NHS overspend £3 billion higher than reported

A new briefing from the Nuffield Trust has highlighted an overspend of almost £3 billion by NHS trusts in England for last year.

The Bottom Line, based on analysing the accounts and financial data published by NHS regulators, has shown that NHS trusts ended 2016/17 with an underlying overspend of £3.7 billion, almost £3 billion higher than the £791 million reported by NHS regulators.

Furthermore, it is expected that providers will be hit with £2.2 billion in unfunded inflation this year - which is £500 million higher than planned - meaning that trust’s will need to cut their operating costs by 4.3 per cent within this financial year to meet their targets. An extra £1.8 billion ‘sustainability’ funding would be required in order to meet their target headline deficit of £500 million.

As a consequence, in the next few years NHS commissioners will not have any room to give them more money due to their own budgets being squeezed. Despite the NHS intending to reform itself so that it relies less on hospitals, the proportion of commissioners’ funding which goes to hospital and other specialist care is set to rise from 63 per cent to 65 per cent in 2020.

Sally Gainsbury, who authored the briefing, said: “The official figures on NHS deficits don’t reflect how severe things are for hospitals in England, as the deficits reported include one-off funding boosts or savings that cannot be repeated the following 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.

“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.”

Responding to The Bottom Line report, Phillippa Hentsch, head of analysis at NHS Providers, said: “This analysis reinforces the scale of the challenge facing providers to deliver current financial commitments. The impact of inflation last year suggests that trusts faced an uphill battle to deliver the savings required, and that without one-off savings and £1.8 billion of sustainability and transformation funding, the underlying deficit position was actually around £3.7 billion, rather than the £791 million as reported at year end.

“This puts substantial pressure on providers to deliver this year. They will need to cut their operating costs by £3.6 billion 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 per cent to 1.3 per cent. 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.”