News / Monitor pessimistic about financial plans

Three-year financial plans submitted by foundation trusts might not adequately reflect the potential for lower growth in NHS funding, particularly in 2011/12, Monitor has warned.

The regulator’s 2009/10 annual risk assessment said the plans could prove to be over-optimistic after the 115 foundations authorised at 31 March forecast continued growth in their incomes. The trusts predicted a combined income of £26.2bn in 2009/10 (a 4.2% rise on 2008/09), with revenues continuing to rise in 2010/11 (2.1%) and 2011/12 (1.6%). Costs would grow by 1.6% and 1.1% respectively. EBITDA margins were set to grow from 7.6% to 8.5% over the period.

Monitor is not convinced by the figures. It has asked foundations to submit ‘downside’ forecasts for 2011/12 by the end of this month.

In July, Monitor said foundations had been over-reliant on expected increases in activity to sustain their financial position, but they will not be able to do so in future. It added that trusts could not rely on continuing growth in activity as there would be a drive to deliver more care away from hospitals.

Monitor chief operating officer Stephen Hay (pictured above) insisted foundations’ financial planning was improving. But he also said the regulator was concerned that the plans, which were prepared earlier this year, may now prove over optimistic.

‘As funding begins to tighten, areas of financial and operational weakness may start to appear in some trusts. It’s crucial for foundation trust boards to address these situations early and effectively meet increased challenges from 2011,’ he said.  ‘Boards should be scrutinising plans and ensuring these reflect the possible financial environment.’

Foundations are planning an average financial risk rating of 3.5 in 2009/10, down from 4 in 2008/09. Monitor said the main drivers for this reduction were a fall in average liquidity days and total cash (from £2.8bn in 2008/09 to £2.1bn in 2009/10), and changes in the way it weights and scores liquidity.

Forecast capital spending increased significantly from £1.3bn in 2008/09 to £1.9bn in 2009/10. Capital expenditure is expected to fall in subsequent years, while cash balances are forecast to fall from £2.8bn at 31 March 2009 to £2.2bn at 31 March 2010.