‘Real worry’ as two-thirds of ICSs fall into the red

HSJ has examined the financial performance of 34 systems, of which 21 have failed to meet their part-year plans.

In one case, North East London has reported a deficit of £48m for the five months to September, against a planned deficit of £5m.

Common pressures reported by systems included the ongoing impact of inflation, covid costs that were not funded in this year’s funding envelope, operational challenges that are driving higher spend on agency staff despite a cap that came into effect last month, and difficulties delivering the level of savings needed to break even.

On the face of it, the part-year position suggests many systems will fail to meet NHS England’s expectation for systems to balance their budgets in 2022-23.

However, most of the 21 systems which have fallen off plan are suggesting they will recover their position by year-end.

This may reflect an expectation of further funding being made available, or as previously reported, that many systems have scope to improve their positions on a one-off basis later this year through “technical accounting” measures.

At the start of the year there were five systems which refused to set a breakeven plan, which prompted NHSE to say they would face restrictions on spending. The part-year performance reports suggest a sixth, Coventry and Warwickshire, is now also predicting a year-end deficit.

HSJ looked at the most recent financial reports from each ICS, which was largely the reports after four or five months of the year. Eight systems have not published their performance in recent months and did not respond to requests for further information.

Various sources said the part-year figures should be treated with caution as they could be influenced by the timing of efficiency plans and sources of support such as the elective recovery fund. One senior figure said reviews later in the year would also offer an opportunity to unwind provisions deliver non-cash based savings.

But the finance director for one ICS said privately: “The national push to break even was based on assumptions that frankly were never going to happen, that covid would suddenly stop [and] inflation would not be there. It put every system automatically in the red before they started and then it’s very difficult to catch up.”

HSJ approached the ICSs with the largest variances in their plans.

A spokesman for North East London said: “While we reported a current variance from plan in our September board report, we are still planning for a break-even position by the end of this financial year. The variance relates to the phasing of several elements of our plan, including system productivity, the elective recovery fund and implementation of efficiency plans.”

Phill Wells, chief financial officer for North Central London, said the system remained committed to delivering its breakeven financial plan, adding: “Our rate of spending has slowed over the year to date and we continue to implement efficiency savings and productivity gains where possible, while ensuring our elective activity remains strong.”

David Melbourne, chief executive for Birmingham and Solihull, admitted the system was “some way” off plan at this point but said he was confident it would secure a breakeven position by year end. He added: “However we recognise as a system that the 2023/24 financial year will be a challenge as balancing this financial year will require some non-recurrent solutions.”

Lancashire and South Cumbria ICS said it is working to “mitigate pressures in the short-term whilst at the same time developing a medium-term strategy to move the system to a sustainable financial position”.

Greater Manchester ICS said it was working to address the “significant financial challenges presented to the NHS and health and care system locally, which will be tested further by any surges in demand for services during the upcoming winter period”.

Siva Anandaciva, chief analyst at the King’s Fund think tank, said the aggregate position was a “real worry”, because the deficits do not appear to be balanced out by surpluses, as has happened in previous years.

He suggested the system would have enough in reserve to get through this year, but said: “Next year, I can’t see that there’s enough of the budget to do that, unless something changes with the financial envelope.”

There have been calls for public services to receive additional funding to cover the rising costs of inflation, although this has been ruled out by the Treasury.

However, a recent report to the Frimley ICS board said it had been “advised that not all national funding streams are currently finalised”.

An NHSE spokesman said: “It remains the case that systems should comply with their statutory duties around financial balance and the additional funding to cover inflationary costs came with clear conditions which still apply.”