- In response to the rapid deterioration in provider finances in 2015/16, a new financial framework was introduced in an attempt to recover deficits and re-establish financial discipline within the sector. Each provider, irrespective of their financial position, was asked to sign up to a control total – a financial target – setting a minimum surplus or maximum deficit they had to meet. In exchange for meeting financial control totals and performance targets, providers would receive their share of a new £1.8bn in sustainability and transformation funding (STF).
- There is widespread acceptance that a temporary mechanism was required following 2015/16, and that the regime has been broadly effective at reducing the aggregate provider sector deficit. However, the level of savings required has led many providers to rely on unsustainable and non-recurrent approaches to meeting control totals. Therefore, the financial framework is in danger of masking the underlying financial deficit and challenges facing the sector, and it is important that we continue to be transparent about the impact of these measures on longer-term sustainability.
- There are clear benefits of a direct allocation being made to providers, and we have seen an almost pound for pound benefit from the £1.8bn investment. This would not have been guaranteed if the funding had been routed through more mainstream mechanisms, such as clinical commissioning group allocations or the national tariff.
- The £1.8bn STF has now become an integral part of provider finances, and provider deficits would balloon once again if the funding was removed in 2019/20. Although it may be appealing to the national level to maintain a high degree of control over individual providers, the current framework is incompatible with the principles of delegation and autonomy which should sit at the heart of the NHS. Providers now need an opportunity to earn back their autonomy based on the improvements they have made, while ensuring a crucial element of provider funding continues to flow to the sector.