Which way now for the NHS?

CHRIS FISHER, EDP Political Editor Despite having increased NHS resources, an exasperated government sees it getting deeper and deeper into debt. Should Patricia Hewitt and her colleagues wipe the deficits out, asks political editor Chris Fisher.

CHRIS FISHER, EDP Political Editor

The thanklessness of running the NHS was sharply demonstrated to health secretary Patricia Hewitt recently when she addressed the conference of the Royal College of Nursing.

She spoke as a leading figure of a government which has been shovelling extra funding into the NHS, and which - according to official Treasury figures - had in the 2005-06 financial year raised spending on the Health Service by about 10pc in real terms. That is a colossal increase in one year. Yet judging by the heckling and cold-shoulder treatment Ms Hewitt received, one might have supposed the conference was being addressed by Scrooge.

The day provided a plain warning to the government that chucking money at problems doesn't necessarily solve them or win popularity. And if nurses' leaders were angry then, what mood might taxpayers be in in the not-so-distant future?

Ms Hewitt had another difficult speech to make yesterday in reporting to the Commons that the NHS had clocked up a deficit of £512m in the last financial year. (The figure excludes foundation trusts, and goes up to £536m with them.) Of this, £100.4m was built up in the Norfolk, Suffolk and Cambridgeshire strategic health authority area. And of that, £37.6m is attributed to hospital trusts and £78.5m to primary care trusts.

She emphasised that 70pc of NHS bodies, including hospitals, kept within budget and were "improving patient care", that another 20pc had "relatively small" deficits and that the remaining one-in-10 accounted for over two-thirds of the overspending. The implication was that electors and patients should not be blaming her or the system but poor local decision-making.

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Is that correct? Why is it that over two-thirds of the bodies can stay within limit and the others have not been able to?

"This is not easy to explain. There are no easy answers", said Steven Corbishley, director of financial audit for health at the NAO.

Why, moreover, has the problem been getting worse? The £536m deficit figure for 2005-06 compared with one of £251m for 2004-05 and a surplus of £65.4m in 2003-04. Why has it been getting worse when budgeted spending in the NHS has been increasing at a rapid pace? Again, there is no plain answer.

Those who might be thinking of PFI schemes at this point will find no support in the NAO/Audit Commission report. There was only a slightly higher incidence of deficits among NHS trusts with PFI schemes than those without.

One certainty in all of this is that there are potentially serious consequences for patients and staff - and not only where a trust is struggling to get out of deficit.

Ms Hewitt put on her best reassuring voice to suggest there is little cause for concern overall. But she stated that "there will be difficult decisions to be made, particularly in the minority of trusts with substantial deficits", and added that "in some cases, this will mean workforce reductions". She also said that primary care trusts that have kept in budget would be asked to provide funding to help others get back into balance, and declared that this would mean them having to "postpone some of the improvements that they were planning to make for patients".

The way the system works, it is difficult for an NHS body to get out of debt. Just as it is for any individual, one might think. But the NAO/Audit Commission document shows that it is harder. It is not just a matter of cutting its spending; it has its income reduced.

The report illustrates this with a theoretical case in which in 'year one' a trust has an income of £100m but spends £110m. This deficit of £10m results in its funding being adjusted downwards by £10m to £90m in the second year. It also succeeds in cutting its spending by £10m in that year. But because of the cut in income it only achieves a balanced budget and is still left with a deficit of £10m to carry forward into year three.

Cumulative deficits are a big problem in the NHS - even in the context of an overall spend last year of almost £75bn. The £512-536m deficit in 2005-06 went on top of £598m already built up. And, in theory, the whole lot has to be cleared.

Reflecting on this the NAO/Audit Commission report states: "A number of NHS trusts have significant cumulative deficits, and will face considerable challenges to recover them.

"Clearing these deficits will require resources to be found from somewhere within the NHS, and hence if the bodies themselves do not repay them, other funds will have to be diverted away from their intended recipients."

It's an old problem in public sector financing. Discipline is undermined by a lingering belief that someone - ministers and ultimately taxpayers - will bale things out. And if the government refuses to do so, there is also liable to be pain and rancour.