Report looks at financial management in the NHS

• Report: Financial management in the NHS: report on the NHS Summarised Accounts 2007-08
• Public Accounts Committee

Edward Leigh MP, Chairman of the Committee of Public Accounts, today said:

"The surplus generated by the NHS in 2007-08 was nearly £1.7 billion, almost twice the amount planned and over one billion pounds more than the surplus generated in the previous year. Furthermore, all sectors of the NHS were in surplus, the quality of financial management at individual bodies improved during the year and, most important of all, the reported quality of the services provided to patients also got better.

"But there is a flip side. It’s not the case that the bigger a surplus the better. Patients lose out if too much NHS funding is sitting unspent in bank accounts. The Department of Health has said that the surplus and the planned one for 2008-09 will be available to the NHS for spending in 2009-10 and 2010-11. This kind of financial planning over the longer term is good but the needs here and now of patients in parts of the country for drugs and better quality care must not be forgotten.

"The Department has declared that the NHS will achieve efficiency savings to the tune of £15 billion over the next three years. It is of the utmost importance that the NHS achieves value for money from its funding and that productivity is continuously driven up. What must be demonstrated, rather than just asserted, is that improvements in efficiency are genuine and not at the expense of the care provided to patients."

Mr Leigh was speaking as the Committee published its 22nd report of this Session based on evidence from the Department of Health (the Department) and Monitor, the independent regulator of NHS Foundation Trusts. The report examined the financial performance of the NHS and NHS Foundation Trusts, how the surplus was achieved and its impact, as well as the financial challenges facing the NHS in the future.

The Department and the NHS achieved a surplus of £1,674 million in 2007–08, representing almost 2 per cent of total available resources and the equivalent of about one week’s funding for the whole NHS. The surplus was significantly higher than the original forecast of £916 million and more than three times that recorded in 2006–07 (£515 million). In 2006–07, the surplus was concentrated in the Strategic Health Authorities, which are administrative bodies, with the Primary Care Trust and NHS Trust sectors remaining in deficit. All sectors are now in surplus and the quality of financial management at individual NHS organisations improved during 2007–08. The Healthcare Commission also reported that the quality of services provided by the NHS improved over the year.

The surplus of £1.67 billion represents funding that was made available by Parliament for healthcare in 2007–08, but which was not used. Whilst some contingency planning is sensible, there is a real risk that patients lose out because the NHS is not spending its allocated funding on treating them. The Department has committed itself to making the surplus available to the NHS for spending in future years, and it should mean that the NHS has the financial headroom and associated flexibility to respond to future financial pressures or changing priorities. The Department, however, needs to make sure that this is done in a way which does not unnecessarily delay treatment for those who need it most.

There are some long-standing financial problems that affect a minority of trusts which remain in deficit, and some regional variations in financial performance persist. With a decade of high funding growth, there is no reason why any NHS organisation should not be able to balance its books.

During a period of economic uncertainty when resources are severely stretched it is more important than ever that the NHS can demonstrate value for money and continuous improvements in productivity. The Department intends that the NHS should generate £15 billion in efficiency savings over the next three years. It will be important that these are achieved and are sufficiently robust to withstand external scrutiny, while at the same time not having any detrimental effect on patient care.

Going forward the Department and NHS face a number of challenges, including changes to the financial reporting framework and timetable, and further system reforms under which a quality element will be introduced into how NHS organisations are funded. The surplus generated and better financial management should, if maintained, help deal with the financial implications of meeting these challenges.