Exclusive: Raid on DH's capital budget rises to £640m

1 Comment

The Treasury agreed a further £150m transfer from the Department of Health’s capital budget in the early months of 2015 to help the health service cope with ongoing revenue spending pressures, HSJ can reveal.

The latest raid brings the sum taken out of the health capital budget to £640m this financial year. It covers day to day costs such as drugs and staffing.

The DH this week confirmed to HSJ that officials agreed between late January and early February to transfer a further £100m from the DH capital budget to revenue, alongside a £50m transfer from NHS England’s capital budget.

The decision came just weeks after the department published a December report revealing its intention to transfer £490m from capital to revenue in 2014-15.

Something ‘very substantial’ must be happening with the DH’s accounts to enable capital transfers, Richard Murray said

Coupled with an extra £250m increase to the revenue budget from the Treasury itself, this brings the total increase to the health revenue budget in 2014-15 to £890m.

The transfers are an indicator of the huge revenue pressures on the NHS this year, which has seen spiralling temporary staffing costs and escalating provider sector deficits.

King’s Fund policy director Richard Murray, a former senior analyst and economist for the DH, said something “very substantial” must be going on in the department’s accounts to enable the capital transfers.

Commenting on the latest transfer, he said: “What is not clear is quite why the department thinks it was going to underspend so much given it only just underspent the capital budget last year.

“The department did not underspend the 2013-14 capital budget by much, and at the moment foundation trust capital spending – the largest element – is slightly higher than it was last year.

“It looks [like] a challenging target on capital, which would only be delivered if the DH is holding back its spending very sharply.

“Given that foundation trust spending isn’t dropping yet there must be something very substantial going on in DH’s accounts to make room for these switches.”

The health revenue budget is used to cover ongoing costs in the NHS, such as drugs and wages, while the capital budget is used for investment in areas such as technology and buildings.

Bill Morgan, a founding partner at Incisive Health and former health secretary special adviser, said Treasury officials “would have taken some persuading to make this further transfer, because they see lower capital spending as a cut in investment”.

He added: “Ultimately though, ministers would have taken the view that with an election fast approaching, now is not the time to try to recover the NHS’s finances by slamming on the brakes.”

A Treasury source emphasised that the transferred funds came from underspending the DH’s capital budget. However, the Treasury declined to give further details of where these had occurred.

HSJ understands that officials identified the opportunity to make a further £150m of capital savings during the latest supplementary estimates process, in which government departments seek in-year changes to budgets. They took the decision to not reinvest the savings in capital but to transfer to revenue to provide additional cover for emerging revenue pressures in the health service.

A DH spokeswoman said: “We know the NHS is busier than ever and patients expect us to make sure resources are always directed to where they are most needed.

“That’s why we’re increasing the budget this year and by an extra £2bn next year to back the NHS’s long term plan to move more care from hospital to home.”