Covid volatility drives underspend
In general, the underspend has been driven by the uncertainty and volatility caused by the Covid pandemic, the Department added, with an underspend of more than £2.2bn on an £18bn Covid budget. However, it insisted that the total funding provided was at a prudent level. Savings in business-as-usual, non-Covid budgets – arising due to the concentration on the Covid response – had also contributed to the overall underspend. The underspend in these non-Covid budgets was £3.5bn.
Most Department budget lines were underspent against the plan, including £9.3bn in NHS Test and Trace (nearly half of the £20bn budget), almost £1.7bn on personal protective equipment (PPE), on a budget of £14.7bn, and more than £2bn on vaccines deployment, where the budget was £3bn. The underspend on Test and Trace was largely due to lower demand than anticipated.
The provider sector had a 'healthy' net surplus of £655m due to the additional funding support, the Department said, which included the temporary financial regime, the elimination of more than £13bn in historical debt, and funding for temporary capacity initiatives, such as the extension of the use of the independent sector.
Under the policy of converting debt to public dividend capital (PDC), announced by then health and care secretary Matt Hancock in April 2020, the Department paid out more than £13.5bn in PDC in 2020/21 to 107 trusts. Scrapping the debt will free up resources to allow providers to invest in maintaining services or in longer-term improvements in infrastructure, the Department said. It added that the PDC received by providers financed the repayments on interim revenue and capital loans. Tables included in the report confirm the outstanding balances were repaid during 2020/21.
There was only one new payment of capital PDC to support interim capital expenditure in 2020/21 of almost £2m to Lewisham and Greenwich NHS Trust, which honoured a previous commitment.
In 2019/20 the comptroller and auditor general Gareth Davies (pictured) disagreed with the Department’s treatment of the loans to providers. The Department believed the loans to be fully recoverable and not credit impaired, but the auditor disagreed, and qualified his opinion on the 2019/20 financial statements. In the 2020/21 accounts, the loans appear in the 2019/20 comparative information and the 2020/21 opening balances, and he has qualified his opinion on this basis. The Department stressed that no new disagreement has been raised in 2020/21.
He also qualified his opinion on the financial statements in respect of accruals, saying there was insufficient evidence available to demonstrate this area was free of material misstatement. The Departmental group’s other accruals stood at £17.2bn on 31 March 2021 and generally there was a significant increase in other liabilities, including accruals, reported.
As well as finding significant but immaterial overstatements of accruals and related expenditure, Mr Davies ‘identified significant populations of accruals’. In these, the Department was unable to provide and has been unable to obtain adequate records before the statutory reporting deadline to support the balance in the financial statements. He added: ‘The combination of these factors has led me to limit the scope of my opinion in respect of the group’s other accruals reported at 31 March 2021, and the associated transactions, including those related to accruals.’
The impact of Covid can be seen in the financial assistance report published alongside the annual report and accounts. PDC payments were made for a variety of schemes during the pandemic, including those to increase capacity in car parking capacity, mobile breast cancer screening units, and NHS Test and Trace.
PDC payments under the health infrastructure plan, the rolling programme of strategic investment that aims to deliver 48 new hospitals by the end of the decade, were drawn down by 31 trusts and totalled just over £516m.
PPE impairments
The Department spent £13bn of its £14.7bn budget on PPE procurement, storage and transportation and said the savings were primarily due to the timing of spend, including contract cancellation and curtailment, and deferral to 2021/22.
However, the value of the investment in PPE fell by £8.7bn in 2020/21. This included £4.7bn due to the fluctuations in the market price for PPE between purchase, when prices were high due to global demand, and the balance sheet date. In addition, more than £2.5bn of stock is not suitable for use in the NHS but may be used elsewhere. These items were being held for sale or donation at a later date. The rest of the fall in value was made up of £750m of excess items that would reach their expiry date before they could be used, and £673m of items that are unsuitable for use.
Onerous contract provisions, related to PPE purchased but not received by 31 March 2020, will lead to a further decline in stock value of £1.2bn in future years, the report added.
The auditor highlighted weaknesses in inventory records and the fact that significant amounts of inventory are locked in shipping containers at ports and other temporary locations, or being stored in China. Physical stock-takes were not possible, so he was unable to obtain evidence on the quality and quantity of the inventory. The auditor could not confirm the value of the onerous contract provision above.
Consequently, he qualified his opinion on the financial statements.
Responsibility for managing the PPE supply chain will switch to NHS Supply Chain Co-ordination Limited in April, but the auditor general said he would report on the management of PPE contracts later this year.
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