Hospital funding is set to be cut by £2bn as the NHS faces a potential “financial cliff edge”, NHS England’s chief executive has said.

Sir David Nicholson discussed the impact of the health service pooling large swathes of expenditure with local authorities – as determined by the government in the July comprehensive spending review – in a letter send to NHS organisations yesterday evening.

The pooling means the NHS has to direct much larger sums than it currently does to social care and other community services in 2015-16. However, Sir David says the service will start to feel the impact from April next year.

He says: “The [pooled budget] is a ‘game changer’. It creates a substantial ring-fenced budget for investment in out-of-hospital care. However, it will also require us to make savings of over £2bn in existing spending on acute care.

“This implies an extra productivity gain of 2-3 per cent across the NHS as a whole in 2015-16…

“We are currently exploring the feasibility of bringing forward an element of the 2015-16 saving requirement into 2014-15 to avoid a financial ‘cliff edge’ in 2015-16.”

The pooled budget – called the integration transformation fund – will be worth £3.8bn in 2015-16.

In the months since the announcement there has been concern from some in the NHS that it will be transferred to local councils and they will be unable to control how it is spent.

Sir David’s letter, intended to help NHS organisations begin planning changes to services for the coming years, says the process and governance overseeing the funds has yet to be decided but will be set out soon.

However, he said: “It is my view that investment should be targeted at a range of initiatives to develop out-of-hospital care, including early intervention, admission avoidance and early hospital discharge.”

Sir David, who will step down from his role by the spring, added: “The chief executive of NHS England will remain the accounting officer for the fund, accountable to Parliament for its use, and in that context I am asking NHS England area directors to take a close interest in the effectiveness of local arrangements for governance and implementation.”

The letter (see attached) also says:

  • In relation to competition: “There has been considerable discussion about the impact of competition rules on commissioners over recent months… Commissioners should adopt transparent decision making processes which use competition as a tool for improving quality, rather than as an end in itself. NHS England and Monitor will support commissioners who adopt this approach to competition.”
  • Regardless of the ongoing review of clinical commissioning group funding allocations, “stability is a key consideration and the pace of change [to allocations] is likely to be slow”. CCGs are set to be given allocations for 2014-15 and 2015-16 in December.
  • NHS England is “currently exploring how an accountable clinician can be identified to coordinate the out-of-hospital care of vulnerable older people and the integration transformation fund might be used to accelerate this initiative”.