HSJ’s weekly email briefing on NHS finances, savings, and efforts to get the health service back in the black

The full consequences of the NHS’s enormous provider side deficit have not yet been felt, but are about to be.

At last week’s NHS Confederation annual conference, HSJ detected from many senior leaders a profound unease about what next month will bring. There was a palpable sense of the collective breath being held.

It is widely acknowledged that something is on the way, it is coming from Whitehall, and will make life extremely difficult for many leaders.

At the moment, two things are preventing this from being discussed fully or openly: one is EU referendum purdah, which lifts on Friday. The other is that the nature of the intervention is in the process of being agreed.

In his speech to Confed, Simon Stevens said there would be a “re-set” on NHS finances next month. As we have reported, this is expected to be a major intervention, with substantial input from government.

Ahead of the announcement, some details are emerging of “plan A” – which assumes there is no Brexit vote that sends the economy (and with it all public finance plans) into a deadly tailspin.

For the obvious reason that staff are where the bulk of the service’s costs are, it is likely that ministers will require trusts to screw down on the pay bill – particularly the clinical one. And, since capping agency bills does not seem to be saving enough money fast enough, trusts now fear being given a “control total” for their total staffing bill. The “re-set” is being driven by the Treasury as much as the Department of Health, and Number 10 will also be involved.

This is broadly of a piece with the comments Simon Stevens made in his last major interview with HSJ last month, where he praised organisations that had looked at their cost growth over the past two to three years and were now looking to reverse it.

Most of that cost growth will have been in clinical staff, prompted in general by the post-Francis report focus on safety.

That era is now drawing to a close.

The political problem is, how on earth can Jeremy Hunt front such a drive? After nearly four years of telling the NHS that low cost and high quality are two sides of the same coin – a trope he trotted out again at Confed this year – can he credibly start telling trusts to cut their staffing bill?

A related operational problem is this: you can cut your staff bill to what it was two years ago – but it’s doubtful whether, given increased demand, you can do this without offering a worse service or worse access. Leaders will be aware that any directive to cut staff will have a human cost, in the form of lengthening waiting times and in surrendering the ground gained on safety in recent years.

A deal is in the process of being struck between NHS England, NHS Improvement, the Treasury and Number 10.

The reason that is necessary is that the last deal, the one in which NHS England got frontloaded real terms growth in return for the health service guaranteeing financial sustainability and meeting performance targets, is collapsing under the stubbornly huge provider side deficit.

It is this arrangement that is really the subject of the re-set. 

A new settlement is needed. Precisely what the terms are, what the NHS will have to promise in the short term in order to keep open the possibility of additional funding growth in future years, and how it relates to the potentially controversial reconfigurations included in local sustainability and transformation plans, are what is being debated now. Whatever the result of these discussions both the NHS and the government face making some hard compromises which will be very difficult to sell to NHS leaders. A fudge is still possible, but increasingly unlikely.