Department of Health and Social Care
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Nicholson: NHS financial system now fit for the future

Nicholson: NHS financial system now fit for the future

DEPARTMENT OF HEALTH News Release issued by The Government News Network on 28 March 2007

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."


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
                             £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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