Exclusive: Naylor criticises new raid on NHS capital budgets

This has drawn strong criticism from the government’s own adviser on NHS estates, Sir Robert Naylor.

When prime minister Theresa May announced the five-year revenue settlement last summer, she said the average 3.4 per cent annual increase to NHS England’s budget would come from increased government funding.

But HSJ has learned that £221m of this year’s £6bn cash increase – giving 3.6 per cent real terms growth – will in fact come from funds that had already been earmarked for building and maintenance.

This new “capital to revenue transfer” is in addition to a £250m transfer which was already pencilled in for 2019-20 several years ago.

The Department of Health and Social Care has previously accepted concerns from the National Audit Office that repeated capital raids – which have been carried out for six successive years – are unsustainable, and committed to “tapering down and phasing out” capital to revenue switches by 2021. The £250m transfer this year was therefore expected to be the last.

Yet a little-known 2019-20 budget estimates document from the DHSC said: “Capital to revenue transfers – £250m was agreed as part of the 2015 spending review and an additional £221m was agreed to fund part of the first year of the NHS’s long-term settlement.”

‘We simply have to stop doing this’

Sir Robert, an independent government adviser who completed a major review of NHS estates in 2017, told HSJ: “I was very critical of these transfers in my report and recommended that they stop, and the government agreed to stop them at the end of this year.

“So I personally find it very disappointing that the NHS is going to increase the amount of capital to revenue transfer in 2019-20. I think it’s in conflict with the government response to my report because they said they were going to stop doing it. This will just make matters worse.

“We simply have to stop doing this because we’ve been starving the NHS of capital funding for decades.”

A separate DHSC document in which it set out the accountability framework for NHS England and NHS Improvement said: “Capital to revenue switches will only be considered at the request of the NHS.” NHSE/I declined to comment when asked if they requested the £221m transfer.

The additional switch will mean £471m is transferred in total this year, only slightly down from the £500m transfer in 2018-19.

There were transfers of £640m in 2014-15, £950m in 2015-16, £1.2bn in 2016-17, and £1bn in 2017-18.

A backlog of maintenance problems

The repeated raids have come during a period when capital budgets have already been tightly constrained. A recent report from the Health Foundation think tank said capital spending on healthcare in the UK had lagged well behind the average for advanced nations over the last decade.

This has led to a growing backlog of maintenance problems, with the sharp rise in “high risk” issues needing to be addressed. Common problems include power supply and boiler failures, which can lead to mass cancellations of clinical work. But there are also growing concerns about fire risks and the fundamental safety of some building structures.

In a statement, the DHSC said: “To support the health service during this financial year, we are maximising the resources available to provide the best possible care for patients, and will consider proposals from the NHS for a multiyear capital plan to support the transformation plans outlined in the long-term plan.”

NHS capital budgets were due to be set in the spending review later this year, although there are suggestions this process will be delayed by political instability.

Earlier this week Lord David Prior, chair of NHS England, called on politicians to back a government “bond” which could increase the DHSC capital budget (currently around £6bn) by between £3bn and £5bn per year. But he indicated chancellor Philip Hammond would not back the scheme.

Sir Robert said: “There’s very close alignment between my (2017) report and what the chair of NHS England has said this week.

“That level of extra funding would only take us up to the OECD average so we’re not asking for more than our fair share, we’re asking for the years of underfunding to be rectified.

“This was the essence of our bid into the government’s spending review and we’ve been working really hard to justify that with the Treasury.

“There will be lots of competing claims from other departments and this government will have to make a decision about how it rectifies the decades of neglect.”

A 2010-11 capital budget

The Naylor Review suggested the NHS provider element of the DHSC capital budget (currently around £3.5bn) should rise by an average of around £2bn per year (£10bn over five years). If this level of increase was extrapolated to the overall DHSC budget, it would broadly match Lord Prior’s proposal.

In its response to the review, the DHSC accepted the funding proposals, and said a third would come from government investment, a third from land sale receipts, and a third from private investment.

The DHSC insists it has committed £3.9bn of “new” funding by 2022-23. However, there has yet to be any significant increase to the NHS provider sector’s capital spending limit. Nor has there been a significant rise in land sale receipts, while the private finance initiative has been abolished, with a review of private investment in public infrastructure currently ongoing.

Joshua Kraindler, economics analyst at the Health Foundation, said: “With this transfer, the capital budget is, in real terms, the same as it was in 2010-11 and as a result, capital investment per NHS worker continues to fall.

“These in-year transfers from the capital budget continue a cycle of short-termism, leaving trusts unable to afford the most modern technology while also using equipment beyond their expected useful lives.

“The funding environment is also leading some trusts to abandon long-term transformation projects due to the uncertainty of capital funding. At the same time, there is a rising maintenance backlog of £6bn, which is now larger than the annual capital budget and half of which is rated as high and significant risk.”