The respected health thinktank the Nuffield Trust has obtained confirmation the Department of Health will not be given access to the surpluses it has accumulated since 2007-08.
Since the start of the last spending review period in 2007-08 the NHS has accumulated £3.7bn in resource underspends and £1.8bn in capital underspends.
It is common for the NHS to be denied access to capital underspends, but last month HSJ reported the Treasury had also refused the department access to its £1.5bn 2008-09 underspend during 2009-10.
Commenting at the time a spokeswoman for the DH revealed the department was in “discussions” with the Treasury over the status of its total £5.5bn surpluses and whether they would ever be returned.
The Nuffield Trust has now obtained confirmation surpluses will not be returned to any department, including the DH.
This is because the Spending Review announced the abolition of the so-called “end of year flexibilities” scheme under which accumulated underspends remain ear marked for the department which made them.
The Spending Review document states: “The end of year flexibility (EYF) system which allows departments to carry forward unspent budget provision into future years… has, in practice, led to accumulated stocks of around £20bn that would further increase the deficit if they were spent.
“To strengthen the spending framework, the government is… abolishing the EYF scheme at the end of 2010-11, including all accumulated stocks.”
Nuffield Trust confirmed with the Treasury the abolition of accumulated stocks applied to the DH’s stock as well as other departments. The DH has the biggest accumulated EYF, equivalent to 29 percent of the £18.9bn total.
The loss of the £5.5bn total underspend puts the DH in a difficult position as foundation trusts have accumulated surpluses £1bn. As foundation trust spending counts as NHS spending, every £1 spent by a foundation trust is £1 that cannot be spent by another NHS organisation without the DH busting its budget.
The alternative would be for the DH to “claw back” foundation trust surpluses. But that would risk undermining the independence of the organisations and confidence in their freedoms.
Nuffield Trust chief economist Anita Charlesworth – who recently moved to the trust from the Treasury – told HSJ: “I assume the DH will honour the foundation trust surpluses.”
“That means it will have to top slice the NHS allocations in order to allow foundations to spend.”
A DH break-down of the source of the resource underspends shows that £1.3bn was lodged with the Treasury in 2007-08, £1.5bn in 2008-09 and £0.6bn in 2009-10.
A spokeswoman for the DH said the abolition of accumulated surpluses applied to the relationship between the department and the Treasury, not the DH and the NHS.
She said: “The NHS underspend has been protected by the DH. The NHS has been spending its surplus in recent years, without the department making an ‘End-Year Flexibility’ claim on the Treasury.”
The rebuttal means the DH plans to stick to its pledge that NHS organisations that have made surpluses will be able to keep them even though the Treasury will not give the DH the spending allowance back to cover that.
That means that if NHS organisations spend their surpluses too fast in one year, the department will breach its strict spending totals set by the Treasury in the form of its Departmental Expenditure Limit.
The spokeswoman responded to that point, saying: “The DH always says in the operating framework how much the NHS can draw down and we make sure we can cover it.”
Until now, the DH has been able to offset surplus spending in some parts of the NHS with continued underspending elsewhere. However there are doubts over its ability to do that in the years ahead which will see much smaller increases in the NHS budget despite rising demand for healthcare.
Nigel Edwards, NHS Confederation acting chief executive told HSJ: “We need much better clarity about exactly what the rules are so people can be sure that if they do make a surplus they can get access to it. Otherwise you undermine the point of making them in the first place.”
In a further statement Mr Edwards commented:“We have sought and had reassurance from the DH that it will protect the surpluses NHS organisations have worked very hard to create. While we have been given this reassurance, if this later turned out not to be the case then this would send a very poor signal to the whole NHS.
“If you generate a deficit then you should be responsible for it and if you generate a surplus then you should benefit. What the Nuffield analysis demonstrates is that the current system for doing this is too opaque. We need much more clarity so nobody is in any doubt on where they stand.”