Is a transformation fund really the answer for the NHS?

A number of organisations have been arguing that there needs to be a transformation fund to support change in the NHS. Are they right?

Blog post

Published: 20/10/2015

A number of organisations have been arguing that there needs to be a transformation fund to support change in the NHS.  

What they are picking up is something that is very noticeable when comparing the NHS to other sectors and to health systems in many other countries – the absence of a banking function or mechanisms to support organisations while they restructure. This is how the asylums were closed and community mental health services developed.  

Fixing this is important. The process of change is long, often uncertain and will mean that some organisations running NHS services cannot make the transition without becoming insolvent or experiencing a crisis. The current failure regime is a massively expensive approach which comes far too late and has noticeably generally failed to fix the problem. There is currently some access to capital for providers but large sums to fund restructuring and the period of negative cash flow associated with is harder to come by. While there are examples of organisations that have had financial support over long periods the record of this being linked to truly transformational change is limited.  

A centrally administered fund assumes that the steps that are needed to change the system are well understood and we just need some money to fund double running. This is only partially true.

I am concerned that the idea being touted is for a transformation fund to be administered centrally. A fund of this sort would be subject to pressure to fix immediate crises and there would be a risk of it being used as a slush fund to support pet projects developed by the centre, ministerial announcements and other distractions. It would also be an easy target for expropriation when the DH or Treasury were short of money. The NHS has already handed back significant sums of money which should have been used to support change.  

A centrally administered fund assumes that the steps that are needed to change the system are well understood and we just need some money to fund double running. This is only partially true.The types of changes that are needed require experimentation and some bold steps. Not all of them will pay off and so the fund really needs to be seen as a portfolio of different risks. Many of the most effective transformations are not big bang changes but large numbers of smaller initiatives which create a large cumulative effect.  

These features of change do not sit well with a public sector approach in which any failure is unacceptable and is often seen as an occasion to allocate blame rather than an opportunity for learning and a cost of doing business. The spectre of the Public Accounts Committee and the professional background of those responsible could mean that there would be an overly conservative approach and the wrong type of risk appetite for the scale of change required. A transformation fund where most projects succeeded would be, by definition, missing opportunities for change. The public sector also does not always have an appropriate time horizon for investment. 

So if a centrally managed, taxpayer funded financing scheme isn’t the right approach, what is? 

One option would be to build on the Independent Trust Financing Facility, which has recently expanded its remit to cover more strategic change. However, while this has managed to be independent, taking on such a large new role might make this hard to maintain.  

A more radical idea would be to create one or more endowment funds independent of government. This could be a charitable trust – this idea is similar to those that led to the creation of the King’s Fund and the Nuffield Trust. A large fund, out of reach of the Treasury and professionally run by people able to make high quality investment decisions based on an assessment of the risks and the capability of the management teams has attractions. It would be able to make loans, grants or issue Public Dividend Capital bailouts to support working capital, acquire assets and reshape services as the Independent Trust Financing Facility has done but on a bigger scale.

The alternative might be a whole series of local funds. This looks attractive at first sight but localism needs to come from the consortia bidding for funds rather than from the assessment and decision process. The expertise to make assessments would be significant and expensive and there would be benefits from concentrating if and in it being able to transfer learning across the wider system.   

So if a fund is the right approach, where might the money come from?

There are lessons to be learned from social investment sector and the use of social impact bonds in defining and measuring success and evaluating the outcomes more rigorously. It would also be possible for this type of fund to be an activist lender looking for opportunities to reshape services working with health systems and in particular focussing on areas before they are in trouble – something that the current system is not particularly good at.   

Transformation loans ought to be repayable based on future streams of earnings or asset sales so would be partly self sustaining. I would advocate using surplus property from the NHS currently with NHS Property Services and other surplus public sector property to back this fund. There is up to £1.5bn of surplus NHS property at present. This could allow it to offer bonds to investors to increase the value of the fund without putting a further burden on the tax payer. This could also be used to support solutions to the configuration of local services, for example by securing funding against property that would be released at the end of transformation programmes, or using the power of the fund to consolidate and rationalise the estate.   

The advantages of a portfolio of different risks, financing lines, projects and assets in such a fund would be considerable and allow more innovative solutions to be developed but with cost effective and low cost financing.  

There are some governance and accountability challenges. A governing body including commissioners, providers, health, well being board members and others with a stake in the outcomes could be one solution but this would require some further thought.  

I understand The King’s Fund and the Health Foundation will be exploring this over the next few months. That is helpful as more innovative and imaginative approaches are needed. I am not sure a central fund run by government bodies the best way to get this. But perhaps I am falling into the common trap of trying to deal with culture problems through structural change.

Suggested citation

Edwards N (2014) 'Is a transformation fund really the answer for the NHS?' Nuffield Trust comment, 20 October 2014.