Published: 02 April 2007
End of NHS Double Whammy
The NHS is set to move to a more transparent and fair financial regime following the announcement of the reversal of RAB deductions and the replacement of cash brokerage with a formal system of loans for NHS Trusts.
The move follows recommendations made by the Audit Commission to change the Resources Accounting and Budgeting (RAB) rules for NHS trusts.
The Audit Commission said the rules were unfair because of the 'double whammy' effect under which overspending trusts not only had to pay back their debts, but received less income the following year as well.
Figures for the final quarter of the year will be published in May, but the latest forecast (Q3 figures) showed that the NHS as a whole was on track to deliver a surplus of £13M by the end of the year - compared with a deficit of £547M last year.
The government said that ‘improved performance of the NHS overall means that we are now confident that we can move NHS trusts out of the RAB regime. The reversal of RAB will see £178 million returned back into the local NHS’.
In support of this change, the Government also announced that it would now allocate, as planned, the £450m contingency to the NHS.
This is being allocated to strategic health authorities (SHAs) on a fair shares basis meaning that the most needy areas of the country (Labour voting, in time for local elections?) will receive a larger share of the funding in line with the our needs based resource allocation formula.
David Nicholson said:
"The majority of NHS trusts have improved their financial performance over the last year, meaning we are now in a position to complete modernisation of the NHS financial regime.
I'd personally like to thank all the staff in the service for the work they've done to achieve this during a tough year.
We are moving NHS trusts out of the resource accounting and budgeting regime as this was inconsistent and unfair. At the same time, we are replacing the opaque system of cash brokerage with a formal system of loans to further aid transparency and financial discipline.
We have now introduced a system that ensures fairness, transparency and responsibility, a system that is fit for the future. Organisations can now understand clearly their financial performance and the consequences and benefits of the management decisions they make.
This gives us a very firm platform going forward to deliver on our planned improvements in services in the NHS in the coming year.
We are now in a strong position to further transform the care we give our patients, reducing waiting times as we move toward a maximum 18 weeks from referral to treatment and delivering more care closer to home.
This is not an easy option. NHS Trusts will have to manage their spending, recover any deficits, repay loans but for the first time their financial position and the actions which need to be taken will be clear and more transparent than ever before."
How RAB currently works for trusts:
· if either a PCT or trust overspends in one year then its SHA faces an equal deduction to resource limits the following year (converse also applies)
· no cash deduction is applied - the organisations have already spent the cash
· SHAs have flexibility in how this carry forward is applied to the individual organisations within their boundaries - some take it down directly to the level of overspending organisations others do not
· the "double deficit or 'double whammy" problem arises where the deduction is taken down to trust level. The trust faces an income reduction and then to meet the statutory break-even duty has to generate a surplus within the 3-5 year period to eliminate the previous deficit
Further information
Audit Commission - Review of the NHS Financial Management and Accounting Regime
Audit Commission comment on decision
King's Fund - Change in NHS accounting rules will bring greater transparency
Audit Commission 2005 guidance
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