Financial control and productivity

Many of the new government’s first actions respond to the increasing financial pressures facing the NHS.

A number of measures are being implemented to control provider spending, for example by reducing expenditure on agency staff and management consultants. Regulatory controls are being strengthened and providers have been required to revisit their plans – which Monitor recently branded ‘unaffordable’ – to identify savings.

At the same time, pressure is increasing on the NHS to identify efficiency savings to deliver the £22 billion in productivity improvements it needs to find by 2020. Significant emphasis has been placed on implementing the findings of Lord Carter’s review of efficiency in hospitals and measuring how efficiently providers use resources. The Carter review identified only £5 billion in savings, underlining the scale of the productivity challenge facing the NHS and the need to deliver better value by taking action at all levels of the NHS to change clinical practice.

New rules on temporary staffing

In response to a significant increase in the use of agency staff (according to the government, this cost £3.3 billion last year), at the beginning of June, Jeremy Hunt announced new rules to control spending on temporary staff. These include:
  • maximum hourly rates for agency staff (will vary by region)
  • a requirement for NHS organisations to employ staff only from agencies on approved frameworks
  • for trusts in financial difficulty, applying a ‘ceiling’ (on a trust-by-trust basis) to total spend on agency staff.

Work is currently under way to determine the appropriate ceiling for each trust and each foundation trust in breach of its provider licence. Monitor intends that these ceilings will remain in place beyond the current year, and will reduce year on year.

Trusts will receive guidance on maintaining patient safety during implementation and will be able to breach the ceiling where necessary in the interests of patient safety.

As highlighted in our recent report on workforce planning in the NHS, the increasing reliance (and spend) on temporary staff is a result of a more fundamental problem – the insufficient availability of permanent staff. Recognising this, Health Education England will be leading action to address the underlying causes of increased use of agency staff through the Workforce Advisory Board. This will include extending the national Return to Practice Campaign and sharing best practice on staff retention.

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Management consultancy spending cap

As part of the package of measures to control spending announced in June, trusts’ spend on new consultancy contracts will be capped at £50,000. Where organisations need to breach this for clinical reasons, they must seek approval from either Monitor or the NHS Trust Development Authority.

Although the cap is mandatory only for trusts and foundation trusts in breach of their licence, Monitor is strongly encouraging all trusts to discuss their plans for using consultants with the Monitor team.

In addition to the cap, NHS England plans to hold discussions with the large consultancy firms on how to share the knowledge and advice commissioned from them across the NHS, and to explore opportunities for NHS organisations to leverage their joint purchasing power to achieve better prices from suppliers.

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Controls on pay and conditions

The government has introduced new measures in relation to pay costs for permanent staff. In early June controls on senior managers’ pay and conditions were announced. These are to be introduced immediately, and include:
  • a requirement for all trusts and clinical commissioning groups to review the pay of senior managers and report back to the Department of Health
  • a requirement for trusts to justify salaries for new senior managers that are higher than the Prime Minister’s (ie, more than £142,500) to the Department of Health
  • a cap on redundancy payments for newly appointed senior managers 
  • maximum daily rates for off-payroll executives (level to be determined later in the year).
In addition, NHS organisations and staff will be affected by two decisions on pay included in the Chancellor’s July Budget:
  • public sector pay will increase by 1 per cent a year for four years from 2016–17
  • from April 2016, a new National Living Wage of £7.20 an hour for those aged 25 and over will be introduced. This will rise to more than £9 an hour by 2020.
The government is also taking action on redundancy and other exit payments across the public sector. At the end of July the Treasury launched a consultation on the introduction of a cap on exit payments for workers in the NHS, local authorities and the Civil Service. The government is proposing to legislate for a cap of £95,000 on the total value of payments made to an individual when they leave public sector employment. This follows on from legislation passed by the last government which will, from 2016, prevent highly paid individuals returning to the public sector within 12 months of exit from retaining their full exit payment.

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New regulatory controls

In June Monitor announced four initiatives to target the financial challenge within the foundation trust sector.

These include increased scrutiny of annual plans for the trusts reporting the largest deficits. This will involve a programme of site visits and ‘executive-led challenge sessions’, with the aim of agreeing a revised plan against which the trust’s performance will be measured (although the possibility of further intervention by Monitor remains). Monitor will also require foundation trusts in breach of their licence for financial reasons to comply with specific controls, initially those in relation to agency spend and management consultancy. Although these rules are compulsory only for foundation trusts in breach of their licence, Monitor has asked that all foundation trusts comply voluntarily.

In addition, Monitor has introduced some changes to its Risk Assessment Framework. Finally, along with the NHS Trust Development Authority, Monitor will seek to support providers in delivering efficiency improvements. This will include looking to high-performing trusts to support others through a scaled-up version of buddying.

In July Monitor announced that it would begin collecting financial information from all foundation trusts on a monthly basis. Monitor argued that this would ensure it had access to up-to-date information regarding the sector’s financial performance between quarterly reports, enabling it to identify potential areas of concern earlier. The monthly information will not be published, and does not require sign off from foundation trusts’ boards.

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Revisiting financial plans

At the beginning of August Monitor and the NHS Trust Development Authority wrote to providers calling for further action to help tackle the financial challenge, arguing that current plans for 2015/16 are unaffordable. Providers were asked to revisit their financial plans and consider actions that might release additional savings.

Providers have been asked to look in particular at controlling staffing costs, by filling vacancies only where essential, and adopting existing acute inpatient safe staffing guidance in a ‘proportionate and appropriate way’.

Other areas for focus include ensuring that waiting lists are managed in a way that maximises patient experience as well as the trust’s financial position (in line with changes to the referral-to-treatment target), and working with local commissioners to ensure that, where a trust has insufficient capacity to meet demand, activity is transferred to any other provider that has already-funded but under-utilised capacity

The Department of Health has also indicated that it will be imposing controls on capital spending for trusts and foundation trusts, although the detailed plans are not yet known.

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CCG measures

Alongside cost-control measures aimed at provider organisations, NHS England is requiring clinical commissioning groups to take action to help tackle deficits.

This includes suspending provider fines and penalties relating to two out of the three referral-to-treatment targets, backdated to the beginning of the financial year, and resolving contract disputes as quickly as possible. It also includes working with providers that are struggling to deliver contracted levels of activity to ensure that this is subcontracted to an alternative provider.

Commissioners are also being asked to share information about any uncommitted reserves with NHS England and the Department of Health, so that any potential upside in commissioner budgets is known.

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The Carter review

In June, Lord Carter published an interim report on his review of operational productivity in NHS hospitals in England, which began in July last year. The report’s preliminary conclusion is that that there are three opportunities for driving efficiency in the NHS: improvements in hospitals’ use of resources; greater productivity in hospital ‘workflow’; and the development of ‘sub-acute’ services to help facilitate discharge of patients.

Lord Carter estimates that, through more efficient use of NHS resources, savings of up to £5 billion a year can be achieved by 2019/20. This consists of £2 billion from improvements to workflow and containing workforce costs, and £1 billion each from improved hospital pharmacy and medicines optimisation; estates management; and procurement.

Two key recommendations are the introduction of an index enabling NHS providers to review their performance compared to that of their peers, and the development of a ‘model hospital’ that showcases best practice. Discussions are taking place with providers to agree individual savings targets to be implemented in 2016.

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