Q3 figures show impact of record winter demand, while new survey reveals unsustainable reliance on one-off savings

Lost income from cancelled operations and higher than expected spending, both resulting from record winter demand, have put greater pressure on NHS trust finances, with NHS Improvement reporting a third quarter year end deficit of £886 million against a target deficit of £580 million. 

Published at the same time as NHS Improvement’s quarter three figures, a survey of finance directors released by NHS Providers shows that while most trusts were on or ahead of plan, just over a quarter reported deteriorating finances against their plans. Off plan trusts report that the two biggest drivers of their financial deterioration were caused by the 3.5% annual increases in A&E attendances and hospital admissions, when most had planned for 2% increases. These increases meant significant lost income from elective operations as trusts freed up bed capacity and extra, unplanned, spending on staff and more beds to cope with the record emergency demand.

A survey of finance directors released by NHS Providers shows that while most trusts were on or ahead of plan, just over a quarter reported deteriorating finances against their plans.

The survey also reveals that two-thirds of trusts are predicting they will only be able to meet challenging financial targets this year as a result of one-off savings that may not be achievable next year and beyond. These one-off measures could account for as much as £1 billion of the savings that trusts are expecting to make this year, showing just how big the underlying NHS financial challenge is 

Finance directors from 99 hospital, mental health, community and ambulance trusts – more than 40% of the NHS provider sector – completed the survey. Carried out earlier this month, the survey sought views on the 2016/17 financial position as well as the longer-term outlook for 2017/18 and beyond. NHS Providers has today published survey findings relating to 2016/17 and will publish the full findings later in February.

The survey’s 2016/17 results found that:

1. Almost two thirds (60%) of trusts said they were on plan to achieve their financial target by the end of 2016/17, with 13% reporting that they were ahead of their target. However, more than a quarter (27%) of trusts reported that they were behind their plan at this stage.
2. Two thirds (66%) of trusts are predicting they will only be able to meet challenging financial targets this year as a result of one-off savings that may not be achievable next year and beyond. These one-off measures include ‘non-recurrent’ savings, capital to revenue transfers and balance sheet and accounting adjustments. Almost four in 10 (39%) trusts responding reported themselves as being very reliant on this type of saving, with 27% as being fairly reliant.
3. Many of the trusts that are behind their target have shown a substantial deterioration in their financial positions. Trusts report that this is primarily the result of the extra cost of winter pressures and lost income from having to cancel planned operations to provide sufficient winter bed capacity. Several trusts that reported themselves as being on target still said that maintaining their position going into the final quarter of the year will be a significant challenge.
4. In total, the 99 trusts that responded to the survey reported that they would make around £340 million in one-off savings this year. Using a turnover and sector based modelling approach, NHS Providers estimates that these one-off measures could account for as much as £1 billion of the savings across the provider sector as a whole: an underlying challenge significantly higher than what is apparent in the official reported figures.

Commenting on the third quarter results and survey findings, NHS Providers chief executive Chris Hopson said:

“Despite doing everything they possibly can, NHS trusts are £300 million behind the target of reducing the provider sector deficit to -£580 million by the end of March. This is largely because of winter pressures. Trusts spent more than they planned and they lost income from cancelled operations – both were needed to create the extra bed capacity to meet record emergency winter demand. This shows the danger of planning with no margin for unexpected extra demand. We can’t expect to run NHS finances on wafer thin margins year after year and keep getting away with it.

We can’t expect to run NHS finances on wafer thin margins year after year and keep getting away with it.

“Today’s figures do show the considerable progress trusts have made this year to cut last year’s record £2.45 billion deficit. We estimate the year end deficit will be somewhere between -£750 million and -£900 million. However, this will still need clinical commissioning groups (CCGs) to support trusts where necessary, such as using the money saved from cancelled operations 

“But we shouldn’t kid ourselves. The NHS’ underlying financial position is not sustainable. Two thirds of finance directors we surveyed say a significant amount of the savings their trusts have made are one-offs that cannot be relied upon in future. The National Audit Office has recently warned of the dangers of such an unsustainable approach but the NHS continues to rely on it.

“The situation has not been helped by many trusts having been set unrealistic cost improvement plan targets – with trusts reporting that they are seeking to deliver an average cost improvement target of 4% this financial year. This is double what was originally intended and it leaves no margin to cope with the inevitable pressures that emerge during the year. Despite everyone’s hard work, it’s no surprise that some trusts fall short. Again, the National Audit Office has warned NHS system leaders not to set providers unrealistic savings targets, but we are still persisting with this approach as well.

“We should also not forget the overall financial context. The NHS is once again struggling to balance its books despite a 2016/17 NHS England funding increase of 3.6%. This is by far the biggest annual funding increase the NHS will receive this parliament and begs the question of what will happen when funding increases drop to 1.3% and 0.4% over the next two years. We will clearly have to do something different in 2017/18 and 2018/19. It’s simply not sustainable to require NHS trusts to make up the shortfall between what is being asked of the NHS and the funding available.”

The full findings from the NHS Providers survey of finance directors will be published later in February.