Feature / Hard times

NHS Scotland is turning around its underlying deficit and produced an aggregate surplus for the third year running in 2007/08 but the future could be tough, says Seamus Ward 

NHS Scotland’s financial position continues to improve but it faces difficult times in the near future, according to Audit Scotland.

‘NHS bodies should now prepare for some considerable challenges ahead,’ says auditor general for Scotland, Robert Black (pictured above). ‘Future funding increases will be getting smaller at the same time as bodies are being asked to generate significant savings. In addition to the continuing pressures such as pay deals and drug costs, bodies will also have to deal with new issues such as the need to cover staff whose hours are restricted by European employment laws.’

The audit body’s Financial overview of the NHS in Scotland 2007/08 shows NHS Scotland underspent in the year by £26m on a £10bn budget – the third consecutive financial year that the service had generated an overall surplus. There was a £24m underspend on revenue and £2m on capital.

NHS bodies have three financial targets. They must stay within their revenue and capital resource limits and cash requirement. All met these targets in 2007/08, except NHS Western Isles, which failed to meet its revenue resource limit (RRL). However, for the first time in five years the Western Isles generated an in-year surplus to set against its cumulative deficit.

NHS Orkney met its RRL by relying on an agreement not to pay £1.3m to Orkney Islands Council in 2007/08 and late funding allocations from the government to cover exceptional cost pressures.

In previous reports, Audit Scotland commented on NHS bodies’ reliance on non-recurring funding to achieve financial targets or support their financial position, but this reliance reduced in 2007/08. The underlying recurrent deficit for NHS bodies fell from just over £92m in 2006/07 to £16m. In the same period NHS boards reduced their underlying recurring deficit from £103m to £35m. Special boards made a total underlying recurring surplus of £19m.

Health secretary Nicola Sturgeon applauded the health service’s performance. ‘These latest figures from Audit Scotland show that NHS Scotland is rising to the challenge of ensuring it operates within its budget so that the public gets the best possible value for money,’ she adds.

However, the report warns the NHS continues to face significant pressures at a time when funding is due to grow by 13% (between 2008 and 2011), compared with 33% between 2003/04 and 2007/08. NHS bodies will also have to make 2% efficiency savings each year over the three years to 2011.

Pay modernisation, in the form of the consultant and general medical services (GMS) contracts, together with Agenda for Change (AFC), is also a significant pressure, with costs including provisions for appeals and incremental pay claims.

In previous reports, Audit Scotland said the consultant contract had so far cost up to £273m and the GMS contract £160m more than had been allowed for in allocations. The full cost of AFC is still unknown as it is still being implemented, though the Scottish government estimates it cost £634m up to the end of 2007/08. By April 2008 almost 40,000 staff had requested reviews. At NHS National Services Scotland 50% of staff requested reviews and more than 80% of those with completed reviews have been awarded a higher pay band. NHS bodies accrued £210m in their 2007/08 accounts for back pay and the estimated costs of successful reviews. This includes £191m by NHS boards and £19m by special boards.

The NHS in Scotland is still unable to quantify the potential costs of equal pay claims and there have been 12,000 such claims raised against health service employers in Scotland. Uncertainty has increased following a claim that says AFC perpetuates rather than resolves pay discrimination against women. The report says equal pay claims may represent a considerable cost to the NHS, pointing out that in their 2006/07 accounts, councils estimate the potential value of claims to be £233m.

The need to comply with the European Working Time Directive (EWTD) is also a cost pressure as boards must make other arrangements for covering junior doctors’ hours over and above the 48-hour week by August 2009 or face financial penalties. However, the British Medical Association Scotland has warned that rising financial pressures must not compromise care, claiming failure to maintain training standards would damage patient care and is ‘not acceptable’.

There are other, more familiar, cost pressures, including the rising costs of drugs, fuel and the cost of introducing new ways of working. Recently annual rates of growth in drugs costs have declined, but the auditors say the introduction of new medicines and technologies make it difficult for boards to forecast expenditure. Energy costs increased by 34% in the year to September 2008 and as a result the Scottish Ambulance Service overspent its fuel budget by 8% (£400,000).

The NHS in Scotland has steadily improved its performance but, like other parts of the UK, it faces tough years ahead, characterised by slower growth, increased efficiency demands and rising costs.