• Move has been long discussed
  • Portrayed by government as part of coronavirus response
  • Follows a raft of changes to NHS financial management in the past fortnight

The government has announced a “write-off” of £13.4bn of historic debt across the NHS, in what amounts to an expansion of a policy which has been planned for months.

Financially struggling trusts have been routinely forced to seek emergency bailout loans from the Department of Health and Social Care since 2014-15. Last year, trusts’ total debts reached £14bn.

Matt Hancock said he had made a “landmark step” to help the NHS’ covid-19 response. However, the plans had already been discussed at a January meeting called by NHS England and NHS Improvement, and had been under consideration for at least 20 months.

Finance chiefs met months ago to discuss debts built up over the last five years. It was previously proposed t£10bn of debt would be converted into an investment, not to be repaid, known as “public dividend capital”. The additional £3.4bn relates to capital loans that were not thought to be part of the previous plans.

PDC is treated as a kind of equity investment in indebted trusts, but with an annual charge attached.

Typically this is 3.5 per cent, but a letter to local leaders yesterday said: “DHSC and NHSEI will carry out a review of the PDC rate as it applies across the NHS financial architecture in FY20/21. This review will consider the impact of lowering the PDC rate against the benefits of doing so with the intention of making any appropriate changes for FY21/22.”

Future bailout payments will also be made as PDC, the letter says.

NHS chief executive Sir Simon Stevens added: “We’ve advocated for and support this pragmatic move which will put NHS hospitals, mental health and community services in a stronger position — not just to respond to the immediate challenges of the global coronavirus pandemic, but also in the years ahead to deliver widespread improvements set out in our NHS long-term plan.”

The NHS has repeatedly been told that it will get as much money as needed to tackle the coronavirus pandemic. An initial £5bn contingency package was announced during the spring budget — and following that chancellor Rishi Sunak said the NHS would get “whatever it needs” for the covid-19 response.

Earlier this week, Mr Hancock announced the spending roof for the NHS would also be lifted after a request from Sir Simon to breach departmental expenditure limits if necessary.

In a letter, Mr Hancock wrote: “I recognise, as part of this, the work you and your teams have been doing with colleagues in the Treasury to ensure that availability of funding is not a barrier or delay to the actions we need to take.

“On that basis, and recognising the extraordinary circumstances this country is facing, I am content to direct you to continue in this way, even where this means spending in excess of formal Departmental Expenditure Limits.”

Loans that have historically been issued as “normal course of business” will be retained. The debt being effectively written off is a transaction within the DHSC group, so will have no net impact on the public finances.