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Nicholson: NHS financial system now fit for the future
Improved NHS financial control allows an end to Resources and Accounting Budgeting 'double whammy'
The NHS is set to move to a more transparent and fair financial regime following the announcement today of the reversal of RAB deductions and the replacement of cash brokerage with a formal system of loans for NHS Trusts.
The move follows recommendations made by the Audit Commission to change the Resources Accounting and Budgeting (RAB) rules for NHS trusts.
The Audit Commission said the rules were unfair because of the 'double whammy' effect under which overspending trusts not only had to pay back their debts but received less income the following year as well.
Figures for the final quarter of the year will be published in May, but the latest forecast (Q3 figures) showed that the NHS as a whole was on track to deliver a surplus of £13M by the end of the year - compared with a deficit of £547M last year. The improved performance of the NHS overall means that we are now confident that we can move NHS trusts out of the RAB regime. The reversal of RAB will see £178 million returned back into the local NHS.
In support of this change, the Government also announced that it would now allocate, as planned, the £450m contingency to the NHS. This is being allocated to strategic health authorities (SHAs) on a fair shares basis meaning that the most needy areas of the country will receive a larger share of the funding in line with the our needs based resource allocation formula.
David Nicholson said:
"The majority of NHS trusts have improved their financial performance over the last year, meaning we are now in a position to complete modernisation of the NHS financial regime.
"I'd personally like to thank all the staff in the service for the work they've done to achieve this during a tough year.
"We are moving NHS trusts out of the resource accounting and budgeting regime as this was inconsistent and unfair. At the same time, we are replacing the opaque system of cash brokerage with a formal system of loans to further aid transparency and financial discipline.
"We have now introduced a system that ensures fairness, transparency and responsibility, a system that is fit for the future. Organisations can now understand clearly their financial performance and the consequences and benefits of the management decisions they make.
"This gives us a very firm platform going forward to deliver on our planned improvements in services in the NHS in the coming year. We are now in a strong position to further transform the care we give our patients, reducing waiting times as we move toward a maximum 18 weeks from referral to treatment and delivering more care closer to home.
"This is not an easy option. NHS Trusts will have to manage their spending, recover any deficits, repay loans but for the first time their financial position and the actions which need to be taken will be clear and more transparent than ever before."
Ends
Notes for editors
1. How RAB currently works for trusts:
- if either a PCT or trust overspends in one year then its SHA faces an equal deduction to resource limits the following year (converse also applies)
- no cash deduction is applied - the organisations have already spent the cash
- SHAs have flexibility in how this carry forward is applied to the individual organisations within their boundaries - some take it down directly to the level of overspending organisations others do not
- the "double deficit or 'double whammy" problem arises where the deduction is taken down to trust level. The trust faces an income reduction and then to meet the statutory break-even duty has to generate a surplus within the 3-5 year period to eliminate the previous deficit.
2. Table of RAB reversals is found below:
Table 1: Impact on 2006/07 forecast outturn at NHS trust Level of the reversal of 2006/07 RAB income deductions applied to NHS trusts in respect of 2005/06 deficits
NHS trust name Forecast Net RAB Forecast Outturn
outturn deductions surplus/ (deficit)
surplus/ applied to reported at quarter
(deficit) as NHS trusts three after the
reported at in 2006/07 reversal of RAB
quarter reduction
three
£000s £000s £000s
University Hospitals -6,357 -6,357 0
of Morecambe Bay NHS Trust
Hull and East -13,000 -12,304 -696
Yorkshire Hospitals NHS Trust
Mid Yorkshire -13,500 -1,500 -12,000
Hospitals NHS Trust
Worcestershire MH -3,084 -1,592 -1,492
Partnership NHS Trust
Cambs & Peterborough 500 -325 825
MH Partnership NHS Trust
Hinchingbrooke Health -29,902 -8,101 -21,801
Care NHS Trust
Ipswich Hospital NHS -15,800 -14,020 -1,780 Trust
Mid Essex Hospital 3,150 -876 4,026
Services NHS Trust
Princess Alexandra -1,500 -5,857 4,357
Hospital NHS Trust
Queen Elizabeth -10,986 -11,010 24
Hospital Kings Lynn NHS Trust
Suffolk MH Partnership 1,200 -797 1,997 NHS Trust
West Suffolk Hospitals -11,100 -12,027 927 NHS Trust
Bromley Hospitals NHS -12,894 -14,123 1,229 Trust
North West London -25,619 -24,064 -1,555
Hospitals NHS Trust
Queen Elizabeth -36,079 -23,420 -12,659
Hospital NHS Trust
The Lewisham Hospital -11,956 -8,758 -3,198 NHS Trust
Whipps Cross -30,405 -15,606 -14,799
University Hosp NHS Trust
Ashford and St Peter's 0 -2,560 2,560
Hospitals NHS Trust
East Kent Hospitals -12,500 -2,606 -9,894 NHS Trust
East Sussex Hospitals -3,400 -4,864 1,464 NHS Trust
Medway NHS Trust 69 -69 138
Southampton University -700 -1,293 593
Hospitals NHS Trust
Winchester and 0 -305 305
Eastleigh Healthcare NHS Trust
Avon and Wiltshire MHP 0 -2,789 2,789 NHS Trust
Gloucestershire -1,395 -1,319 -76
Partnership NHS Trust
Northern Devon -7,500 -362 -7,138
Healthcare NHS Trust
Royal United Hospital 0 -138 138
Bath NHS Trust
Swindon and 0 -835 835
Marlborough NHS Trust
3. This change in the RAB rules for NHS trust is part of our reforms of the NHS financial regime which include:
- tighter cash controls that replace informal brokerage with interest bearing loans.
- New capital regime which imposes greater discipline over capita investment decisions and prevents leakage of cash from capital to revenue.
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