Health authority and trust deficits have been dramatically reduced, according to a National Audit Office report that also passes the NHS's accounts unqualified for the fourth year running.

The report issued last week by NAO head Sir John Bourn says HA deficits plunged from£238m in 1996-97 to£8m in 1997-98, while the position of trusts 'showed a significant improvement'.

Although 149 trusts reported a retained deficit totalling£149m, trusts overall had an accumulated surplus of£209m.

But the report says guidance is needed from the NHS Executive on how deficits and surpluses should be dealt with to avoid 'inconsistencies of approach'.

Eric Morton, chair of the Healthcare Financial Management Association, said getting unqualified accounts 'for a complex organisation spending£34bn' should 'not be underestimated'.

The NHS Confederation was less enthusiastic. Chief executive Stephen Thornton said: 'While it is positive about the past, the report does not consider the future position of the NHS.'

He said the 'underfunded' pay award, demand for emergency care and pressure to reduce waiting lists led to 'growing financial pressures', and urged the government to release 'remaining modernisation funds' to the service.

The NAO report identifies the financial pressures on the NHS - most significantly, that of clinical negligence claims.

It says potential liabilities of£1.8bn are disclosed in the accounts, and Sir John estimates that incidents which have occurred but not yet been reported could cost a further£1bn. He welcomes steps being taken by the NHS Executive and the NHS Litigation Authority to develop clinical risk management standards.

A comprehensive set of control systems covering financial, organisational and clinical risk is being developed. All NHS organisations will be 'required' to issue controls assurance statements.

Sir John also welcomes the introduction of the National Institute for Clinical Excellence and other measures 'being taken to enhance standards of care and thus minimise the likely future costs of clinical negligence claims'.

Mr Morton said the new control systems were a major task for finance managers.

But Mr Thornton was 'less sanguine' that care improvements would reduce the cost of claims as they could 'increase expectations and make shortfalls more explicit'.

See comment, page 15.

NHS (England) Summarised Accounts 1997-98. Published with: Summarised accounts of NHS trusts and health authorities and the dental practice board and special health authorities providing central services. The Stationery Office.£25.40.