NHS organisations will be permitted to spend just 400m of their 1.7bn surplus next financial year and will not get the full increase in resources pledged to them by the Treasury.

The tight restrictions on spending the surplus follow warnings that for the period after 2010 the NHS should expect its funding to grow by between just 1.5 and 2 per cent, compared with the 6.7 per cent promised by the Treasury in its comprehensive spending review for the years 2008-09 to 2010-11.

There will also be clawbacks on primary care trust allocations. Last year the Department of Health saved up to£870m by increasing the allocations by just 5.5 per cent rather than passing on the Treasury’s full 6.7 per cent.

The DH plans to do the same for next year, saving itself up to another£950m.

Changing plans

NHS managers have told HSJ the spending restrictions will mean PCTs will need to scale down their service plans, which could mean cutting anything that is not seen as a local priority.

Hospital trusts anticipate having to reduce non-clinical staff bills by 3 per cent, either through freezing posts or redundancies.

One finance director said this would affect patient care, as the staff involved organised patient records and operating theatres and booked appointments. “Even if you slightly get that wrong and lose a patient’s notes or don’t make an appointment in time, people die,” he said.

The restrictions reflect the DH’s plan, as revealed byHSJ , to stagger the rate at which the NHS spends the£1.7bn surplus it has maintained over the last two years.

The delayed operating framework - now anticipated in early December - is expected to give strategic health authorities the task of ensuring their PCTs and trusts collectively limit spending to around a fifth of each region’s surplus.

Money management

NHS Confederation policy director Nigel Edwards said: “We have just put£500bn in the banks and we can’t pretend that didn’t happen. It’s about how [the DH and SHAs] manage it. That will be a key test. Any feeling that people have been top-sliced or raided will represent a potential loss of trust. Next time people are told to make a surplus, it will be less easy to persuade clinicians this is a good idea.”

SHA chiefs are hoping they will be able to keep within the effective cap on surplus investment by balancing out those trusts and PCTs that do not plan to make significant investments next year with those that do.

But Mr Edwards warned: “If it doesn’t [balance], they will have a problem because this is the PCTs’ money. They will be coming under pressure from the public and the local authority [to spend it].

“SHAs are prone to just divide surpluses like this by a capitation basis. That mustn’t happen. The money is the PCTs’. Otherwise you will undermine the ‘look out not up’ philosophy.”

NHS North West chief executive Mike Farrar said a cap of£400m on surplus spending was in line with the SHA’s expectations. It was “good news” that concerns about the coming recession had not led to even tighter restrictions on spending.

Slower growth

He said the cap would help manage the prospect of much slower growth in NHS funding: “Our approach to financial strategy is we need to make sure we are ready for the next comprehensive spending review period and we need to decide what a sensible amount of resource is for the next four to five years.

“Our general assumption is that as the economic context gets tighter we will have to have a good look at what we need to put aside.”

But a London PCT source said any cap on spending the capital’s projected£320m surplus could cause considerable problems. The region has a number of historical deficits which it was planning to resolve next year by redistributing its surplus. Restrictions on the amount of surplus available next year would jeopardise that, the source said.

A DH spokeswoman said the department was unable to respond and had “nothing to add at this time”. No details on next year’s financial arrangements would be available until the Treasury published its pre-Budget report, she said. This is expected within the next two weeks.

WHAT DOES THE CLAWBACK MEAN?

HSJ asked managers how they expected the spending restrictions to impact on their organisations

Hospitals

  • Expect payment by results tariff to be based on assumption of 3.5 per cent efficiency savings year on year

  • Warn diminishing waiting lists mean they cannot make up income shortfalls by increasing activity

  • Predict cuts of up to 3 per cent of non-clinical staff bill

  • Will have to reduce patient length of stay and close beds

  • Will have to cut agency staff spending and recruit permanent staff where possible

Primary care trusts

  • Predict limits on surplus investment and allocations will mean tight restrictions on funds

  • Expect to have to make tough commissioning decisions, putting off plans for some new services

EXPECTED SURPLUSES

SHA2008-09 forecast surplus£m
East Midlands135
West Midlands155
East of England180
Yorkshire and the Humber237
London320
South East Coast115
South Central55
South West140
North West291
North East122