Cut corporate services spend, trusts told

Sir Jim Mackey, NHS England’s transition CEO, told health service leaders today  the government was concerned by the NHS’s lack of progress on productivity, given their plans to increase defence spending and the state of the global economy, sources told HSJ.

The former Newcastle Teaching Hospitals chief executive told a meeting in London that the recent approach to financial planning was no longer acceptable, as he began setting out steps to try to regain financial control.

He is understood to have said the NHS’s initial 2025-26 £6.6bn deficit forecast had “scared the living daylights” out of some in government, given the wider financial context.

Measures to try to “reset” finances include cutting integrated care board management budgets by half, and telling trusts to cut “corporate services” budgets back to pre-pandemic levels. Specifics have not been defined, but this is expected to cover corporate functions like HR, finance, and communications.

The CEO said trusts should normally be transferring support staff to wholly-owned subsidiary companies, which can reduce costs by avoiding VAT. Subcos have often saved further money by watering down NHS pay scales and terms and conditions for newly employed staff, including access to the NHS pension.

All trusts will need to introduce or consider subcos, Sir Jim said. He indicated to the meeting they should maintain NHS terms and conditions, but it is unclear how far this extends.

Sir Jim is also planning an NHS-wide voluntary redundancy scheme, aimed at non-clinical staff. HSJ understands NHSE’s view is clinical staff redundancies are unwise, as they are likely to only be reemployed. 

Leaders present were also told NHSE leadership would back their judgements on clinical staffing levels, rather than requiring them to adhere to regulatory or external reviews, such as from the Care Quality Commission.

It comes after the first-cut local financial plans for 2025-25 warned of a £6.6bn gap, prompting Sir Jim to summon senior leaders to London to “get a grip”. NHSE has committed to covering just over £2bn of this, leaving a significant gap.

Sir Jim indicated he would like to scrap a controversial cap on elective payments, but this is not confirmed and is subject to Treasury approval in coming weeks. He believes costs can be controlled via close local management of contracts.

Sources at the meeting on Thursday said Sir Jim also set out a number of proposals for beyond the 2025-26 planning process.

These include:

• Revising the current ICB allocation system, largely by removing or redistributing the “deficit support” which seems some systems receive several tens of millions;
• “Resetting” block contracts, whereby some trusts are being paid well above tariff rates for non-elective care, based on deals agreed during covid, while some receive much less;
• Trusts and systems will develop new medium-term financial plans covering a three-year period, starting this summer; and
• Publishing data on tackling huge levels of variation on Continuing Healthcare spending area-by-area.

Outgoing NHSE chief financial officer Julian Kelly had previously urged trusts and commissioners to submit realistic plans based on the funding available to them, but this year’s first-cut deficit forecast was in line with those at the same stage last year. HSJ understands Sir Jim is already in talks with systems, and there has been a reduction in deficit forecasts of more than £1bn.

UNISON’s head of health Helga Pile warned against using subsidiary companies to squeeze wages. She said: “Hiving off those already on the lowest pay to squeeze wages further and cut costs through a tax ruse will do nothing to fill vacancies.

“Creating a two-tier workforce in the NHS goes directly against the government’s promises that it will oversee the biggest wave of insourcing in a generation.

“Any trust thinking of offloading its staff in this way will quickly realise its workforce is determined to stay within the NHS.”

The meeting came alongside announcement from government today that NHSE would be formally abolished and reintegrated with DHSC.

One CEO present said: “Today was sobering. The leadership of both Amanda [Pritchard, outgoing NHSE CEO] and Jim shone through. These were tough messages for all in that room and yet they did it with candour, empathy and some humour. The fiscal situation means there is little choice but to make these difficult choices.”

Another CEO said they were supportive of the plans but added: “The speed of events is so quick that I still don’t think we have a stable paradigm on the way forward… This is probably the single biggest change programme since 2012-13.

“There’s a real risk of loss of grip on the system during the transformation period.” 

Local leaders told HSJ this week they believed closing the gap would require drastic measures such as closing community diagnostic centres and virtual wards, and reductions to clinical staff.

Updated at 7.40am on 14 March to correctly state that Sir Jim had asked trusts to pass support functions to wholly-owned subsidiary companies, rather than outsource them outside the NHS.