LeasingWorld Feature
SPECIAL FEATURE
The NHS in 2007 – LeasingWorld Special Report
 Last year in February we were writing about deficits in the NHS that were  dominating the financial press at the time. Jan Szmigin takes the pulse of the  NHS one year on

   This year, the newspapers have been almost silent on the matter of deficits, is that because there is no deficit this year, or because the lid has been kept on more tightly this year than last? Who knows, but thankfully public services are open to public scrutiny, and the conclusions of the House of Commons Health Committee on NHS Deficits in the First Report of Session 2006-07, Volume I, ordered by The House of Commons to be printed 7 December 2006 were blunt:
  • The government has contributed to deficits by repeated changes and emphasis on meeting targets at short notice. Government targets, such as the four-hour A&E target, have been expensive to meet and have had unintended consequences which have imposed additional costs.
  • PFI schemes and ISTCs have also added to costs.
  • Poor central management has contributed to the deficits. The government’s estimate of the cost of Agenda for Change and the new GP and consultant contracts proved to be hopelessly unrealistic.
  • Poor local and financial management is also to blame. For all the added costs imposed by the Department of Health, it is undeniable that the NHS has had a lot more money to spend. Surpluses can be found in PCTs and Trusts with a low per capita funding. Deficits exist in Trusts with high per capita funding.
  • The funding formula allocates considerably more money per head to some PCTs than others, and overspending is concentrated in the “healthier, wealthier parts of the country”.
  • Payment by Results as a system is more sensitive when Trusts get it wrong, so a small percentage deviation in initial cost estimation can result in a large impact in cash terms.
  • Only a small number of the worst deficits can be put down to exceptionally difficult circumstances, such as a Trust with large inherited debts.

    •   What does this tell us other than that politicians cannot run businesses, or that our taxes do not give us value pound for pound? Why does the leasing industry take so much interest in the performance of the NHS, when surely the government is bankrolling it? Putting last year’s deficit into perspective, wasn’t it only 1 per cent of the total budget, not a figure that would cause heads to roll in industry? Well, the concern for lessors is, or should be, that government appears to be trying to edge away from being responsible for NHS deficits. Firstly, it introduced the concept of Foundation Trusts, a kind of NHS Trust that has become a     		    financially standalone entity, and in theory all NHS Trusts are expected in due course to convert to Foundation Trust status.
      Foundation Trusts will have to look after themselves financially, under the careful eye of Monitor, which assesses all applications for Foundation status, grants or denies that status, and then keeps track of how they are doing. Unfortunately when it came to the original Consultation Paper on the Insolvency Regime the government overlooked spelling out what would happen if a Foundation Trust should happen to fall into bankruptcy, and at the mid-year the Minister was reported as seeing this as a “back-burner” issue. After forceful lobbying by the FLA, the government recently re-issued the Consultation Paper, which to the astonishment of the industry failed to address the key issues. It did, however, manage to insert a note that in the event of a Foundation bankruptcy any government debt would automatically transfer to the bankrupt Foundation!
      At present there are 58 Trusts with Foundation status, and Monitor’s Risk Rating system shows four Trusts (City Hospitals Sunderland, Homerton University Hospital, Moorfields Eye Hospital and UCL) to be financially at risk of significant breach in terms of authorisation in the medium term, e.g. nine to 18 months, in the absence of remedial action. 30 Foundation Trusts are causing concerns in one or more aspects of governance, although one might presume that this does not directly affect paying the bills.
      This weaning off the old mentality of government reliance is seen as the chance for “a new start” and a “fundamental cultural change” for the NHS by the Audit Commission, which says it will hopefully end the “fudge and mudge” that saw deficits hidden away in the past, or shifted round the system, and provide “a much more transparent and business-like” way of handling a budget that next year will hit £90 billion (yes, £90 billion!, over 70 per cent of which is wages) in England alone.

    Lessors and advisers’ view

    New business volumes have not been inspiring in the past 12 months. The PASA estimate of £500 million p.a. is adjusted downwards by most lessors to c.£300 million p.a. after stripping out centrally sourced assets under existing framework agreements. One important adviser felt that it had seen a 25 to 30 per cent reduction in new business from its clients in calendar year
    Next
    Next