The financial fortunes of foundation trusts slipped in the last months of 2009-10, the latest report from their regulator Monitor shows.

By the end of 2009-10, the aggregate profit margin of foundation trusts had slipped from 7.5 per cent at the beginning of the financial year to 7 per cent - 60 basis points below their planned 7.6 per cent.

Monitor’s review of the financial year 2009-10 says the downturn in foundation earnings before interest, taxes, depreciation and amortisation (EBITDA) margins was due to the lower profits foundations were making on emergency activity.

It said a particular issue had been extra staff costs as trusts paid premium rates to meet waiting time targets. That helped push foundation trust pay costs to 2.3 per cent higher than planned in the last three months of 2009-10 (see news analysis, page 12).

The regulator warned this year’s introduction of a 30 per cent cap to tariff prices for emergency activity over planned levels would further hit acute foundations’ margins. It also warned that 27 per cent of cost improvement plans were actually income generation schemes - something that would be “increasingly difficult” to achieve under “expected spending constraints”.

The fall in foundations’ financial performance saw 25 out of 129 trusts being downgraded by Monitor for their financial risk rating. That included Dorset County Hospital Foundation Trust, whose risk rating has now fallen from 2 to 1.

The trust ended 2009-10

with a £5.1m deficit - equivalent to 3.5 per cent of its 2008-09 income. A spokeswoman said it was working closely with Monitor to improve its financial control.

The Monitor report followed chancellor George Osborne’s emergency Budget last week, which announced a “two year freeze” for public sector pay, excluding the 1.7 million earning less than £21,000.

Assuming pay increases would otherwise be around 2 per cent a year, the freeze saves the NHS around £1.6bn over two years.

But the Department of Health has told HSJ the “freeze” will not apply to Agenda for Change increments. A DH spokeswoman said although each incremental step in the pay bands would be frozen, staff would still progress through their steps as usual.

That will mean a nurse at the bottom of pay band 5 on £21,176 this year will still expect to progress to the next step at £21,798 next April - increasing their pay by 2.9 per cent.

The budget also announced an increase in VAT to 20 per cent from January. King’s Fund chief economist John Appleby said that could imply an increased cost of around £250m to NHS England - based on an estimate supplied by NHS Scotland that it would increase its costs by £25m on a total expenditure a tenth of the size of the English NHS.