Following the Money: Capital funds are coming for the NHS, but there's a catch

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Being generous

Barring an unlikely U-turn from Philip Hammond, we know that more capital funding is coming in the autumn budget. What we don’t know is how much, or what the NHS will need to give up in return.

On the first question, the Naylor review, which the Conservatives said they would back, gives us an idea.

It said at least £10bn of extra capital resource is needed by 2021, but reckoned around £6bn could be raised through land sales, with further cash potentially coming from private sources.

So the absolute maximum that the NHS can probably expect from the Treasury is £4bn spread over 2018-19, 2019-20 and 2020-21.

This sounds like a lot, and it is perhaps overly hopeful.

But remember that the Tories need to show they have learned the anti-austerity lessons from the general election, while the chance to give the NHS a generous 70th birthday present is surely an opportunity too good to miss.

From a political point of view, it’s perfect; because extra capital funding would not necessarily need to be a recurrent commitment, as would be the case with revenue.

With it being capital, the headlines would be equally positive whether the funds are recurrent or not. Few will stop and look at the detail, or realise that much of the extra funding will be used for repairing gaping holes left in previous years.

And in return?

There is then the second question as to what the NHS will be made to offer up in return for its birthday present.

When providers got their long-called-for revenue boost in 2016-17, the money did not simply flow through the national tariff as it would have done in previous years.

It came in the form of the divisive sustainability and transformation fund, with trusts only receiving their share if they met the Treasury’s requirements to hit their centrally dictated financial plans.

Although there are concerns about the behaviours the STF regime encourages locally, it has undoubtedly helped ease Whitehall’s primary concern – the headline financial performance.

I think it’s likely that the Treasury will insist on similar controls or conditions on capital resources.

Currently, foundation trusts are not given capital spending limits by regulators and can spend cash on most projects without seeking their approval.

Many FTs now struggle to do this, as they are not making surpluses to generate capital funds, but a significant number are flush with STF cash they’ll be waiting to spend.

There’s a problem here, though. All this spending will score against the national capital expenditure limit, which has been frozen at £4.8bn until 2021.

As we saw in 2016-17, regulators can pester trusts repeatedly about their spending plans and urge them to spend less without having any real power to enforce this. The provider sector ended up busting its capital spending target by almost £200m last year, despite the repeated pleas.

New era

So control totals for capital spending could well be coming, which, taken with the decline of payment by results and the overhauled system for bailout support, would truly mark the end of an era in NHS finance.

There could also be a potential benefit here, from local leaders’ point of view, in that additional funds and new conditions could result in a much clearer process for accessing capital.

Jon Rouse, who leads Greater Manchester’s devolution team, recently described the Treasury’s capital regime as “like driving in fog”, and he has been trying to persuade national leaders to create clearer conditions.

Raiding the revenue budget

An interesting issue was raised around STF in a recent Nuffield Trust report, which pointed out that only £1.1m of the fund was spent by trusts last year, as this was the portion received by providers in deficit.

The rest, worth £700m, simply had to sit in the bank accounts of those in surplus to boost the overall revenue position.

In theory, the surplus providers can now spend this money – but they will have to do so non-recurrently on one-off items such as capital projects because the STF income has only been guaranteed for a limited time.

Had the STF money flowed straight into the tariff and been confirmed as recurrent, most trusts would likely be classing and spending it within their revenue budgets.

In recent years, we have got used to the capital budget being raided for revenue but this seems to be doing the opposite.

PFI buyback

Labour grabbed plenty of headlines earlier this week with a commitment to bring private finance initiative contracts “back in house”, but has so far provided little detail on how this would happen.

As Jim Mackey has said several times, there may well be scope for the NHS to save money by buying out some of its schemes, but any suggestion of a mass buyout sounds far fetched.