Exclusive: NHSE/I orders trusts to cut capital funding bids

In a letter to provider chiefs, seen by HSJ, NHS England and NHS Improvement said their current spending plans must be reviewed to create a “realistic opening plan position”.

The letter, sent on Tuesday by new NHSE/I chief financial officer Julian Kelly, said the capital spending limit for 2019-20, set by the Treasury and Parliament, is higher than 2018-19.

But it added: “The most recent provider plans, somewhat understandably, include a significant increase in forecast capital expenditure compared to last year funded by trust cash balances as well as emergency loan requests. This level of capital spend would lead to the NHS unacceptably breaching its capital spending limit…

“We would like to ensure that, together, we create a realistic opening plan position for each provider that has been carefully reviewed by each provider leadership team, supported as needed by NHSE/I regional teams.”

He asked trusts to consider deferring expenditure “which is not deemed to be essential or already contractually committed” into future years, and said revised plans that increase capital spending above acceptable limits would not be accepted.

The letter did not set out what the budget and planned spending levels are. But the most recent budget document, published last year, suggested the Department of Health and Social Care capital budget would be £6.7bn in 2019-20, up from £5.9bn last year.

Mr Kelly, a former senior Treasury official, said keeping within the spending limit was “particularly important” ahead of the scheduled government spending review later this year, when future capital spending limits are set to be agreed with the Treasury.

Legislative changes sought

Mr Kelly’s letter comes as the national bodies seek legislative changes that would impose new controls on capital spending by foundation trusts. The current legislation means many FTs are still free to set their own capital plans and spend cash which they have generated.

This has created problems for NHSI in recent years, as it has been difficult to ensure the sector as a whole keeps within its spending limit. Last year, more than £250m of the capital budget remained unspent, despite many trusts desperately needing investment in infrastructure. This was due to the difficulties in controlling spending and the efforts to ensure the limit was not breached.

Mr Kelly’s letter states: “We are hoping that these resubmitted plans will significantly close the current gap between the allocated NHS capital limit and current plans, but the current gap is sufficiently large that we suspect there will still be further work to do.”

He said regulators were keen to avoid the imposition of a top down set of capital controls, but that further “short-term in-year control measures” could be necessary if a more collective effort to reduce capital spending did not work at a “rapid pace”. It is unclear what this would involve, but many trusts and FTs are still subject to strict sign-off processes under current laws, and most providers rely on central funding being provided for large estates projects.

Mr Kelly added: “More widely I recognise the need, as set out in the long-term plan, to develop a new capital and associated cash support and control regime as an urgent priority.”

He also acknowledged the “pent up demand for capital spending”, but said the measures being taken would result in a “more planned, proactive and collaborative approach to managing capital spending than we have had before”.

The DHSC’s capital budget has been severely constrained in recent years, which has led to a growing backlog of essential maintenance work. A 2017 government-commissioned review by Sir Robert Naylor called for a significant uplift in capital spending to help implement crucial reconfiguration projects and deal with the maintenance backlogs.

His report, which was accepted by the government, called for an additional £10bn of funding over five years. But there has since been uncertainty as to where this money is coming from, as the private finance initiative has been scrapped and there has not yet been a significant increase to the capital budget.

Meanwhile, a recent report by the Health Foundation think tank outlined that NHS capital spending has lagged behind that of the healthcare systems in most other advanced countries. Many senior NHS leaders, including Sir David Dalton, have also expressed their frustrations at being unable to secure capital financing for crucial transformation projects.

The finance director of one NHS provider, who asked to be anonymous, said: “This is just another sign of a broken financial system that has been unfit for purpose for a number of years. Regulators keep trying to push a different bit of the balloon instead of dealing with the fact that it is overinflated… The fact is we are going to need a bigger balloon.”

Chris Hopson, chief executive of NHS Providers, pointed out that the spending limit covers cash already sitting in trust bank accounts as well as new money coming through the DHSC allocation.

He added: “There are two ways of addressing this problem. One is to raise the capital spending limit, particularly since the NHS would not be asking for more capital (cash) – just permission to spend money it already has. The second is to find a way to reduce trusts’ current plans to fit the existing limit. Trusts will want to see the limit increased. And if we can’t achieve that, any attempts to reduce current plans must be done in complete collaboration with the trust sector, not imposed from above.”