The NHS deficit problem has gone from bad to worse

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The NHS is doing its best to grapple with deficit, but the real pain of doing so will now be felt in the next financial year, argues John Appleby.

Before Christmas, Health Secretary Patricia Hewitt released predictions of a net deficit of £23 million for the end of the year. She also set the NHS a target of reducing this to £200 million. Hitting this target seemed optimistic but at least there was a feeling that the NHS would claw back some of the deficit.

But a few months into the new year and there is clearly no chance of doing so. Worse is the fact that the deficit has actually risen to about £790 million.

It now looks as though the NHS will have to carry over one of the biggest overspends in its history - with a significant chunk arising in London.

The NHS has a duty to balance its books and deficits of the scale now being reported would be worrying at any time in the history of the health service.

What has puzzled many is how they have arisen when spending on the NHS has doubled since 1997. Although, as Ms Hewitt has said, poor management decisions, inefficiency and waste certainly contribute to overspends in some cases, it is unfair to accuse NHS managers of incompetence.

The key to the deficit problem is that hospitals have less money than the headline amounts going into the NHS suggest.

A large chunk of the extra cash flowing in the front door has flowed straight out the back door. This year, pay rises for consultants, GPs, nurses and other NHS staff account for nearly half of the extra cash given to the NHS. And other cost pressures - such as meeting the European working time directive - have absorbed around a fifth.

So there is less money for the NHS to meet waiting times targets and other unavoidable commitments such as treating a growing number of emergency cases.

Many hospitals have faced the dilemma of either meeting waiting time targets or balancing the books. And many chose - under pressure from ministers - to meet the targets and accumulate deficits.

But, as has become painfully clear, this has not been a sustainable position.

While the NHS is doing its best to grapple with deficit, the real pain of doing so will now be felt in the next financial year.