Solutions

The purpose of capital in the NHS is to provide the infrastructure needed to deliver safe, modern, high quality health services. This report has demonstrated the extent of the problem and outlined the case for change.

It is widely accepted that in recent years there has not been enough money to provide universally high quality facilities across the whole NHS, and there has not been an adequate system for ensuring the available resource reaches the places it is most needed.

In the next phase of the NHS' development, as described in the long term plan, it will be necessary for a completely new approach to capital investment. This should enable facilities that have reached the end of their useful life to be rebuilt and replaced. It must guarantee safety by ensuring care is delivered in buildings that do not risk causing harm, and enable the service to grasp the opportunities offered by technology. Finally, it must provide an infrastructure that can continue to serve a growing and changing population.

As we have set out in our campaign, this will require:

• a multiyear NHS capital funding settlement
• an increase in the NHS’ capital budget to bring it into line with comparable economies
• an efficient and effective mechanism for prioritising, accessing and spending NHS capital.

This year's comprehensive spending review presents an opportunity to improve resourcing and reset the rules governing capital spend in the NHS. This final section sets out how a new capital system for the NHS could work and deliver against each of our three campaign asks.

A multiyear NHS capital funding settlement

We welcome the fact that the health infrastructure plan published in September included a commitment in principle to multiyear capital settlements. In our view this commitment should extend beyond the usual comprehensive spending review approach of a maximum of five years of indicative CDEL allocations, which are extended every five years – an approach which leads to increasing uncertainty in the latter years of the CSR period.

Instead, a rolling approach should be taken, with the long-term settlement extended each year. This would give the frontline NHS long-term certainty over the resource that will be available, and a planning horizon long enough to enable deterioration in facilities to be anticipated and provided for, and to support the lead in times needed for larger scale building projects. It is unclear whether this, or a consecutive series of five-year settlements, is what is recommended in the health infrastructure plan.

Capital budgets for each year to 2023/24 would align with the existing NHS revenue settlement, but would not be enough to enable the service to plan its infrastructure effectively. Critical infrastructure in departments such as transport and defence are planned over a much longer time period – as long as 20 years – while the long term plan describes a generational change in the model of care that will take up to 10 years to complete. To implement the long term plan, a rolling ten year indicative capital envelope would be the minimum required. This should be split between funding for major schemes (such as hospital rebuilds) and more routine capital funding.

Increasing the capital budget

It will be necessary to spend significantly more on NHS capital, permanently, if the service is to be able to meet the priorities of the long term plan, hit key performance metrics, reshape itself for the future, invest in new technology, replace decrepit facilities, and adapt to the changing demands of the population it serves.

This has been acknowledged by national NHS leaders. NHS Improvement's report for quarter four of 2018/19 cited OECD data showing that, if the NHS's capital budget matched the average as a proportion total spend, it would be nearly twice as much. The long term plan also cites OECD data demonstrating that the NHS uses its capital assets and infrastructure "more intensively" than most other western countries. It shows how, while the average among EU27 countries is to spend 0.6% of gross domestic product on "fixed capital formation in the health sector", the UK spends 0.3%.

Both citations lead to the conclusion that the NHS’s capital budget should roughly double from its current level.

   

Research by The Health Foundation supports this. In International comparisons of capital in health care: why is the UK falling behind? researchers reported that, over the past 20 years, the amount spent on healthcare technology internationally has risen faster than workforce spending in most comparable countries. However in the UK, the briefing concluded: "The value of machinery and equipment per health care worker in the UK is the lowest of all [10 comparable] countries analysed."

The Health Foundation said that to bring the English health system in line with comparable countries, an extra £2.5bn would need to be added onto the CDEL for 2019/20. As the capital envelope for providers at the beginning of the year was £3.7bn, and £1bn was added to this figure in the September spending round, an additional £2.5bn for provider capital budgets would roughly double the resource available.

Such an increase will be needed if the NHS is to permanently reduce its maintenance backlog to a safe level, while investing in technology and rebuilding its estate.

A national rebuild programme 

Taking stock of past rebuilding programmes and the first wave of the HIP helps to understand the scope of building work required.

Many of the buildings in the NHS that now need replacing date from the last and only major national infrastructure programme of the 1960s. Beginning in 1962, the hospital plan for England and Wales delivered 95 major schemes in its first three years, while a further 66 new or substantiality remodelled hospitals, and 84 other major schemes had been started.

The next biggest infrastructure programme was that delivered under PFI between 1997 and 2015. There are currently 109 health PFI projects still being paid for that were built under these arrangements – these are generally partial rebuilds although some completely new hospitals were also delivered under PFI.

While this was a major long-term investment in NHS infrastructure, it should be borne in mind that it has not been sufficient on its own to provide the estate that the NHS as a whole needs.

When the PFI pipeline was in full flow, it delivered 101 completed projects between 1999 and 2010, with a total capital value of £13bn in today’s prices, or more than eight finished projects with a combined value of more than £1bn every year.

