances should look like.

Trust leaders were clear that 2022/23 will be a transitional year for NHS finances, and expectations will need to be managed accordingly. This also begs questions for the readiness of 'place' level arrangements to manage delegated budgets. While some places have voluntarily developed their arrangements successfully, there was a view overall that we need to monitor and evaluate how ICBs manage their financial responsibilities before large, complex funding pots are devolved. This feedback is particularly pertinent given recent speculation as to whether the forthcoming integration white paper might propose or even mandate the pooling of some NHS and social care funds at the level of place.

Meeting needs across all sectors

A key concern among trust leaders is ensuring that every part of the provider sector gets the funding it needs. One major financial challenge facing systems is how to balance elective recovery with the increasing demands on ambulance, community, and mental health services. Trust leaders told us their systems do not always have clear decision-making processes in place to decide what money should go where, and some worry that the 'loudest voices' will win. This appears to be particularly complex for trusts spanning multiple ICSs. For example, one ambulance trust told us there is a need for a regional forum for the ambulance sector so that their voices are heard.

Trusts welcomed NHS England and NHS Improvement's reinstatement of the commitment to the Mental Health Investment Standard (MHIS), however, there were still concerns that this is seen as a target rather than a minimum and does not fully address the question of how mental health services are meant to meet the increased demands and acuity that they face. Community providers stressed the need for enhanced communications and clarity about allocated funding and optimum levels of investment in community health services, as well as the need for ICSs to be held accountable for delivering allocated funding for community health services. NHS England and NHS Improvement will need to set out clear guidance on how systems can be supported to balance these priorities.

What can NHS England and NHS Improvement do to ensure successful system finances?

With the publication of NHS England and NHS Improvement planning guidance for 2022/23 fast approaching, trust leaders told us their top priorities included:

  • early announcement of capital and revenue allocations
  • early sight of operational and planning guidance
  • sufficient time to plan
  • best practice guides/models to financially manage as an ICS
  • a realistic delivery ask
  • clear and transparent methodology for allocations of revenue and capital.

Numerous trust leaders also raised the need for capital reform - as highlighted in our capital briefing, 67% of trusts agreed or strongly agreed that they had funds to invest in capital projects, but national/system capital limits restricted their ability to do so. Realistic expectations on efficiency and returning to 'fair share' allocations are also needed. Our recent joint report with the NHS Confederation illustrated how the operational pressures that the NHS is facing now, and is likely to face moving forward, plus the ongoing threat posed by COVID-19, may limit systems' ability to deliver efficiencies despite their very best efforts. NHS England and NHS Improvement must ensure that the productivity and efficiency gains expected of providers are not only realistic, but also clearly communicated so that providers understand the underlying assumptions their calculations are based on.

Finally, it is important to note that system finances are just one piece of the puzzle. The health and care system is undergoing significant financial reform at the same time as dealing with increasing operational pressures. Trust leaders made it very clear to us that there is a pressing need for a fully costed and funded workforce plan, alongside increased long-term investment in workforce expansion, education, and training. If the NHS is going to get the most out of every pound allocated, it needs to operate in partnership with adequately funded social care and public health services, both of which require more central investment.

Despite these challenges, providers are positive about the opportunity to improve patient care, reduce health inequalities and promote sustainability via system working. Trust leaders look forward to more local decision-making and better system collaboration, some of the opportunities mentioned included collective risk sharing, reducing transactional costs, and a better understanding across providers of whole care pathways and patient journeys. It is widely agreed that the allocation and distribution of funding at ICS level can support these aims over time.

This blog was first published by Public Finance.

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Olivia O'Brien profile picture

Olivia O'Brien
Policy Officer

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