• Trust forecast figures suggest a deficit of £850m, compared to the planned £580m
  • Mid-year trust forecasts are seen by NHS leaders as a key indicator of whether financial recovery plans have been successful
  • Experts warn that performance could deteriorate further in second half of the year

The NHS provider sector has forecast a deficit in the region of £850m for 2016-17, which is around £270m worse than planned, HSJ research has found.

Trusts’ mid-year financial reports, collected by HSJ, suggest the sector will fall significantly short of planned deficit of £580m, and well short of the £250m deficit targeted by national NHS leaders.

Since this article was published, NHS Improvement chief executive Jim Mackey has told HSJ the official forecast deficit will be “around the mid-£600m mark”.

In recent weeks, NHS regulators have stressed the importance of giving “confidence” to the Treasury that the provider sector finances are on track against plans. Leaders at NHS Improvement said the mid-year performance figures will be a “very important milestone for us all”.

Experts have warned that performance could deteriorate further over the second half of the year due to various accounting incentives and “back-loaded” savings plans.

The mid-year forecasts are seen by the NHS’s most senior leaders as the most important indicator of whether efforts to reduce the provider sector deficit, such as July’s “reset”, have been successful.

HSJ understands they are concerned that a major divergence such as that suggested by the latest projections will weaken confidence in the NHS’s financial discipline and could lead to greater intervention from the Treasury.

There will also be concerns at the Department of Health, which may again face a struggle to balance its budget this year.

The year-end forecast includes the entire £1.8bn “sustainability and transformation fund”, which was introduced this year to incentivise trusts to improve their finances.

The combined financial plans for trusts have set a planned deficit of £580m for the year. Last month NHS Improvement and NHS England said actions had been taken to ensure the deficit was “no more” than this, but reiterated the aim to reduce it to £250m.

The forecast deficit after the first three months of 2016-17 was £644m, and the deterioration in the second quarter includes major forecast revisions from trusts such as Royal Free London Foundation Trust, Brighton and Sussex University Hospitals Trust, and Gloucestershire Hospitals FT.

Sally Gainsbury, senior policy analyst at the Nuffield Trust, said: “We knew that even bringing the provider deficit down to £580m was going to need efficiency savings of around 4 per cent, which is more than Lord Carter and Monitor thought was possible, and far more than has been achieved in the past.

“If the forecast deficit is £850m now, then it seems like it’s only going to get worse throughout the rest of the year.

“CCGs have been forced to hold back 1 per cent of the allocations this year, which equates to around £800m of contingency funding, in case of overspending by trusts.

“And it looks as though the provider deficit will wipe that out completely. This is money that could have been spent on other priorities such as primary care and mental health.

“If the provider deficit grows even more then there is a serious problem for the DH, because it’ll be more money than has been held back.”

Official figures for the provider sector are due to be published by NHS Improvement later this month, and may differ slightly due to the regulator’s own assurance process and inconsistent accounting methods between trusts.

Chris Hopson, chief executive of NHS Providers, said trusts are making a “huge effort” to improve their finances and are “broadly on track” to eliminate their combined deficit with the help of the £1.8bn STF.

He added: “We shouldn’t forget, though, that this doesn’t address the longer term, higher level, gap between what’s being asked of the NHS and the funding available.”

Impact for trusts, the DH and CCGs

The combined financial plans for NHS trusts had set a planned deficit of £580m for 2016-17, after accounting for the £1.8bn STF.

Last month NHS Improvement and NHS England said actions had been taken to ensure the deficit was “no more” than £580m, but reiterated the aim to reduce this to £250m.

Two-year planning guidance issued by the regulators said a failure to meet the £250m target, and enter 2017-18 in “run-rate balance”, would require an additional efficiency requirement for trusts next year. The figures collected by HSJ suggest this additional requirement will total at least £600m.

Discounting STF, the figures suggest a year-end forecast of £2.65bn. This compares to the reported £2.45bn in 2015-16, though various technical accounting measures were included in last year’s figure and the underlying position was thought to be around £3.7bn.

The actual year to date position after the first six months of the year was a deficit of £1.56bn, according to the local figures, which compares to a deficit of £1.61bn at the same stage last year.

Although this does represent an improvement, this is partly explained by the benefits of the tariff this year, which brought increased prices paid by commissioners. This means there is increased risk of a large overspend from CCGs this year, which will also impact on the DH position.

HSJ is also aware of examples where trusts in financial special measures, such as Maidstone and Tunbridge Wells and Barts Health, which are now forecasting large amounts of additional income in the second half of the year. While this improves the provider forecast, it will have a negative effect on commissioners.

Exclusive: Trusts' deficit forecast more than £250m worse than feared