Kelly: NHS overspent at month six but targeting full-year recovery

However, in a board paper. chief financial officer Julian Kelly (pictured) told NHS England’s board there is ‘significant risk’ in particular in recovering system positions in the second half of the year, with likely winter demands and the continued impact of covid.

The variance in systems’ positions against plan is ‘largely caused by operational pressures,’ he added, with the majority of systems forecasting that these overspends would be recovered in the latter parts of the financial year.

‘We are basically finding now that covid is endemic, it has a structural impact on our cost base,’ he told the meeting. But the NHS would have to deal with this and adopt ways of getting back to very high levels of operational performance. He acknowledged that operating conditions were very different from those the NHS had been asked to plan for – and that the government had asked NHS England to plan for. Covid levels were higher than expected and inflation had brought huge pressures, he said.

‘We are working through with systems where they are going to outturn…I am confident we will live within the mandate we have been given,’ he said. ‘We are definitely seeing systems under pressure, but we are working with them to see how close to breakeven they can get. I suspect some of them won’t get there.’

System overspends were £651m more than plan in the first six months of the year, but central costs were lower than plan, bringing the total overspend down to £482m. The whole year forecast expenditure was £170m above plan, which equates to an overspend of £270m as five systems submitted deficit plans with a combined overspend of £100m. However, Mr Kelly said: ‘We expect to recover this position to achieve breakeven by year-end.’

He highlighted the change in forecasts since mid-October which would reduce the pressure from non-pay inflation going forward. The additional £3.3bn the NHS is getting in each of the next two financial years ‘should provide sufficient funding for the NHS to fulfil its key priorities’ based on these revised assumptions.

But the commitment to 2.2% in efficiency savings each of the next two years was more than double the historic average. Work was already underway to cut central costs through the merger of NHS England, NHS Digital and Health Education England, with a combined headcount that could reduce by up to 40%. Many integrated care boards would also need to look at their size and take opportunities to benefit from economies of scale, the paper said. 

Mr Kelly said that capital spending by providers in the first half of the year represented about 27% of their capital departmental expenditure limit – in line with spending at this point last year. The current forecast is for providers to underspend on capital by about £180m in this financial year, he told the board, and NHSE had asked the Department of Health and Social Care if this could be carried forward.