The Treasury is in talks with the Department of Health over the NHS's £1.7bn surplus and when the service will be able to spend it.

The talks began as the DH announced it would not publish next year's operating framework, payment by results tariff or primary care trust allocations early next month as planned, to "allow the necessary time to reach a view around our longer-term financial assumptions towards the end of the year".

A DH source told HSJ that although the Treasury had said it would not revisit its spending commitments for the next two years, "there will be an issue about the rate at which the surplus is reissued back into the NHS and that will be discussed with the Treasury and Number 10".

Contingency fund

The possibility of holding on to all or part of the surplus as a contingency fund to cover the financially tight years after 2010 was being "scrutinised" but no decision had yet been taken.

Paraphrasing the recent DH mantra, NHS Confederation policy director Nigel Edwards told HSJ: "Telling people to 'look out not up' and then imposing something like that means people would never believe you again. So you would really want to think about that, especially if you hope people will make surpluses again in the future.

"That's the problem they also have with the foundation trusts."

Foundation trust accumulated cash surpluses were£2.3bn on 31 March 2008, the vast majority of it deposited in the Treasury's Paymaster General accounts.

Top slices

A clawback, now seen as inevitable, could be made on non-foundation surpluses by reintroducing strategic health authority "top-slicing" of PCT budgets by next year.

But senior NHS figures expect it to be more subtle. The DH is already mentioning "more stretching efficiency targets". Hospital finance directors fear this means little or no inflationary increase to the payment by results tariff.

But Mr Edwards warned "slapping on a great big efficiency saving" was problematic because surpluses are not evenly distributed.

Foundation trusts had already warned that the introduction of a new tariff for 2009-10 was "in jeopardy" when tests found it had the unintended effect of underpaying specialist hospitals.

As part of the review of the PCT allocation formula, DH officials have been considering allotting rural areas more money. Sources said this might have to be revised if funds were tighter in coming years.

Capital changes

There could also be changes to capital spending. It is now unlikely the Treasury will want to pay for up to£16bn of private finance initiative projects that must move onto NHS balance sheets from next year. In that case new capital spending will need to come from surpluses, either directly or via a new NHS banking and borrowing facility.

This would coincide with any public sector building work that was brought forward, an idea mooted by the Treasury to stimulate the economy during the expected recession.

This week the Treasury wrote to the DH saying it now wanted to be sent all private finance schemes for approval.

The project lead of one NHS scheme told HSJ that might be because the Treasury is looking to see what schemes, if any, could be brought forward. But in practice increased Whitehall involvement would only slow down procurements, he said.

There are 11 NHS private finance schemes, worth£2.5bn, that have been approved by the DH but have not yet reached financial close. West Hertfordshire Hospitals trust plans to begin new buildings worth£230m in two years, but director of planning Sarah Wiles said that could be six months sooner if it was financed using public rather than private funds.

But beyond the handful of planned new hospitals there is doubt the NHS would be that fruitful for a Keynesian drive to boost the economy. PCT Network director David Stout said: "I'm not sure you can turn these things on and off that easily. Not very many [PCTs] are planning to build new buildings."

A more modest contribution to the wider economy came in the form of a letter from NHS chief executive David Nicolson asking NHS heads to pay any invoices within 10 days to help private contractors' cash flow.


The NHS can expect a range of measures to claw back cash from last year's savings - it is just a matter of where and how they come.

What the NHS is worried about:

  • New "must-dos" in the operating framework, possibly around bringing forward capital spending but without any extra resource to pay for it

  • Minimal inflationary increase to the hospital tariff, with an increased efficiency assumption of more than 3 per cent

  • More top-slicing of PCT allocations to create contingency funds for the years after 2009-10, either at SHA or DH level

  • No funding growth for PCTs deemed to be "over target" under the new allocation formula

  • Surpluses to be taken into account when allocating PCT resources

  • Mandatory NHS banking facility to lend surpluses to fund deficits or capital projects