• Contingency fund held back from CCGs will be used to offset financial deficits among NHS trusts.
  • Simon Stevens said the money would otherwise have been available for mental health, community and primary care services
  • The fund was created after Department of Health breached spending limit in 2015-16

About £800m of funding that was intended for mental health, community and primary care will instead be used to ensure the Department of Health achieves financial balance this year, it has been confirmed.

In a letter, seen by HSJ, NHS England says the “full amount” of the contingency fund held back from clinical commissioning groups in 2016-17 will be used to offset financial deficits among NHS trusts. The deficits are largely in the acute hospital sector.

Paul Baumann

Paul Baumann

Paul Baumann said the contingency money should be released in the last month of the financial year

Paul Baumann, chief financial officer at NHS England, wrote to CCGs, saying: “The aggregate effect of this will be to increase the surplus across the whole of the commissioning sector by around £800m, which will help to offset the provider deficit position and help to secure a balanced position for the NHS overall.”

Every CCG had 1 per cent of their allocation held back at the start of the year, with any release of this funding requiring Treasury approval.

Last summer, NHS England chief executive Simon Stevens said this money was stripped out of budgets that “would have been available from CCGs for mental health services, community health services, primary care and other things”.

He said the aim was to release the funding “for the priorities that we know we have got to resource”.

The provider sector was set a target of ending the year with a £250m deficit, which would have enabled most of the contingency fund to be spent on the other priorities.

However, this target was widely deemed unachievable and the latest official forecast for the sector is a £873m deficit. It has been predicted for several months that the contingency fund would be needed in full to offset the provider position.

The NHS provider and commissioning sectors account for the bulk of the Department of Health’s budget, which breached its spending limit in 2015-16. The contingency fund was held back to ensure this would not be repeated.

Mr Baumann’s letter adds: “As expected, provider financial position is such that we now require each commissioning organisation to release the full amount of the 1 per cent non-recurrent reserve to its bottom line…

“This is an essential element of the risk management strategy agreed across the health sector for 2016-17, and it is vital that we secure the full expected benefit from the release of the risk reserve.

“Auditors are aware of the requirement to release the risk reserve in this way, so this should not result in adverse audit reports for any organisations.”

He says the contingency money should be released in the last monthly statement of the year, but CCGs will be assessed on their outturn before the release of this funding.

He adds: “With this in mind, I have asked the regional finance directors to contact each CCG to confirm our expectations for the year-end position.”

Andrew Pepper, chair of the NHS Clinical Commissioners finance forum, said: “The requirement to spend the 1% contingency fund on offsetting the provider deficit was expected.

“Whilst recognising the need for the NHS to remain in overall financial balance, we must find a way to ensure that the money provided to CCGs to meet the needs of their local patients and populations can be invested in local areas to transform healthcare and improve services.

“It is important to also recognise that many of our members have seen a very real increase in their efficiency challenge over the past year which will only increase in the coming year.”

An NHS England spokesman said: “As we’ve been saying since the start of the year, we set aside £800m to cover provider deficits if needed, and we do now need to. This is uncommitted money that would otherwise have been invested at the discretion of commissioners. It will be important to get the trust deficit down next year so planned investments can take place.”