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Central grip

When a huge financial hole appeared in the provider sector in 2015-16, it resulted in lots more oversight by the Treasury, and centralised grip from NHS regulators.

Rigid control totals were imposed, and a large pot of money effectively removed from the tariff and held centrally instead. Cash has since been so strictly rationed that dozens of providers have struggled to pay their bills.

National NHS leaders have always described this regime as temporary, and there’s been much debate about what the new normal should look like once it’s over. Should large chunks of cash be retained centrally and used as a lever to squeeze providers, or should it be fed back into commissioning streams and available to local leaders to spend on new staff?

The £20bn funding settlement enables a bit of both, but NHS England’s new commissioning allocations suggest plenty of spending power could be retained by NHS England/Improvement.

The share of the total budget doled out to clinical commissioning groups to pay for general care will fall by 4 percentage points, from the current 66 per cent to 62 per cent by 2023-24, while funding badged as “provider support” (incorporating the provider sustainability fund and new financial recovery fund) drops by just half a percentage point.

The big increase in share comes under “other allocated system funding”, which is set to rise 4 percentage points, from £1.7bn this year to £8.2bn in 2023-24.

As the Nuffield Trust’s Sally Gainsbury has accurately predicted, this is essentially the headroom between the funding available and what’s needed to maintain current levels of service for the forecast demand.

If improvements are going to be made – such as clearing the elective waiting list, restoring accident and emergency performance, or paying for transformation – then the headroom starts to get used up.

The ongoing targets review means the nature of some of those improvements are still unknown, so reluctance to commit the funding at this stage is understandable.

Some of the headroom could obviously be fed into commissioning allocations once the expectations are clearer and national leaders can be confident it will be well deployed.

The traditional insistence each year by NHS England and NHS Improvement that there’s no more national budget flexibility or risk reserve will become even more dubious, though. If trust finances blow up and deficits grow, it’s easy to see how that’s going to be balanced off.

Get real

The allocations paper also noted the new phasing of the increases to NHS England’s overall budget, saying they would mean an additional £1bn in cash terms across the five years than was previously proposed.

What the paper doesn’t say is that this equates to a real terms cut of around £2bn across the five years, due to the increases being more backloaded than envisaged (the cash terms total is higher because of higher inflation forecasts).

The government and NHS England have always talked about the funding promises in real terms, so this is the measure that should be used.

All about the workforce

One good reason why the new phasing might not be so unfavourable for the NHS, however, was given by Richard Murray, the new chief executive of the King’s Fund.

The NHS has spent many years talking about a lack of funding, but the former Department of Health official warned of the difficulty it will face in spending the new money, without available workforce to employ.

With the funding more backloaded, there is additional time to prepare for the largest annual rise (of 4.1 per cent), now due in 2023-24, by training people. This is especially relevant for the mental health sector, which has some of the biggest workforce problems.

Gaming

There have been welcome moves from NHS Improvement to disincentivise trusts from using one-off technical accounting gains to meet their financial targets.

The first means trusts which make larger recurrent savings will get preferential treatment when it comes to bonus payments from the “provider sustainability fund”, in response to concerns that a small number of trusts have exploited the incentive scheme without helping the underlying position.

NHSI has long suspected trusts of gaming their cost improvement programmes – by repeatedly reporting “non-recurrent” savings from vacant posts they have no intention of filling. It will be interesting to see how many of these savings suddenly become recurrent.

The other policy tweak means trusts have been banned from using land sales to trigger large bonus payments (by beating their control total).

This had caused concern because the asset sales do not improve the underlying financial position, and the accounting treatment effectively results in national capital funds being diverted into revenue budgets.

Again, what’s the betting that more trusts revert to a more straightforward accounting treatment once the control total incentive has been removed?