NHS hospitals deeper in the red than reported, new analysis shows

A new briefing by the Nuffield Trust reveals the true underlying state of the NHS’s finances today, and outlines prospects for the next three to four years.

Press release

Published: 31/08/2017

NHS trusts ended last year with an underlying overspend almost £3 billion more than was reported in their official accounts, according to new analysis by the Nuffield Trust think tank. Without more funding for the NHS, hospitals are unlikely to recover any time soon from a mismatch between the money they receive and the cost of providing patient care, the research shows. 

The Nuffield Trust briefing, The Bottom Line1, is based on analysing the accounts and financial data published by NHS regulators. By stripping out temporary funding boosts and one-off savings, it finds that NHS trusts ended last year (2016/17) with an underlying overspend of £3.7 billion. This was far higher than the £791 million reported by NHS regulators2.

The analysis goes on to show that providers will be hit with £2.2 billion in unfunded inflation this year (2017/18) - £500 million higher than was planned. As a result, they will need to cut their operating costs by 4.3 per cent within this financial year to meet their targets, equivalent to £3.6 billion in total savings. Even if they managed that, they would still require a further £1.8 billion of extra “sustainability” funding in order to meet their target headline deficit of £500 million.

The briefing warns that although trusts have repeatedly delivered large efficiencies, improving their financial position by £2.3 billion last year, they have never before managed savings at this level. In recent years they have been relying increasingly heavily on one-off savings and paper-based savings from accountancy changes3,4.

Looking ahead to future years, the briefing finds that:

  • Even if trusts continue to make savings at a relatively high rate historically, they will still run up underlying deficits for the foreseeable future and will remain more than £2 billion in the red, in underlying terms, in 2021. This underlying deficit could be as high as £3.7 billion if inflation continues to rise faster than NHS regulators anticipated.
  • NHS commissioners, the bodies responsible for passing on funding to trusts, will not have any room to give them more money due to their own budgets being squeezed.
  • The proportion of commissioners’ funding which goes to hospital and other specialist care is set to rise from 63 per cent to 65 per cent in 2020, even though the NHS is supposed to be reforming itself to rely less on hospitals.

Commenting on the research, Nuffield Trust Senior Policy Analyst and briefing author Sally Gainsbury said:

“The official figures on NHS deficits don’t reflect how severe things are for hospitals in England, as the deficits reported include one-off funding boosts or savings that cannot be repeated the following year. Only by looking at the deficit after these have been stripped out can we see the scale of financial challenge facing the NHS– and it is eye watering.

“NHS trusts have made billions of pounds of efficiency savings every year, but these have been largely absorbed by inflation, and reductions in the cash paid to them per patient.

“Yet increasing funding to wipe out these deficits and fund much-needed reform in the NHS is entirely possible and wouldn’t even increase the proportion of our country’s wealth spent on health care. Our hospitals are undoubtedly in financial crisis. But the solution to that crisis is not beyond the reach of the public purse.”

Notes to editors

  1. The Bottom Line: Understanding the NHS deficit and why it won’t go away is by Sally Gainsbury
  2. NHS Improvement (2017) NHS foundation trusts: consolidated accounts 2016/17
  3. For example one off savings like a one-year rebate on hospital catering services.
  4. Until last year, around a fifth of the annual savings achieved by NHS providers were non-recurrent, meaning they did nothing to reduce the underlying gap between income and expenditure. That proportion increased to a quarter in 2016/17.