Richard Douglas, former Director General for Finance, Strategy and the NHS at the Department of Health, reviews the NHS financial accounts and what it means for the NHS.
Today the Department of Health (DH) published its Resource Accounts, NHS England its Annual Report and Accounts - including a consolidation of CCG spending - and NHS Improvement the consolidated Foundation Trust Accounts.
The size of the Foundation Trust and NHS Trust deficit is broadly as reported in May, a little shy of £2.5 billion and, given this, most people inside and outside the NHS expected the DH as a whole to exceed its budget. It was just a question of by how much: what offsetting savings could be found to reduce the overspend?
Today's accounts give us some clarity as to whether the DH did overspend its budget. However, unsurprisingly, given the arcane nature of government accounting, the answer is not straightforward.
We need to look at a combination of the Accounts, the Parliamentary Supply Estimates and the Treasury Public Spending Statistics for July 2016. From this we see that DH breached its key Treasury budgetary control - the non-ring fenced RDEL (Resource Departmental Expenditure Limit), which covers current expenditure on staff, supplies and drugs – by around £400 million. The Accounts only show a breach of £200 million on the total RDEL, due to a £200 million boost coming from an underspend on depreciation or what we used to call 'funny money' (technical term) in the ring-fenced RDEL.
The report accompanying the accounts focuses on the TDEL (Total Departmental Expenditure Limit) overspend which is £0.1 billion (rounded) due to a small capital underspend.
However, the RDEL overspend comes after the budget was boosted in-year by a transfer from capital – money intended for investment not current spending – of £950 million plus an additional £200 million from the reserve to cover a shortfall in Pharmaceutical Price Regulation Scheme (PPRS) receipts.
So overall current spending was around £1.5 billion more than planned.
The difference of around £1 billion between this and the provider deficit was found by a combination of:
- Arm's Length Body underspends of £0.1 billion
- NHS England delivering a surplus that was £0.2 billion greater than planned
- DH central budgets underspending by £0.6 billion – most of this through one-off changes in European Economic Area (EEA) medical costs
- A one off super dividend of £0.1 billion from the MHRA
Interestingly, despite overspending their key budget, the Department did not bust the Parliamentary Vote, so they have not had their accounts qualified. The reasons are technical. The NHS is funded by a combination of money voted by Parliament and contributions from the National Insurance (NI) Fund. In the last financial year, NI funding was over £400 million higher than planned, which has no real world impact. The Parliamentary Vote should have been reduced by this amount but due to an administrative error this didn't happen: the Department got lucky.
Although he has not qualified the accounts, the Comptroller and Auditor General considered the situation serious enough to produce an explanatory report on the accounts, drawing attention to the various one-off actions taken by the Department to limit the overspend against the Treasury controls. Expect a Public Accounts Committee hearing in the autumn.
So what are the consequences for this financial year?
The NHS still has a mountain to climb in what should be the 'best' year of the Spending Review period. The underlying NHS deficit is somewhere north of the £2.45 billion reported deficit: anything up to £3.5 billion, depending how you count it. Although the system needs to go a long way towards eliminating this and starting to recover performance, at least the Treasury has not made the task even more difficult by demanding repayment of the overspend. The one bright spot in an otherwise gloomy picture.