Following the Money: Squeezing the capital budget

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Capital punishment

As trusts prepare to sign off their 2015-16 accounts later this month, a fuller picture is emerging of how those accounts will be flattered by more than £300m worth of provider-level capital to revenue transfers made at the back end of the last financial year.

Thanks to some elbow grease from my HSJ colleagues, and admirable transparency on the part of most providers, wenow have details about some £270m of the income boosts received by providers in 2015-16 in exchange for deferrals of spending on capital projects.

It’s worth emphasising that there is no suggestion here of disingenuous behaviour on the part of those trusts: the providers that agreed transfers did so in response to a Department of Health initiative, executed by regulators, as an explicit part of Operation Don’t Blow The DEL.

And it is comforting to note that the biggest transfers (£25m apiece for the Royal Liverpool and Broadgreen University Hospitals Trust and University College London Hospitals Foundation Trust) were for projects that were delayed anyway (as major building projects often are), rather than for spending that was deliberately held back in response to the offer of a revenue receipt.

But it is also no surprise that HSJ has heard some trust directors voice concern that they might not actually be allowed to make their deferred capital investments in 2016-17, despite NHS Improvement’s continued assurances that these trusts will “not be disadvantaged” by last year’s transfers.

The grim fact is that – even assuming the centre does keep its promises to those trusts that have deferred capex into this year – the NHS’s capital settlement for the current parliament looks excruciatingly tight, and especially in 2016-17.

The Comprehensive Spending Review froze the DH’s capital budget in cash terms at £4.8bn a year for the duration of the parliament, but – as HSJ readers know – that’s only the half of it. In reality, the DH has also agreed the mother of all capital raids for 2016-17, transferring £1.2bn out of its capital budget to offset cuts to its non-NHS England revenue allocation. Unsurprisingly, this has led to tight controls on providers’ capex for the year, and in turn to policy wonks wondering aloud what remains of the financial freedoms that are the supposed benefit of foundation trust status.

All of this might look a little less tricky if the DH hadn’t already been ruthlessly tapping its capital budget for the past two years to offset escalating revenue overspends. Or if the coming few years were not supposed to be a period of rapid service transformation, which, you know, might require a bit of investment in new buildings or kit.

There are hopes at the centre that the £1.2bn capital raid this year will be offset by property sales receipts, but of course flogging off swathes of land and buildings in short order comes with its own complications.

Meanwhile, non-NHS providers have noticed the problem, and are keen to follow up on the Treasury’s overtures to private providers who might be able to bring a bit of external investment into the NHS. But that looks pretty complicated too.

In short, the strategy of repeatedly raiding the capital budget over years is likely to have some unpalatable consequences for the NHS over the coming period. Quite apart from the problem of funding investment in service transformation, previously unglamorous issues like backlog maintenance might be expected to generate some increasingly nasty headlines for the NHS in coming years.

Shock poll finding of the week

When pollsters seek the public’s views about NHS finances, you can usually expect the findings to confirm one thing: the public doesn’t have a freaking clue about NHS finances.

However, the results of a recent Populus survey, published in HSJ this week, reveal a surprising degree of health-economic literacy among British people.

The poll, carried out across six European countries, suggests British people are far more likely to believe that “too little is spent on health” in their country.

Sixty-two per cent of British respondents chose that statement to reflect their views on health spending, against 53 per cent in Spain (the next highest figure) and 39 per cent in France.

Data published by the Organisation for Economic Cooperation and Development last year suggested the UK spends proportionately less than 12 of the 15 original European Union countries.