NHS must avoid short-term fixes to cure financial ills, warns The King's Fund

The NHS must avoid short-term fixes and tackle the underlying causes of financial deficits if it is to avoid a yearly cycle of job and patient service cuts from developing.

That was the warning from The King's Fund today as it published its latest deficit update briefing on the financial state of the health service. The briefing presents more detailed analysis of the official financial position for the NHS in 2005/6, including a summary of the Public Interest Reports carried out by the Audit Commission.

It reveals that many trusts have had underlying deficits for a number of years, which their boards, auditors, strategic health authorities and by implication the Department of Health, must have been aware of for some time. Many of the deficits were dealt with by short-term fixes by trusts encouraged to prioritise hitting targets above achieving financial balance.

The briefing also argues that the causes of the deficits are more complex than weak financial management. New reforms, such as payment by results and patient choice, which may have a long-term benefit for patients, are not a cause of deficits, but may have the potential to make those deficits in some organisations substantially worse.

Almost a quarter of NHS trusts and health authorities are predicting a deficit at for the financial year-end. However, the briefing warns this figure is likely to be much higher as many trusts have borrowed from the NHS Bank to balance their books which has to be repaid, while others are assuming they will make efficiency savings which may not materialise.

The total projected gross debt for the last financial year is expected to range from £700 million to £1.2 billion. The briefing shows that hospitals account for 58 per cent of the total projected deficit; primary care trusts (PCTs) 37 per cent; and strategic health authorities five per cent. Sixty-one hospitals (25 per cent) and 69 PCTs (23 per cent) have projected deficits, while only 29 hospitals (12 per cent) and 35 PCTs (11 per cent) have projected surpluses.

Commenting on the figures, The King's Fund chief executive Niall Dickson said:

'The priority now must be to sort out the financial mess in which the service is embroiled and to concentrate on a few key areas. This means tackling long standing issues in some local services that should have been sorted years ago and getting a much tighter grip on costs and productivity. Trusts must avoid relying on short-term fixes, such as borrowing, as that will mask deeper financial problems. This will only prolong the cycle of job and service cuts that we are now starting to see.'

He added: 'It's clear that these financial problems threaten to derail the government's reform agenda. Already, the NHS is likely to start this financial year with a debt approaching £1 billion. A significant worry is that hospitals will be left with too little cash to fund policies which would directly improve patient care. This will have to be repaid from the £5.4 billion extra the NHS received last year and comes on top of new cost pressures this year of £3.8 billion.

'The pressure is still on the NHS to meet increasingly tough targets, such as the 18-week inpatient waiting time target. This makes further cuts in services almost inevitable.'

Notes to editors: 

  1. For further information or interviews, please contact the King's Fund media and public relations office on 020 7307 2585, 020 7307 2632 or 020 7307 2581. An ISDN line is available for interviews on 020 7637 0185.
  2. The briefing, Deficits in the NHS, is based on further detailed analysis of the official deficit figures and of the underlying reasons for the financial problems facing the NHS in England drawn from official trust board papers and Audit Commission reports. It can be downloaded from Wednesday 26 April.
  3. This is the second King's Fund briefing on NHS deficits. The first briefing provides detail on where the extra investment in the NHS has gone and reveals how much money is absorbed by higher pay and other cost pressures, as well as how much is left over for other developments such as reducing waiting times and other government priorities.
  4. The King's Fund is an independent charitable foundation working for better health, especially in London. We carry out research, policy analysis and development activities, working on our own, in partnerships, and through funding. We are a major resource to people working in health and social care, offering leadership development programmes; seminars and workshops; publications; information and library services; and conference and meeting facilities.