NHS funding formula 'gets it wrong'

PUBLISHED: 09:08 09 June 2006 | UPDATED: 10:59 22 October 2010

Britain's hospitals and health services plunged £512m into the red last year - despite extra billions being invested in the NHS. But why is the NHS in the south and East most likely to be in deficit? Is there a geographical bias in the way money is shared out? Home affairs editor Paul Hill reports.

Britain's hospitals and health services plunged £512m into the red last year - despite extra billions being invested in the NHS. But why is the NHS in the south and East most likely to be in deficit? Is there a geographical bias in the way money is shared out? Home affairs editor Paul Hill reports.

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Every taxpayer was asked back in April 2002 to accept a little extra pain in the wallet to help the National Health Service. It was the moment that the chancellor Gordon Brown decided to put his cherished reputation for prudence to one side and indulge in a little tax and spend - proposing a 1p rise in National Insurance contributions so he could treble NHS spending within a decade.

But anyone reading yesterday's headlines could be forgiven for wondering where those billions went.

Add up the deficits chalked up by health service bodies across the country last year - from hospitals to the primary care trusts - and you'll find that the NHS was £512m in the red last year - twice as much as the year before.

Nearly one in three of Britain's 566 NHS bodies failed to break even.

But the financial woes were not spread evenly across the country.

The NHS bodies with the worst financial problems were concentrated in the East and South of England.

While Norfolk, Suffolk and Cambridge health services plunged £100m into the red, the NHS in Greater Manchester declared a £40m surplus and West and South Yorkshire health services a £76m surplus.

Geoff Reason, head of health at the East of England branch of Unison, said that the root of the problem was the government's funding formula for the NHS.

Money is targeted at poor towns and inner-cities, regardless of how efficient the health services are in that area or how likely hospitals, clinics and GPs are to hit performance targets or cut waiting lists.

Efficient and effective NHS bodies - if they happen to be in a relatively affluent area - will not get extra resources under the current funding regime.

“I think the government's approach to the problem is very simplistic,” Mr Reason said.

“We'd rather they had a closer look at the funding formula and then look at how efficient trusts are and have an independent review before making a decision about their future finances.

“At the moment, all the government is saying is 'it's their fault they aren't in financial balance'.

“It's much more complicated than that and the government will do the population a permanent disservice if it thinks these problems can be solved by simply telling trusts they need to be in financial balance.

“We're not making fishfingers, we're dealing with complex health matters and patients.

“However much the government might want to make the NHS run like a business, things are much more complicated than they would be in a typical private sector company.”

Meanwhile, doctors' leaders declared the regional differences in deficits and surpluses were evidence that national pay rises for GPs and consultants were not the root of the problem.

If a national pay agreement was the problem, they said, wouldn't every part of the country have the same headache?

The doctor's 'union' - the British Medical Association - pointed the finger of blame at ministerial meddling and the government's enthusiasm for setting up “expensive” management and construction deals between private companies and the NHS.

Certainly, evidence has emerged in recent months that the private finance deal signed in the late 1990s to build and run the Norfolk and Norwich University Hospital at Colney is costing the taxpayer £5m-plus more than it should do each year.

But then, ironically, the N&N declared a small surplus (£145,000) in 2005-6 - even if the financial situation looks rather bleaker in Norwich this year and a threat of job cuts is looming over the hospital.

Health secretary Patricia Hewitt dismissed suggestions there was a regional issue and hinted instead at local management failures.

Financial problems in parts of the NHS had lain “hidden” for years and were now coming to light, she said.

In his annual report on the state of health service, Sir Ian Carruthers, acting chief executive of the NHS, pointed out that 60p in every pound spent on the NHS went into staff pay.

Employing more staff had helped reduce waiting times for surgery and outpatient appointments and helped improve the treatment of “killer” diseases from cancer to coronary heart disease.

But Sir Ian said: “There is a financial blot on the landscape… [but it] represents less than 1pc of the annual NHS budget.

“More than two thirds of this sum was accounted for by about one-tenth of all NHS organisations.”

He added: “Contrary to what our critics claim, reform is not the reason for the overspend or the job losses, it is the solution.

“The reforms are introducing greater financial transparency - in some cases uncovering problems hidden for years - and providing incentives to ensure that the NHS can return to financial balance.”

According to the government, the NHS will “be restored to financial balance” by the end of 2006-7.

But one thing that the 2005-6 figures hide is the difficulties that some trusts will face - even those that declared a surplus last year like the N&N - in breaking even this year.

At the N&N alone there is talk of 400-plus posts being scrapped.

Unison, for one, predicts that the troubles that have hit the NHS this year will endure for a further “three or four”.

Just in time for the next general election perhaps?

Department of Health figures showing the turnover and surplus/deficit of each NHS body in the East of England in 2005-6:

t Primary care trusts

Broadland: turnover £121.4m, deficit £8.76m

Cambridge: turnover £139.4m, deficit £13.67m

Central Suffolk: turnover £101.9m, deficit £0.765m

East Cambridgeshire and the Fens: turnover £174.8m, surplus £0.446m

Yarmouth: turnover £122.7m, deficit £1.836m

Huntingdonshire: turnover £159.8m, surplus £1.254m

Ipswich: turnover £153.7m, deficit £8m

North Norfolk: turnover £117m, deficit £12.21m

North Peterborough: turnover £157.9m, surplus £3.558m

Norwich: turnover £161.3m, deficit £1.336m

South Cambridgeshire: turnover £112.1m, deficit £6.137m

South Norfolk: turnover £216.2m, deficit £10.506m

South Peterborough: turnover £99.2m, surplus £0.069m

Suffolk Coastal: turnover £106.5m, deficit £5.167m

Suffolk West: turnover £234.1m, deficit £11.460m

Waveney: turnover £154.1m, deficit £3.133m

West Norfolk: turnover £165.4m, deficit £0.813m

t Hospitals and other trusts

Cambridgeshire and Peterborough Mental Health: turnover £126.3m, surplus £0.092m

East Anglian Ambulance: turnover £79.0m, surplus £0.550m

Hinchingbrooke Health Care: turnover £74.3m, deficit £6.535m

Ipswich Hospital: turnover £168.3m, deficit £11.905m

James Paget Hospital: turnover £125.3m, surplus £1.527m

Norfolk and Norwich University Hospital: turnover £300m, surplus £0.145m

Norfolk and Waveney Mental Health: turnover £91.1m, surplus £1.119m

Queen Elizabeth Hospital: turnover £99.2m, deficit £10.986m

Suffolk Mental Health: turnover £84m, surplus £0.177m

West Suffolk Hospital: turnover £98m, deficit £11.833m

t Norfolk, Suffolk and Cambridgeshire Strategic Health Authority: turnover £171.5m, surplus £15.737m

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