NHS England sets consequences for in-year changes to financial forecasts

Systems have a legal requirement to achieve financial balance. Organisations within a system may plan for a deficit, but this must be covered by underspends elsewhere in the system so that overall the system breaks even.

Providers and systems can make revisions to forecast outturns in month-end reports and at any point in the year. However, NHS England has now issued guidance on the steps that must be followed by providers in-year if they want to report a deterioration against plan or if systems want to report a forecast deficit position. Protocol for changes to in-year revenue financial forecast, issued this week and described as ‘version one’, also sets out the consequences for a deterioration in forecast. These include sign-off processes for further revenue investments and additional reporting and review requirements.

The protocol covers two different cases. It sets out the steps that must be followed by any provider considering a deterioration in forecast, but where the system can absorb the overspend and still achieve break-even. In this case the protocol will be overseen by the system. It also covers a system forecasting a deficit, which would mean the protocol being overseen by the NHS England region.

The paper makes it clear that the protocol should be a last resort when all options to achieve break-even or plan have been explored. It points out that changes would not be expected in the early months of the financial year as this is so close to when plans were drawn up. ‘Changes in the final quarter will be looked on as a sign of very poor financial control likely to attract further scrutiny,’ it says.

And as a precondition to invoking the protocol, a system must evidence that all the actions, detailed in May's planning round letter from NHS England chief financial officer Julian Kelly (pictured) have been completed. These include showing that processes have been established to monitor agency and bank usage controls and that the system has complied with the HFMA’s check list review requirements, set out in Improving NHS financial sustainability.

Providers forecasting a worse financial outcome will be required to complete a variance analysis explaining why the overspend will occur including the underlying causes alongside a detailed review of uncommitted expenditure. They will also have to prepare a recovery plan and submit to an independent review.

Systems reporting a deficit will have to meet all these conditions for the integrated care board (ICB) itself if relevant and for each provider reporting a deterioration from plan.

The guidance also sets out the consequences for a deterioration in forecast. Providers, for example will have to implement a double-lock sign-off process for revenue investments above £50,000, with sign-off required by the provider and the ICB. They will also have to undertake a workforce review, describing changes in headcount and potentially face further reporting requirements. 

Systems would have to introduce a triple-lock sign off process for revenue investments above £100,000, with sign-off required by the organisation, system and NHS England regional team. The relevant NHS England regional finance director would also attend the system finance committee meetings.

‘The pressure on NHS financial resources means that financial control and efficiency are continually at the forefront of the minds of finance staff. This new guidance from NHS England is a helpful reminder about the need for financial control and the processes to be followed if forecasts deteriorate mid-year,’ said HFMA director of policy and communications Emma Knowles. ‘As usual, finance directors will comply with professional and ethical standards and use their judgement to decide whether they need to change their financial forecasts.’