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The NHS and the wider Department of Health and Social Care routinely balance their budgets and remain within their annual spending limits. But this masks the serious financial pressures many individual organisations within the NHS have reported over recent years.

For example, in 2018/19 (the most recent full financial year before Covid-19) frontline providers of services reported an aggregate deficit of £0.83 billion. But because of national commissioners (who commission specialist services centrally) underspending their allocated budgets, the NHS overall reported a small underspend of £0.09 billion (see Figure 1).

Chart showing the deficits and underspends in the NHS

How did trusts get into deficit?

Financial pressures in parts of the NHS started to rise with austerity in the early 2010s, when health spending rose more slowly than the historical average. The simple reason NHS trusts got into deficit is that their spending was routinely higher than their income (see Figure 2).

Chart showing NHS spending vs income during austerity

The NHS provider sector

Because of rising costs and lower income growth, from 2013/14 frontline NHS providers started to overspend their annual budgets in aggregate. By 2014/15, two thirds of trusts were in deficit on their annual budgets – a net deficit of £2.5 billion. The 2015 Spending Review provided additional ‘sustainability and transformation’ funding for the NHS, which contributed to the fall in reported deficits over the following years (see Figure 3).

Chart showing when the NHS provider sector went into deficit

Individual trusts in deficit

However, even though the provider sector has reduced its overall deficit in recent years, several trusts are still in significant deficit. This is most notable in London, where two thirds of trusts were in deficit at the end of 2019/20 (see Figure 4).

Chart showing the variation in trust budgets between 2019/2020

In 2020/21, for the first time in eight years, the NHS provider sector reported a surplus of £0.65 billion (see Figure 3). This was supported, in part, by additional funding and new financial management arrangements that were put in place to help the NHS deal with the Covid-19 pandemic.

Following the passing of the Health and Care Act 2022, 42 integrated care boards (ICBs) are the new local budget holders in the NHS. ICBs have a duty to ensure their annual budgets are not exceeded, though some ICBs are already forecasting that they will overspend their allocated budgets in 2022/23.

Financial deficits in the NHS grew over a period where funding growth slowed and costs – particularly on staffing – continued to increase. The government spending review in 2021 announced a long-term increase funding for the NHS until 2024/25. However, many providers and commissioners are still likely to struggle to balance their budgets in coming years because of the continuous increase in demand for services, rising inflation and the costs of tackling the Covid-19 pandemic.