NHSE imposes new financial regime in bid to make plans acceptable

It comes after integrated care systems, made up of trusts and commissioners, submitted plans that combine to a national deficit of around £3bn in 2024–25. This is a far worse position than at the same stage last year.

NHSE has refused to accept the plans submitted by many systems, and a guidance document issued to local leaders last week stressed the service “must live within its government-mandated spending limits”.

The document, seen by HSJ, sets out a complex set of rules under which ICS finances will be judged against “notional fair share” allocations.

ICSs that set a breakeven or surplus plan will be given a capital allocation bonus worth 30 per cent of the difference between their plan and their “fair share” allocation. They will be permitted to spend the balance if the agreed surplus is delivered. (See full details below)

Meanwhile, ICSs that set a deficit plan against their fair share allocations will see their capital allocation reduced by up to 10 per cent.

The document says this creates “appropriate incentives and consequences as we… plot a sustainable path to financial and performance recovery for all systems”.

It adds: “The overall principle is to redress the allocative imbalance caused by some systems spending more than their allocation, by moving resources from overspending systems to those delivering financial balance, whilst maintaining financial balance for the NHS overall.”

Although it highlights a legal duty to break even, the guidance formally acknowledges some areas are not capable of this in 2024–25 and will receive non-recurrent payments to fund their deficits, which are subject to existing repayment rules.

NHS funding is rising by less than half a per cent in real terms, while the Department of Health and Social Care has less scope than usual to provide in-year bailouts.

The guidance says “all available funding has been allocated… and the plans must be delivered”.

The health service as a whole ended 2023–24 narrowly within budget. However, local deficits had to be offset by unspent central transformation budgets, while DHSC, in which NHSE sits, was also forced to cut investment spending, including for capital.

It is not yet clear how much further the £3bn gap can be bridged, but some local sources said they were being told to reduce their deficits by up to half.

The new regime echoes a previous “financial reset” that NHSE attempted in 2016, in which providers were given “control totals” and offered incentive payments to bring them back to balance.

This delivered some headline improvements, although the National Audit Office found it had done little to address underlying financial sustainability.

NHSE will hope the differences in the new regime, which is centred on ICS finances and capital incentives, will make it more successful.

The new guidance continues: “All available funding has been allocated to systems and the plans proposed and agreed by systems and providers must be delivered. We are currently reviewing new business cases which require national transformation funding for those systems in material financial deficit.”

“Any system that fails to deliver on its financial plans will necessarily be subject to immediate nationally imposed spending restrictions.”

Organisations that are overspending already face a raft of additional controls, including triple locks on new spending and further restrictions on agency staffing.

Those ICSs that are in deficit but still deemed to be within a fair share of resources will not have to repay this in future years.

In the message to finance chiefs, NHSE’s chief financial officer Julian Kelly said the update “details our current financial position and how we are handling the necessary non-recurrent support while maintaining our commitment to fairness and the allocative principle. We will continue to address and recognise specific issues with regions as required.”

Sally Gainsbury, senior policy analyst at the Nuffield Trust, said: “These new arrangements show how NHS England really is between a rock and a hard place this financial year. It knows the £3bn projected overspend by systems is unlikely to shift significantly because the level of funding increase awarded this financial year is just unrealistically low…

“NHS England is right to highlight how overspending in some areas means they receive more resources than they would under a fair share allocation, and these arrangements represent an attempt to address that. However, given that funding growth this year will be less than half the long term average, the best NHS England can hope for is to try and avoid making a bad situation even worse.”