NHS England back-tracked on its plan to slash nearly £4m from London mental health budgets in 2013-14, HSJ can reveal.

The national commissioning body had planned to remove the “high-cost area supplement” from clinical commissioning groups in the capital.

The supplement is intended to reflect the higher costs faced by the 10 mental health trusts in London. It acts in a similar way to the “market forces factor” premium paid to acute trusts which face above-average costs.

A report presented to the board of South London and Maudsley Foundation Trust by finance director Gus Heafield last month said withholding the payment would “touch on issues of parity between different parts of the health system”.

In a letter sent to the organisations on April 4, and seen by HSJ, NHS England chief financial officer Paul Baumann said the funding would be made available to CCGs which are currently negotiating their end-of-year financial positions with trusts.

But Mr Baumann warned that the supplement would not be available in 2014-15.

His letter said the supplement issued had been reviewed “in detail”.

“Our view is that, given these costs have been identified since 2008-9, these payments should already be reflected in local pricing discussions between CCGs and providers and there is therefore no case for an additional payment from central resources for 2014-15.”

The West London Mental Health Trust, led by former NHS Confederation Mental Health Network director Steve Shrubb, negotiated the claim for the supplement with NHS England on behalf of the capital’s 10 mental health trusts.

High-cost area supplements were previously part of baseline allocations to primary care trusts before their abolition in March 2013. Some of the cash came directly from the Department of Health’s budget.