The deficit

The past two years have seen the NHS provider sector (NHS trusts and foundation trusts) struggling to cope with increased demand, due to a growing and ageing population, plus rising costs.

As a result in May 2016 the NHS provider sector reported a combined deficit of £2.45 billion for the 2015/16 financial year.  Barts Health in London, the NHS’s largest trust, posted the biggest deficit of all at £134.9m, as a result of spending large sums on agency staff and servicing a PFI debt.

This dire financial situation encompasses the entire NHS provider sector in England; it is not limited to any particular geographical area or type of trust. According to a March 2016 report by the think tank The Health Foundation  - “[the deficit] is a systemic issue, with nearly half of trusts reporting a deficit in 2014/15, and over three-quarters in deficit by quarter three of 2015/16.”

Yet just two and a half years earlier in the 2012/2013 financial year the NHS provider sector reported a surplus of £577 million.


The Changing Geography of NHS Trust Deficits: The Health Foundation 2016


The deficit is also not confined to NHS trusts; although the situation is not as severe, clinical commissioning groups (CCGs) are beginning to fall into deficit. In the financial year 2014/2015 19 CCGs reported deficits, but in February 2016 it was predicted that this will have increased to 30 CCGs by the end of the financial year 2015/2016 with a combined deficit of £0.5 billion.

The true deficit could be £3.5 billion

It is possible that the true extent of the deficit is much higher. In the early part of 2016 all NHS trusts (including acute and specialist hospital trusts, mental health care providers, ambulance trusts and providers of community services) were encouraged to make their year-end overspends as small as possible by the Department of Health. The trusts are reported to have used a series of accounting devices to mask the true deficit.

The Institute for Public Policy Research (IPPR) believes that the £2.45 billion is a significant understatement of the deficit. The IPPR's assessment is that the true underlying position is a deficit as high as £3.5 billion.

The IPPR highlights several issues and accounting devices used by trusts to bring down their deficits, including the transfer of around £1 billion from the capital spending budget (for building and maintaining hospitals and buying equipment) into the NHS’s resource budget where it was used to help cover normal running costs.

Then there are many cases of trusts selling existing assets to raise cash to cover their deficits. This money should be reinvested to deliver care over the long-term but it is now being used to cover the deficit.

The problem with all the accounting tactics used by the NHS trusts is that the money they raise can only spent once, note the IPPR; although they improve the cash position, it leaves the NHS in a much worse position in the long-term.

These deficits reported by so many NHS organisations are likely to continue as there is plenty of evidence that the Government's funding plans for the NHS do not provide the money that is needed to maintain the NHS as demand and costs rise over the next few years.