News / Department confident current NHS forecasts are accurate

The Department of Health is confident the NHS in England will deliver its predicted £1.8bn surplus at year-end, despite claims that the health service is poor at forecasting.

At a meeting of the Commons Public Accounts Committee, NHS chief executive David Nicholson and director general for NHS finance, performance and operations David Flory were grilled by MPs about the service’s finances in 2006/07 and in the current year.

PAC chairman Edward Leigh said that quarter one figures for 2007/08 showed a forecast aggregate surplus of £916m, but this had become £1.8bn by quarter two. This has strengthened his belief that NHS forecasting had to improve.

Mr Nicholson accepted that NHS forecasting could be better and the Department of Health was taking steps to improve it. But he added the higher aggregate surplus was a result of changes in the healthcare environment – some developments, such as £200m reduction in generic prescribing costs, had a positive effect on NHS finances, while the better-than-predicted comprehensive spending review settlement had made organisations less cautious about their predictions.

‘That encouraged people who were being very prudent in their forecasts for 2007/08 to be much more straightforward about them,’ Mr Nicholson said. When pressed, he added: ‘I think we are very clear that the Q2 forecast is a good forecast and [we] will deliver [it] during this year.’

Figures from SHA board papers show the Department has reason to be confident ahead of February’s Q3 figures. At month eight, many SHAs were forecasting the same level of surplus across their health economies as at month six.

The position is unchanged in NHS North West and North East, which continued to forecast the same surplus (£350m and £140m, respectively). NHS East Midlands was still forecasting an aggregate year-end surplus of £140m at month eight, while South Central SHA’s year-end position was an £80m underspend. It is understood that the outturn forecast of at least two others has not moved at month eight.

This will surprise many. Some analysts predicted a proportion of the month six surplus would be spent as primary care trusts accelerated investment plans. Others believe the year-end figure will be higher than £1.8bn as rumours persist that some organisations’ predictions remain conservative.

The PAC hearing was part of the committee’s inquiry into the 2006/07 summarised accounts. Though the NHS was praised for turning around a deficit from 12 months earlier, MPs questioned how this was achieved. Mr Nicholson insisted service cuts did not lead to the improvement in the financial position but had been the result of efficiencies, including savings on training and redundancies of non-frontline staff.

He agreed the abolition of resource accounting and budgeting (RAB) helped some NHS trusts’ financial position, but he pointed out it made no difference to the health service’s overall position.

In the wake of the abolition of RAB, working capital loans were introduced and in March 2007 these totalled £777m. Mr Flory said the Department expected this to be repaid over five years and the balance would stand at £615m at 31 March.

Mr Nicholson defended the use of external turnaround teams to wipe out the deficit. He said the 104 organisations put into turnaround had an aggregate deficit of £1.3bn in 2005/06, but will deliver a £60m surplus this year. While he accepted that the large accountancy firms had nothing new to teach the NHS in the development of recovery plans, he insisted they did show the service how weak it had been in implementing them.