• NHS finance boss calls for greater “realism” in financial planning
  • Julian Kelly warns NHS organisations can’t ask for “billions more”
  • Pledges “maximum flexibility” over local finances, but limited cash for new services and activity

NHS England’s chief financial officer Julian Kelly has called for greater realism from local leaders in next year’s financial planning round, warning they must urgently make “difficult” choices about what they can deliver with what will “feel like a real terms cut”.

Mr Kelly said local finance directors must “be realistic” about funding in 2025-26 and accept there are “some really properly important and difficult conversations for us to have and we are going to need to get into them fast”.

Speaking at the Healthcare Financial Management Association conference, he also said it was likely the elective recovery fund would be capped next year.

On financial planning for next year, he said: “In the context where it’ll feel like, on average, a real terms cut in sort of activity spending power [that means] people coming back quickly, not with ‘I need billions more’, but, ‘this is what I think we can do.’”

The annual planning round in recent years has been characterised by very high initial deficit plans that are brought down in repeated cycles of re-planning that have extended into the financial year.

This year, an initial warning of a £6bn financial gap in March was brought down to a final plan of just above £2bn over the following three months.

However, a leading trust finance boss recently warned the process was leading to the “erosion of credibility”, with trusts presenting “unrealistic” efficiency goals to arrive at a figure acceptable to NHSE and the government.

Asked how the service could improve its approach to financial planning, Mr Kelly admitted there had been “impediments” this year, with annual planning guidance delayed by several months.

But he added: “We’ve got to get our heads around, nonetheless, that the money’s the money. And the first set of plans we got back [last year] said I needed to find another £6bn. I can tell you, by the end of this year, I won’t need to have found another £6bn.

“So, we need to get into a real conversation sooner rather than later. That also means being realistic [about how much funding is available]. Now, the question then is, how do we have a realistic conversation about what can honestly be done with that money.”

NHSE would “push really hard” on what systems could do by improving productivity, he said, before they started saying they had to “shut things [services] down”.

Mr Kelly said: “The opposite of a fantasy financial plan is a realistic financial plan. I only say that as there are some really properly important and difficult conversations for us to have, but we are going to need to get into them and fast.”

‘Maximum flexibility’

Mr Kelly said discussions about next year’s elective funding were still taking place with government.

This year, the Treasury agreed to fund overperformance against budgeted elective activity, but Mr Kelly said his best prediction was next year “we’re going to be putting money into allocations and saying, ‘that’s the funding’”.

Elective funding rules for the remainder of this year remain uncertain.

The gathering of finance leaders at the conference was told that the “service development fund”, which in recent year has earmarked funding for several key national priorities, would likely be reduced in 2025-26, with systems given “maximum flexibility to work out how you can prioritise resources”.

Mr Kelly said NHSE would be trying to bring down spending on bank staff in the year ahead, having made “great strides” on agency. This would involve ensuring standard rates and guidelines are consistently applied, he said.

He also defended the current regime of capital penalties for areas that are in deficit. He acknowledged “there is a really delicate balance to be struck, a quite fine path to walk at times”, but argued “there have to be some consequences” for overspending.