The Sustainability and Transformation Fund bears closer scrutiny and comes with a sting in the tail, says Richard Murray

The new NHS shared planning guidance covering the years to 2020/21 contains much that is new and indeed radical. Already one element that has drawn comment is the new Sustainability and Transformation Fund.

This fund will hold £1.8bn to support providers in deficit – money that up until now came from the Department of Health. When other funding streams that support transformation are added, this will create a total fund of £2.1bn.

For the sustainability element (ie deficit support) of the Sustainability and Transformation Fund in 2016/17, the NHS planning guidance states that: “The distribution of this funding will be calculated… by NHS Improvement and then agreed with NHS England”.

Strings attached

With no mention of the Department of Health, this could be interpreted as a vote of confidence in national NHS bodies to sort out the current financial malaise, handing over the responsibility for deciding who gets what along with the money itself.

However, separately the Department of Health published both the NHS Mandate and associated Financial directions to NHS England and these fill in the rest of the story. The financial directions make clear that the £1.8bn is under a separate ring-fence from other NHS money, and provides confirmation that it is for sustainability (ie deficits) rather than transformation – at least for 2016/17.

Critically, they also note, ”Allocations from the fund for sustainability and transformation must be agreed in advance with HM Treasury and DH”.

The formal and public arrival of HM Treasury into the process for agreeing deficit funding for NHS providers must surely underline the anxiety in central government over NHS finances

This tells us two rather important facts. First, it is worth reflecting that this means it was decided not to follow tradition and inject this £1.8bn into allocations and uplift the tariff, thereby aiming to reduce the number of (autonomous) providers in deficit by getting tariff closer to costs.

Instead providers - and in future, local areas - must formally apply to the centre for financial help and the centre now comprises NHS Improvement, NHS England, HM Treasury and the Department of Health.

Sting in the tail

Second, the much vaunted front-loading in the Spending Review settlement – apparently achieved so late in the negotiations – now appears to have come with strings attached given that it is both ring-fenced and needs HM Treasury agreement to unlock.

The formal and public arrival of HM Treasury into the process for agreeing deficit funding for NHS providers must surely underline the anxiety in central government over NHS finances, and could be interpreted as a Whitehall version of ‘special measures’ for the Department of Health and its NHS partners. Rather the opposite to a vote of confidence then.

The changing balance between the centre and local areas is played out in other parts of the planning guidance. For example, it also introduces new sustainability and transformation plans. These are to be place-based plans covering local geographies for the period from October 2016 to March 2021, looking to deliver the reform of health and care set out in the NHS Five Year Forward View.

Defining these geographies is the first task for local areas. The strength of these sustainability and transformation plans will then be a key factor in the release of future transformation funding as well as guiding local co-operation and implementation. The sting in the tail comes from an appendix to the main document, which aims to give early sight of what these plans will need to address in order to get sign-off and unlock the central pot of money.

Specifically the sting is that this section lists more than 60 nationally determined questions that the plans will ultimately need to answer and, of course, this is before dealing with any specific local priorities.

Money to the front line

Alongside these radical changes to the running of the NHS, there are potentially some more mundane operational issues. £2.1bn is a lot of money and there will presumably be a lot of applications from the NHS to release it.

This is not just limited to the broad themes of transformation set out in the Forward View. For example, in the sustainability and transformation plans, local areas are also asked to make a case to be prioritised by Public Health England and NHS England for central support (including funding) around diabetes.

Yet the financial directions also make clear that NHS England’s running costs will be cut by 30 per cent in real terms between 2015/16 and 2019/20. Designing a process that gets the money out to the front line fast could be a challenge in itself, especially if the NHS and Department of Health remain in “special measures”.

Richard Murray is director of policy at the King’s Fund. Read more about the Spending Review 2015 and the King’s Fund’s work on implementing the NHS five year forward view.