The NHS is heading into an unprecedented financial crisis and will overspend its budget by at least £7bn next year as the effects of inflation and strikes plunge hospital trusts into alarming levels of debt, according to leading independent experts.
The problem of soaring deficits is hitting a growing number of trusts across England ahead of a likely general election within 12 months, and will raise further serious doubts about Rishi Sunak’s chances of meeting his pledge to cut record waiting lists.
In a sign of the extreme pressures, the Manchester Integrated Care System, bringing together trusts and other healthcare providers in Greater Manchester, has brought in Stephen Hay, a troubleshooter from PricewaterhouseCoopers who formerly worked in the NHS, to help sort out its disastrous financial position.
According to the Health Service Journal, NHS Greater Manchester has reported a deficit of £125m after the first four months of 2023-24, more than £100m worse than planned.
Insiders say they expect the dire state of trusts’ finances to be high on the agenda at a meeting of NHS England’s board on 5 October.
While inflation and strike costs have worsened the situation, the descent into debt is also traced back to years of pre-Covid austerity. It comes as ministers are trying to claw back extra money that they pumped in during the pandemic to deal with the emergency situation.
Sally Gainsbury, senior policy analyst at the Nuffield Trust, one of the leading authorities on NHS finance, said: “The English NHS faces an almost impossible struggle to balance its books and cover the costs of care this financial year, as a result of the government’s desire to squeeze its budget back down to the levels expected before extra spending during Covid.
“Official figures suggest the service was already on track by the end of May to overspend its budget this year by around £2bn. That figure may well worsen throughout the rest of the year as the cost of covering striking doctors at premium rates ratchets up. In addition, the NHS as a whole is currently looking at a budget for next year which is some £7bn smaller than its current rate of spending.”
In a further escalation of NHS woes, this week will see the first joint strike by junior doctors and consultants, with resulting extra costs of employing agency workers to cover and loss of income from cancelled operations.
Consultants in England will be striking on Tuesday and Wednesday with Christmas Day levels of cover, meaning emergency services will continue but elective surgery will be hit. Junior doctors will join the strike on Wednesday.
Siva Anandaciva, chief analyst at the King’s Fund, said: “The NHS finance directors I speak to are deeply concerned about how quickly their financial position is deteriorating.
“Financial deficits in the NHS have real consequences for the care we receive – as pressures mount, NHS providers are faced with decisions like leaving staffing vacancies unfilled or cutting back on plans to improve how services are delivered. And as hard as it is to believe, it is likely that 2024-25 will be even worse as the number of people requiring care and treatment continues to increase while funding growth starts to slow.
“It is equally hard to believe that, in an election year, the NHS will be allowed to hit the buffers,” he added.
Much of the pressure on funding has come from the estimated £3.9bn bill for the 5.5% average pay rises awarded recently to NHS staff. The Department of Health and Social Care was only funded by the Treasury for part of this, so will have to make budget cuts, or ask for more.
Saffron Cordery, deputy chief executive of of NHS Providers, said it was vital that the strikes ended soon before more damage was done. “There is a danger that industrial action becomes part of trusts’ business as usual. Not only does this underplay the growing impact on patients and staff, it also masks the severity of the mounting financial challenges that the NHS is now facing.”
Julian Kelly, the deputy chief executive and finance chief of NHS England, has issued public warnings at several board meetings about the grim financial outlook facing the service this year and in 2024-25 – and said that it may have to cut planned funding of key areas of care as a result.
Last October, Kelly, a former senior Treasury civil servant, warned that in the next few years the NHS could have to “completely revisit” investment in cancer, mental health and diagnostic services. He blamed high inflation for wrecking NHS financial planning.
NHS England has also agreed to make unprecedented “efficiency savings” in return for budget increases from the Treasury.
The Institute for Fiscal Studies said last year that the NHS was facing “small real-terms budget cuts” in 2023-24 and 2024-25, partly because of inflation but also because its current funding settlement was front-loaded to give it more money early on to help it cope with burdens imposed by Covid.
The financial thinktank pointed out that if those cuts happened, it would be the first time since the early 1950s that the NHS had faced two successive years of real-terms cuts to its income. “In the absence of additional funding, or a sharp lowering of inflation and cost pressures, the NHS will be asked to do more with less,” said Ben Zaranka, senior research economist at the IFS.
Last week, the government pledged an extra £200m towards winter pressures, although NHS sources said it would be used to pay agency and other staff to cover for striking doctors.
A Department of Health and Social Care spokesperson said: “We’re backing the NHS with record funding – the core NHS budget in England is currently at £163bn and will increase to almost £166bn next year – the highest spend on health and care in any government’s history.
“To ensure the continuity of patient services, we provide cash support to trusts in financial difficulty. Trusts also work with NHS England to address the underlying issues, improve performance and manage their budgets.
“NHS England can deploy the national recovery support programme to provide intensive support to Trusts in financial difficulty.”
