NHS deficit almost £3bn higher than official figures suggest

When taking aside temporary funding boosts and one-off savings, NHS trusts actually ended the year of 2016-17 with an underlying deficit almost £3bn bigger than what was reported in official accounts, analysis has revealed.

In a new briefing, the Nuffield Trust looked at the accounts and financial data published by regulators to discover that trusts ended last year with an overspend of £3.7bn – significantly over the £791m figure that was officially reported.

What’s more, the analysis showed providers are due to be hit with £2.2bn in unfunded inflation this year, £500m more than what was planned. To meet their targets for 2017-18, they will have to cut operating costs by more than 4%, equivalent to £3.6bn savings in total.

Even if they managed to do that, trusts would still need another £1.8bn of ‘sustainability’ funding to meet their target deficit of £500m. But it can’t even be guaranteed that they would manage to make these cuts in the first place: while providers delivered large efficiencies last year, they have “never before managed savings at this level”.

In light of the staggering figures, the think tank argued that without more real-terms funding for the health service, hospitals are “unlikely to recover any time soon from a mismatch between the money they receive and the cost of providing patient care”.

Its senior policy analyst, Sally Gainsbury, concluded that official figures published by NHS Improvement “don’t reflect how severe things are for hospitals in England”, with reported deficits being masked by one-off cash boots or savings that can’t be repeated this year.

“Only by looking at the deficit after these have been stripped out can we see the scale of financial challenge facing the NHS– and it is eye watering,” she noted. “NHS trusts have made billions of pounds of efficiency savings every year, but these have been largely absorbed by inflation, and reductions in the cash paid to them per patient.

“Yet increasing funding to wipe out these deficits and fund much-needed reform in the NHS is entirely possible and wouldn’t even increase the proportion of our country’s wealth spent on health care. Our hospitals are undoubtedly in financial crisis. But the solution to that crisis is not beyond the reach of the public purse.”

Looking to future years, the Nuffield Trust briefing revealed that even if trusts continue to make large savings at a relatively high rate, they will still be running deficits for the foreseeable future – remaining more than £2bn in the red in 2021. This could grow to almost £4bn if inflation continues to rise faster than anticipated.

And CCGs won’t have any room left to give providers more money, since their own budgets are being squeezed nationally. The proportion of their funding which goes to hospitals and other specialist care, however, is set to increase from 63% to 65% in 2020, in direct opposition to the health service’s determination to rely less on hospitals.

Phillippa Hentsch, NHS Providers’ head of analysis, said the think tank’s analysis served to reinforce the scale of the challenge and “uphill battle” facing providers to deliver current financial commitments.

“They will need to cut their operating costs by £3.6bn to balance their books, absorb further increases in demand and costs, at the same time as improve A&E performance and deliver new commitments for cancer and mental health provision. This is while funding for the NHS this year falls from 3.6% to 1.3%,” explained Hentsch.

“With unfunded increases in demand, inflation and costs set to continue, we need a new approach to tackle the gap between what providers are being asked to deliver and what they are being funded.”

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