REPORT ON THE NHS SUMMARISED ACCOUNTS, 2006-07: ACHIEVING FINANCIAL BALANCE
Publication of the Committee's 23rd Report, Session 2007-08
Edward Leigh MP, Chairman of the Committee of Public Accounts, today said:
"The Department of Health's performance in turning two years of increasing deficit in the NHS into a surplus in 2006-07 of over half a billion pounds is very commendable. But the headline figures mask some unwelcome evidence that the NHS is not yet travelling along the road to long-term financial health.
"More than one in five NHS organizations are still in deficit, collectively running up a gross deficit of £917 million in the year. There are still large variations in the financial performance of different types of NHS organization. There are striking regional variations in financial performance. And, even though the overall quality of healthcare looks to have been improved, some Primary Care Trusts limited the amount of healthcare they delivered either to make savings or because their budgets were cut.
"Bad financial management at local level can have significant consequences for patients: there is a clear link between the financial performance of a body and the quality of its clinical services. This is a lesson which must be driven home across the NHS, to both financial and clinical staff.
"Another lesson is that local bodies must be able to demonstrate that they have provided a level of healthcare that meets local needs. Large surpluses will prompt the question why this money could not have been used to deliver a higher level of healthcare."
Mr Leigh was speaking as the Committee published its 23rd Report of this Session which, on the basis of evidence from the Department of Health, examined the financial performance of the NHS, how the financial turnaround was achieved, and the impact of this turnaround on services and the future.
The Department of Health (the 'Department') and the NHS achieved a surplus of £515 million in 2006-07, representing 0.6% of total available resources. Following two years of rising deficits, the Department, working with the NHS, has done well in restoring overall financial balance.
While the national picture is one of financial surplus there remain variations in financial performance. The surplus is concentrated in Strategic Health Authorities, whilst overall Primary Care Trusts and NHS Trusts remain in deficit Of the 372 NHS organisations, 82 recorded a deficit of £917 million, with 80% of this being reported by just 10% of NHS organisations. There are also regional variations, with the East of England Strategic Health Authority area having a deficit of £153 million and the North West achieving a £189 million surplus. Financial recovery is therefore inconsistent and more needs to be done so that all parts of the NHS achieve financial balance.
The question arises whether financial balance was achieved through sustainable improvements in NHS financial management or through tighter central control and service reductions. The Department required some allocations to be withheld from NHS organisations notably through the top-slicing of Primary Care Trust budgets and through diversion of training expenditure to support deficits. As a result, some Primary Care Trusts were unable to deliver all of the health care they might have, with some delivery against local priorities being reduced or delayed through limits on health care activity. Overall, however, the quality of service improved during the year, as rated by the Healthcare Commission.
The Committee concludes that the return to financial balance is the result of the Department's tighter performance management of NHS finances in the way funding flowed through the NHS together with a programme of support for local organisations with particular financial difficulties. In the short term, this largely centralist approach was appropriate. For the future if the NHS is to remain in financial balance more health organisations locally need to improve their financial management. Failure to keep a tight grip on financial performance will undermine health care for patients.