This is an order of magnitude greater than the first wave of the HIP envisages – £2.8bn of hospital rebuilds across five years. Even taking into account the second wave of the government’s planned health infrastructure spending, around 40 projects would be delivered in the decade from 2020 to 2030: again, a much more modest ambition than was achieved in a decade under either PFI or the 1960s hospital plan.

It will be necessary to expand upon the ambitions set out in the health infrastructure plan and embark upon a national rebuild programme on a scale comparable with the last two major infrastructure schemes.

An efficient and effective mechanism for spending NHS capital

The chief executive of NHS England, Simon Stevens, told the health and social care committee in October 2019 that the current sign-off process had acted as an implicit rationing system which prevented the service from spending more than its CDEL allocation. The health and social care secretary Matt Hancock agreed, adding: "The truth is that the Department, in many cases, did not have the national budget and therefore did not approve things because they did not fit within our envelope."

The primary solution to this problem is therefore not to design a better way of rationing insufficient resource: it is to first ensure there is enough headroom in the CDEL for the service's capital needs to be met.

A functional capital allocations system

A functional capital allocations system needs to be underpinned by a set of principles. Rather than acting as a menu of options, the following points should be seen as elements that make up the whole.

• A functional capital system starts with the total amount of money available to the system as a whole: there should be enough revenue funding to pay for day-to-day running costs without making transfers from the capital budget, plus depreciation of assets. RDEL should also be sufficient to enable any well-run provider to make a surplus that they can invest in capital in future years. CDEL should then be high enough to enable those surpluses to be reinvested when needed. It is reasonable to expect that the total budget available to the health service will be enough to cover both its revenue and capital costs.
  
  
• Subsidiarity and fair shares: Spending power should be devolved where possible for two reasons: trust leaders know best how to invest in their services, and trust leaders retain statutory and regulatory accountability for their quality and safety. To enable this, resource needs to be distributed to the frontline via a financial structure that takes providers’ genuine costs into account. Once this is in place, and the CDEL is set at an appropriate level, providers will ordinarily have access to the funding they need to maintain their facilities, and develop their services for the future. As long as the national envelope is equal to what the NHS needs, and funding is allocated equitably, controls on individual providers' spending will not be needed. Restoring the link between good day-to-day management and capital investment gives trusts a positive incentive to perform well financially, and has the added benefit of clinical engagement: the promise of improved facilities can help engage clinicians in redesigns which will make a trust more efficient.
  
  
• Nationally allocated funding: While most capital spending should be self-generated by trusts, there will still be circumstances where funding will be best resourced from central funds. For example, there are projects so large that a trust can never be reasonably expected to fund it from surpluses – such as large scale rebuilds – and for which close central oversight is justified because they could on their own have an impact on CDEL. There may also be a role for DHSC or NHS England and Improvement to distribute funding for new equipment or technology, which trusts may need external expertise in procuring or implementing.
  
  
• Addressing entrenched problems: the fair shares principle only works if everyone starts from an equal position. Therefore, it will be necessary to adjust factors that will, if left alone, prevent some trusts from ever being in a position to self-generate capital. For example, it should be accepted that the maintenance backlog has arisen not because trusts have been badly managed, but because both RDEL and CDEL have been insufficient for many years, and shortfalls have been distributed inequitably due to the flawed existing financial architecture. As it will take some trusts many years to bring their backlogs down, it may be fairer to fund maintenance work via a central fund to enable providers to focus their self-generated funding on other priorities. Additionally, the combination of financial architecture and underfunding are the primary reason why trusts have had to take capital loans from DHSC. As these loans represent an additional cost pressure, those trusts will inevitably find it harder to generate a surplus to invest in facilities. It therefore may be justified to restructure these loans in such a way as to minimise the ongoing cost pressure to providers. Finally, some trusts have long-term structural cost pressures that will reduce their ability to deliver a surplus that can be reinvested in future years. In considering and addressing these points, the primary focus must always be on the quality of services, and how the available capital can best be used to maximum benefit for patients.
  
  
• Streamlined and transparent sign-off processes: The best way to ensure timely sign-off on necessary capital work is to uphold the principle of subsidiarity. However, where approval is required by regional or national leaders, it should be recognised that not every decision needs to be signed off by all trust boards, STPs/ICSs, NHS England and Improvement regional teams, national teams, DHSC and HM Treasury. The single investment committee proposed in the HIP to consider major schemes is a reasonable step in this direction, although assurance should be given that it will not duplicate the work or the purpose of either the NHS property board or the independent trust financing facility. In addition to a more streamlined process, decisions must be wholly transparent. Trust leaders should have confidence that the bids they submit will be fairly and objectively assessed and, when central sign off has to be made, they should understand how decisions are reached against a clear set of criteria.
  
  
• The role of systems: An appropriate balance will need to be struck between trust autonomy and system working. As long as accountability for service delivery sits with trusts and their boards, most routine capital spending should be controlled by providers. However, it is also reasonable that capital decisions affecting more than one provider within an STP or ICS – for example investment to support a reconfiguration or service consolidation – are taken collectively. Further, trusts may voluntarily choose to delegate decision making or capital planning to their systems. This can happen without altering provider boards’ ultimate accountability for the facilities and services they run.