Accounting rule changes to cost hospitals £146m
New accountancy rules will bring up to 16bn of extra debt onto the NHS balance sheet and cost hospitals 146m a year.
The figures are contained in a confidential report for the Department of Health prepared in advance of the planned introduction of international financial reporting standards. HSJ obtained the report under the Freedom of Information Act.
The implementation of the new rules was put back from April this year to 2009 on the basis that it would “throw the NHS system into chaos” but the costs of the changes have not been made public before.
Under current rules most NHS trusts with private finance initiatives report only the annual amounts they pay to the contractor to cover the service charge and debt repayments in their accounts, not the full value of their liabilities.
The new rules will change that, as they state assets and liabilities must appear on the balance sheet of the organisation that controls them and that owns them at the end of the contract period.
Extra spending
The report, by accountancy firm Deloitte and Touche, shows that the DH expects to have to restate previous years’ balance sheets to include an extra£4bn capital spending for PFI schemes already up and running,£5bn for those under construction, and£7bn for planned future schemes.
The report contains an example of the impact the change will have on an imagined hospital trust with a£250m scheme.
The report says that at present the trust’s accounts would show just a£28m annual payment to the finance company. But under the new rules, the£250m debt would move onto the trust’s balance sheet, meaning the trust would have to show how it is spreading the cost of that debt over each year through an extra£4.2m “depreciation” charge, paid out of its income. In the example, this causes the trust to move from a surplus equivalent to 7.7 per cent of its income, to a deficit of 7 per cent in the first year of the change.
By the third year diminishing interest payments cause the trust to report a bigger surplus than at present, but the DH estimates that the impact across the NHS will mean an extra£146m cost per year.
The Deloitte report warns that this may be an underestimate as the DH’s estimates do not include the debts associated with independent sector treatment centres, leases on equipment such as dialysis machines and deals made under the national IT programme.
Have your say
You must sign in to make a comment.
Share
Readers' comments (1)
Anonymous | 7-Aug-2008 2:02 pm
What happens when all Trusts are judged - and may have their management changed - when changes in accountancy rules mean that they go from being in surplus to being in deficit? *especially* if previous years' accounts have to be restated - showing that PFI does not and never did have any financial advantage for Trusts which have used it?
I don't really understand this: I had thought that one of the problems was with PFI was that at the end of the PFI period, the hospital belonged to the PFI company and not to the NHS: if that is the case, shouldn't the assets be shown on the PFI company's balance sheet, not on the NHS Trust's?
I've just got out my old copy of "Accounting for Growth" by Terry Smith (1992 ISBN 0-7126-5764-9)..
Sympathy to all managers especially in finance: you're not paranoid, they *are* out to get you!
Unsuitable or offensive? Report this comment