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NHS capital expenditure and financial management

Inquiry

From 2014-15 the Department for Health and Social Care transferred funds from its capital to its revenue budget, with £1bn switched in 2017-18: effectively foregoing longer-term investments in buildings and assets to support day-to-day spending on current health and care services.

The Department plans to end this practice in 2019-20, but there is no discernible strategy yet in place to ensure that organisations will have sufficient access to capital to deliver the transformed services set out in the NHS Long Term Plan, published in January 2019 and setting how the NHS aims to achieve the range of priorities set by the government in return for the long-term funding settlement.

The NAO’s report ‘Capital expenditure in the NHS’ concluded that the current system of allocating funds for capital is not strategic or transparent, and that planned, multi-year transfers out of the DHSC capital budget and into day-to-day operational budgets is pushing the current capital regime to the limit of its effectiveness. The report also found that:

-  Parts of the NHS estate  - including Victorian-era buildings - do not meet the demands of a modern health service. The growth in the estate maintenance backlog – standing at around £6.5 billion in October 2019 including a high-risk backlog of £1.1 billion, which grew by 139% between 2014-15 and 2018-19 - indicates that there is an increased risk of harm to patients and to patient care.

- In the five years from 2014-15 to 2018-19 the Department transferred a total of £4.3 billion from capital to revenue spending, using budget flexibilities granted to it by the Treasury. This allowed the Department to prioritise day-to-day spending on current services at the cost of foregoing longer-term investment in buildings and other long-term assets. In March 2019 the Department was unable to give a definitive measure of the impact on patients’ services of repeatedly making these transfers.

- Capital investment budgets have not been fully used. There have been particular years where noticeable underspends have occurred. Between 2010-11 and 2012-13, there was an average underspend of £677 million (12%) against the capital spending limit. In 2017-18, £360 million (6%) was unspent. These underspends have occurred at a time when the UK has had lower levels of medical equipment per population than other countries.

- Some NHS providers are in surplus and some are in deficit and have had to borrow to fund capital plans. The current capital regime means that the availability of cash, and ability to spend capital without approval from the Department (for example, in those trusts delivering surpluses and foundation trusts), does not necessarily match where there are the most urgent capital needs.

- NHS providers have increasingly sold their assets to fund day-to-day activities, with overall proceeds from asset sales rising by 99% (from £222 million to £441 million) between 2016-17 and 2018-19.

- NHS providers owe the government £10.9 billion in interim revenue and capital debt. Cash shortages affect the ability of NHS providers to invest in new capital assets.

Ahead of the evidence hearing on 22 May, the Committee invites written submissions on any of the issues and questions raised above. Please submit your evidence here by Friday 15 May 2020.