This explainer was published in November 2023 and forms a first part of the analysis for our health and care finances tracker, which is monitoring the state of NHS and social care finances in the run-up to the general election and beyond. Head to our tracker homepage for an up-to-date overview of the health service's finances – measured by sector, over time and during the current financial year.
With a fast-growing backlog of operations to deal with alongside staff on strike over pay and expectations to deliver new services and initiatives to improve care for groups missing out, the challenge for the NHS to balance its books over the course of the financial year is a complex and uncertain process. This short explainer assesses the overall health of the NHS in England over the 2023/24 financial year by unpicking the headline figures presented in the official accounts to reveal the true underlying state of the NHS’s finances.
As for the hope for financial balance during this year, there is a long way to go.
Tracking the numbers
In-year reporting at NHS England board level suggests a rate of spending by mid year (end of October) which would entail full year spending of around £4.2 billion above the level of funding. That rate of spending includes the direct cost of strikes between April and October in the medical workforce, which have increased pay costs as striking doctors have been replaced by temporary staff, and cancelled clinics and theatre sessions have been partially made up for by staff working overtime shifts – often at premium pay rates. This is the point our deficit tracker starts, with a key consideration being the extent to which that £4.2 billion can be mitigated.
£720 million of the current projected overspend has been evident since the start of the year, as it’s been the gap between local NHS system spending plans and their original allocations. NHS England has stated that this original local “planning gap” is one of the first calls on its £5 billion “Transformation and Reserves” budget line, as it has effectively had to hold money back from intended investment in new services and initiatives – such those aimed at reducing health inequalities and expanding capacity in GP primary care – to offset spending-above-plan on existing services.
NHS England is no stranger to the need to hold back investment or “transformation” funds to offset overspend on business-as-usual services, so it would be reasonable to assume it tucked a little more down the back of the metaphorical sofa than the stated £720 million – not least because initial system spending plans suggested an end-of-year deficit approximately twice the level we currently project. Our tracker thus assumes that the original £720 million deficit offset in the reserve was rounded up to around £1 billion, and then supplemented by a further £200 million in September when the government announced additional “winter funding”. That was genuine new money from the Treasury, but was not allocated out to NHS organisations as it represented a fraction of the rate of overspending that had already occurred by that point.
That reserve offset brings the £4.2 billion threatened overspend down to the £3 billion mark, where it stood before the Treasury’s agreement to increase the NHS England budget by around £450 million, with a further £150 million being provided from NHS England’s central budget for administrative costs.
But it is from the resulting £2.4 billion overspend – after that budget boost and central saving has been banked – that things get tricky.
NHS England has estimated that medical workforce strikes between April and July are responsible for around £550 million in additional costs during those months. Those estimates suggest that something in the region of £700 million could be saved between November and March compared to the rate of spending seen between April and October. Those savings could be in the form of reduced overtime and temporary staff pay spending, but also in the form of cost efficiencies which have been near-impossible to achieve when management time has been consumed with both the logistics and workplace politics of rolling industrial action.
This could bring this year’s overspend down to around £1.7 billion. However, there are huge question marks over the likelihood of improved industrial relations being achieved in the next few weeks, and perhaps even more doubts over whether any improvement can be achieved without a countervailing hefty increase in the medical pay bill. (Although it will be NHS England’s hope that any agreement to increase medical staff pay will be fully funded by the Treasury and so, in effect, at worst is cost neutral to the deficit position for this year at least.)
Further uncertainty hinges on the extent to which the NHS can achieve such a level of cost savings over the winter months, when it can expect not only higher volumes of patients requiring urgent and emergency care but also possibly higher levels of staff sickness, which may well undermine many of the potential savings gained through an end to the strikes.
That uncertainty provides some of the context behind NHS England’s letter to boards in early November, which signalled an abrupt scaling back of ambitions to further increase elective (planned) activity. Before November, NHS organisations had been chasing a target to increase elective activity to at least 105% of the level seen in 2019 (measured in terms of the financial value of that activity). To do this, NHS organisations have incurred substantial costs in staff overtime, through running clinics and theatres at weekends, for example, and outsourcing procedures to private health care providers.
This has been relatively good news for patients, as it means more patients have been seen and treated than would otherwise be the case. But it has been bad for the financial bottom line. By reducing the activity target to just 103% of 2019 levels, NHS England has effectively moved the goalposts significantly closer to where the NHS is already, in the hope it can reach the revised goal by the end of the year, but with a much lower rate of extra spending seen in the first six months.
Our tracker currently estimates the potential saving here at around £360 million, but this is a figure that will need to be watched and updated in the coming months as NHS organisations replan their priorities at the same time as dealing with winter pressures.
These last two significant potential cost mitigations set out in our tracker total in the region of £1 billion, and would bring the projected deficit for the year down to the region of £1.3 billion – still a formidable challenge and which would be close to the cost of the NHS pay bill for an entire week.
Difficult decisions ahead
NHS plans to mitigate this last tranche of overspending will be set out over the next few weeks, as both NHS England and local NHS systems rapidly revise their original plans for investing in service quality and improvements this year. Much of that investment would have made use of the NHS England Service Development Fund, which it described in its October board report as “fully committed”. Releasing in the region of £1.3 billion from that fund to offset overspending will involve postponing or fully reneging on those commitments – difficult decisions which are being made across the NHS this week and next, and which will be reflected in subsequent updates to our tracker.
*The Nuffield Foundation is an independent charitable trust with a mission to advance social well-being. It funds research that informs social policy, primarily in Education, Welfare, and Justice. The Nuffield Foundation is the founder and co-funder of the Nuffield Council on Bioethics, the Ada Lovelace Institute and the Nuffield Family Justice Observatory. The Foundation has funded this project, but the views expressed are those of the authors and not necessarily the Foundation. www.nuffieldfoundation.org; @NuffieldFound