News / Inflation worry rises despite positive surplus outlook

The NHS in England is on course to deliver a surplus of £1.75bn this year, the Department of Health says, but finance directors warned of increasing inflationary pressures.

In his review of the first quarter of 2008/09, David Flory, the Department’s director general of NHS finance, performance and operations, said the service was continuing to demonstrate strong financial management. The combined forecast surplus of £1.75bn was in line with the operating framework’s target that each strategic health authority area should plan for a surplus at least equivalent to the 2007/08 total.

Mr Flory reported that the surplus delivered by the NHS in 2007/08, excluding foundation trusts, had increased from £1.658bn in the draft accounts to £1.667bn following audit.

In Q1 five organisations forecast an operating deficit, compared with 11 ending 2007/08 in deficit. The five’s combined forecast deficit was £45m, down from last year’s £125m gross deficit.

The report also outlines progress in reducing rates of C difficile and MRSA infections and improved access to GPs. The NHS was also close to treating 90% of admitted patients and 95% of non-admitted patients within 18 weeks of referral.

‘A strong financial position backed by good progress on delivery will continue to ensure high quality services for patients,’ Mr Flory said. ‘This strong start to 2008/09 means that the NHS has the flexibility to invest in making its local visions, published as part of the NHS Next Stage Review, for delivering the highest quality care for its communities a reality.’

However, some finance directors warned inflationary pressures that are being felt by many households would begin to eat into their budgets. The UK’s annual inflation rate, the consumer prices index (CPI), rose to 4.4% in July, the highest level since records began in 1997, driven by rising food and fuel prices. Finance directors were worried about increasing utility costs – the International Monetary Fund has suggested utility price rises could push the CPI to 5%.

One trust director faced a cost pressure of £750,000 for utilities, with further increases still likely. Primary care trusts are also dealing with the effects of a surge in GP referrals in April and May.

NHS organisations are also worried about potential increases in future Agenda for Change pay rates after Unison said it would petition the pay review body to review the award for 2009/10. The union said it would trigger a review clause in the multi-year deal because inflation was now running above the 2% assumption made when the pay rises were agreed.

Directors said that last year’s surpluses could not be used to ease revenue cost pressures, as this did not fit with hitting this year’s surplus targets.