NHS - NHS deficits
December 2006
This briefing paper applies to England only
Contents
- Overview
- Causes of the deficits
- Contracts
- Private Finance Initiatives
- Independent Sector Treatment Centres
- Consequences of the deficits for patients and NHS staff
The NHS in England recorded a net deficit of £547mn in 2005-06. (reference 1) Though the net deficit represents less than 1% of total NHS expenditure, overspends are being recorded during a period of unprecedented investment in the NHS: the 2002 Budget Report provided for a 7.4% real terms increase in UK spending on the NHS up to 2007-08.
The majority of NHS organisations are in surplus or have balanced their books. However, the number of institutions slipping into deficit increased from 159 in 2004-05 to 174 in 2005-06 (reference 2) . Furthermore, the worst deficits are concentrated in a minority of organisations: 70% of the gross deficit can be found in 11% of organisations (reference 3).
Causes of the deficits
Contracts
The BMA strongly refutes suggestions that Agenda for Change and the new consultant and GP contracts are to blame for deficits. It is true that the contracts cost more than expected but this is because doctors are delivering more for NHS patients. On average, consultants work around 50 hours per week but contracted programmed activities (PA) reward only 44 of these.
The new GP contract links quality of care to practice resources through the Quality and Outcomes Framework (QOF). Results from the second year of the QOF clearly demonstrate that the vast majority of NHS practices are offering patients a high level of clinical and non-clinical care: each GP practice achieved 96 per cent of the points available under QOF (1011 out of a possible 1050) (reference 4). The GP contract cost more than expected because GPs far exceeded DH expectations for improvements in patient care.
Private Finance Initiatives
The BMA remains concerned about the costs imposed on NHS trusts by the Private Finance Initiative (PFI), which has the capacity to significantly distort trust finances.
For example:
The Queen Elizabeth Hospital NHS Trust has a deficit of £19.7mn; the fixed amount payable to its PFI partner is approximately £15mn per year, increasing
annually with inflation. The Trust, which currently has a deficit of over £19mn, believes itself to be facing excess PFI costs of £9mn (reference 5).
The Norfolk and Norwich University Hospital undertook a PFI deal with venture capitalists Octagon for the construction of their flagship hospital. By refinancing
the PFI deal, Octagon increased the size of the borrowing (from £200mn to £300mn) and the time taken to repay that money (from 2017 to 2037) securing the
consortium a windfall of £115mn. The hospital received £34mn of this windfall. The PFI investment is believed to add between £5mn and £7mn to the trust’s
annual costs (reference 6).
Independent sector treatment centres
The BMA is concerned that private sector contracts for NHS treatment in independent sector treatment centres often represent poor value for money for PCTs and NHS Trusts. The Health Select Committee’s 2006 inquiry on ISTCs found that ISTCs had neither made a ‘major direct contribution to increasing capacity’ nor provided better value for money than other options such as NHS treatment centres (reference 7) . The Committee also found that ISTCs, which will undertake half a million procedures a year at a total cost of £5bn, ‘could clearly affect the viability of many existing NHS providers over the next five years and beyond’ (reference 8) .
The King’s Fund offers further analysis of the causes of NHS deficits (reference 9).
Consequences of NHS deficits for patients and NHS staff
The impact of these deficits has been wide-ranging for both patients and front-line NHS staff. The BMA conducted a survey, published in September 2005, which revealed that one in three NHS trusts planned to reduce services because of deficits. Of the 171 NHS trusts that responded to the survey, a third of respondents (37.6%) reported that their trust intended to reduce patient services (reference 10). Intended reductions in services include bed closures, reduced elective services, ward closures and a reduction in patient transport services.
Media reports suggest that NHS job losses will be achieved through natural wastage, redundancy or other mechanisms. Almost half of respondents (47.3%) to the BMA survey reported that their trust was intending to freeze recruitment as a result of funding shortfalls. Nearly half of respondents (47.9%) also reported that medical staff were to be included in recruitment freezes.
There is also widespread cutting of essential training. This has involved reducing study leave budgets and freezes on non statutory training. Budgets held by deaneries are similarly vulnerable following reports that budgets for 2006-07 could be cut by as much as 10%.
More information:
Read more on the BMA’s submission to the Health Select Committee’s inquiry into NHS Deficits
For further assistance, please contact the BMA Parliamentary Unit:
Email: parliamentaryunit@bma.org.uk
References:
1. Read more on the UK Parliament website here
2. Read more on the King's Fund website here
3. Read more on the King's Fund website here
4. Read more on the Department of Health website here
5. Queen Elizabeth Hospital NHS Trust- Public Interest Report. PriceWaterhouseCoopers. December 2005. Download as a PDF from the Audit Commission website here
6. Download as a PDF from the National Audit Office website here (723 KB)
7. Download as a PDF from the UK Parliament website here (1.18 MB)
8. Download as a PDF from the UK Parliament website here (1.18MB)
9. Read more on the King's Fund website here
10.Full details of the survey results are available here