It’s a game of two halves. First, the good news. The arrival of the £1.8 billion Sustainability and Transformation Fund – allocated to providers to reduce their deficits – alongside a suite of other financial control measures has led to the provider deficit being reduced from £930 million in the first quarter of last year to £461 million for the same period this year. As the NHS attempts to restore greater discipline over its finances it's perhaps even more impressive that this result is £5 million ahead of plan. £5 million may not sound like much in the context of NHS finances, but the tradition for quarter one has been for the NHS to be well behind plan, so this is a sharp turnaround.
So where is the bad news? There are some uncomfortable signals within both the provider and commissioner numbers that may suggest that the NHS will struggle to keep up this relatively good start. First, rather oddly, providers were behind on their cost improvement plans (CIPs) by £45 million overall – in other words, their better than expected finances were not driven by better performance on efficiency and savings, quite the opposite in fact. Some of the difference is explained by providers doing better on income, but this has, of course, been matched by a deterioration in the position of clinical commissioning groups (CCGs) – after all, a CCG’s expenditure is a provider’s income.
Second, despite some success on managing overall growth in the paybill, it was worrying to see spending on waiting list initiatives and the outsourcing of clinical work rising to £115 million. Controls on the use of agency staff will not save money if NHS providers run out of capacity and are forced to turn to outsourcing and one-off measures to push waiting lists down.
Third, there are still 24 providers who have rejected the financial targets (aka control totals) that NHS Improvement has set for them. In addition, another 29 failed to meet their finance and/or performance targets in the first quarter and so had their sustainability and transformation funding withheld. This means that more than 50 NHS providers have not complied with the new framework of control totals. As many believe providers have tried really hard to follow the rules, to have so many fail is a worrying sign and may bode ill for the end of the year.
Taking these three things together, this may explain why, despite rather better quarter one performance, providers as a whole actually raised their forecast year-end deficit to £644 million and our survey found that only a third of trust finance directors were confident they would meet their control total at the end of the year. For many NHS providers 2016/17 will not be the year they return to financial balance and for the sector as a whole, the aim set out in July, to get the net deficit down to £250 million this year, is looking increasingly challenging.
Meanwhile, commissioners have generally not been the focus of concerns over deficits but this may be about to change. In quarter one, CCGs were £57 million behind plan; this is at least in part simply the mirror image of NHS providers having done rather better on income. However, the real risks for commissioners (and the NHS) lay in their required efficiency (QIPP) savings. In 2016/17 commissioners saw a sharp increase in the savings they were required to make, from the £1.9 billion savings actually delivered last year to a planned £3.1 billion this year. Perhaps unsurprisingly our quarterly survey of CCG finance leads saw a sharp rise in concerns that these savings would not be delivered. In quarter one last year, less than 10 per cent of CCG finance leads described themselves as `very concerned’ over their QIPP target, whereas now it is just under 50 per cent, and confidence has declined since the start of the financial year.
Worries over the sustainability of both provider and commissioner efficiency savings would on their own be a warning sign. Put alongside seemingly relentless increases in demand, whether for planned or for emergency care, and the evidence that the NHS is reaching its limits on capacity (shown in high bed occupancy and growth in outsourcing), this could make for a very difficult winter for the NHS.
- Read the latest quarterly monitoring report.