• Debts have built up since 2014-15
  • Policy experts have long argued debts would never be repaid

NHS providers that owe the government a combined £10bn would see the debts converted into a form of investment that does not have to be repaid, under plans being discussed by national leaders.

HSJ understands the plans were discussed at a recent meeting called by NHS England and NHS Improvement, attended by finance chiefs from local organisations.

The debts have built up since 2014-15, as dozens of financially struggling trusts have been routinely forced to draw down emergency bailout loans from the Department of Health and Social Care to maintain their payments to staff and suppliers.

Policy experts have argued for several years the interest-bearing loans would never be repaid, as many of the organisations are still unable to breakeven, let alone build up a surplus to make repayments.

Several local leaders who attended the meeting told HSJ the following proposals were outlined:

  • For the debts to be converted to “public dividend capital”, which is treated as a kind of equity investment in a trust. Unlike a loan, PDC is not expected to be paid back, but trusts would have to pay an annual charge on the investment. The current charge on PDC is 3.5 per cent, but it’s not clear whether this would change;
  • The debts to be converted would be the closing balance recorded at the end of 2018-19, likely affecting around 100 providers;
  • There would be no change to capital and “normal course of business loans”, which make up a smaller proportion of trusts’ total liabilities to the DHSC.

It is not clear whether the measure will be included in formal planning guidance for 2020-21, which is due to be published by regulators in the coming days. But attendees said it was presented as an advanced policy which was likely to be backed by DHSC and Treasury officials.

In theory, the move should provide greater certainty for trusts such as Medway Foundation Trust and North Cumbria University Hospitals Trust, which have huge liabilities relating to the loans. Yet there has been concern from trusts which have not had to rely on emergency support, and might have taken out longer term loans.

NHSE/I and the DHSC did not wish to comment.

HSJ has tracked providers’ growing liabilities closely since the loan system was introduced. Last year, trusts’ total debts to the DHSC reached £14bn, of which £10bn related to the emergency loans, known formally as “interim revenue loans”.

Discussions over the future of the loans have been ongoing for at least 18 months, after national leaders acknowledged it would be impossible for the bulk of the debts to be repaid. The loan system was introduced as part of a new financial regime to incentivise trusts to make increased efficiency savings, and to instil greater financial discipline.

But it has been criticised for being too punitive — including interest rates of 6 per cent for some trusts which have previously been enforced — and in some cases making the situation worse.

Meanwhile, efforts to remove the provider sector’s financial deficit have taken longer than was initially envisaged.

David Williams, NHS Providers’ senior policy advisor, said: “It makes sense to acknowledge that the loans were the result of systemic problems and out of the control of the trust. The old system was not an appropriate response to these problems, which stemmed from the fundamental fact that the money trusts were being paid did not cover the costs of delivering services, plus structural issues in individual health systems.

“So doing something about this is definitely a good thing. However, the problem that remains is that if you give trusts PDC, there is still the charge attached to that, which trusts will likely have to cover through reducing their costs. That might be fine if the trust is able to address inefficiencies on their own, but often that’s not the case.

“Trusts whose loans are being converted to PDC will often need support to address the structural issues that are driving their deficits: they may have workforce challenges they cannot fix on their own, and may need substantial capital investment to unlock efficiencies or reconfigure.”

Trusts set to benefit most from the debt conversion

Trust nameEmergency revenue loan debt at April 2019 (£)Emergency revenue loan debt (% of annual income)
Medway NHS Foundation Trust 249 84
North Cumbria University Hospitals NHS Trust 236 83
Wye Valley NHS Trust 129 70
University Hospitals of Morecambe Bay NHS Foundation Trust 210 62
Sherwood Forest Hospitals NHS Foundation Trust 199 62
United Lincolnshire Hospitals NHS Trust 274 61
Southport and Ormskirk Hospital NHS Trust 103 61
The Queen Elizabeth Hospital Kings Lynn NHS Foundation Trust      113 60
Worcestershire Acute Hospitals NHS Trust 233 57
The Princess Alexandra Hospital NHS Trust 124 52
West Hertfordshire Hospitals NHS Trust 174 52
East Cheshire NHS Trust 81 50
East Sussex Hospitals NHS Trust 198 49
Yeovil District Hospital NHS Foundation Trust 73 48
Northern Lincolnshire and Goole NHS Foundation Trust 166 47
Kettering General Hospital NHS Foundation Trust 116 46
Mid Essex Hospital Services NHS Trust 146 46
King’s College Hospital NHS Foundation Trust 511 46
Milton Keynes University Hospital NHS Foundation Trust 113 45
North West Anglia NHS Foundation Trust 195 45