Audit Commission and NAO calls for debt bail-outs

Ministers should reconsider their decision not to bail out trusts with historic deficits, a report by the Audit Commission and National Audit Office has recommended.

A minority of organisations will not be able to recover their cumulative deficits 'without some form of assistance from the Department of Health,' a report on the summarised accounts for 2004-05 has warned.

The DoH believes the£598m of cumulative deficits in the NHS should not be written off because that would remove the incentive to balance the books in the future.

But the commission and NAO have advised the DoH to 'consider the long-term implications' of its stance, given that all NHS trusts need to 'demonstrate a financially sustainable position within three years' to achieve foundation status.

NAO director of financial audit for health Steve Corbishley said: 'In extreme cases it is going to be very difficult to start chipping away at that accumulated deficit. The DoH has some part to play in clearing those deficits over a period of time.'

The report is critical of the cross-government resource accounting and budgeting framework which means trusts that end the year in deficit have it added to their cumulative position and deducted from their budget the following year.

A DoH spokesman said it had no plans to write-off cumulative deficits because money would have to come from other parts of the NHS.

'This would not be fair to the populations in the parts of the country where there has been no overspending in the past,' he said.