Briefing / Summary of NHS operational planning and contracting guidance 2024/25

Introduction

NHS England published a pack of operational planning and contracting guidance on 27 March 2024. Integrated care boards (ICBs) and their partner trusts must work with wider system partners and use this guidance to develop their system plans. 

This briefing pulls out key points from all documents within the operational planning and contracting guidance pack, as relevant to NHS finance staff. It is not comprehensive and the full guidance should be referred to for greater detail.

It covers:

• Priorities and operational planning guidanceNHS England, Priorities and operational planning guidance 2024/25, March 2024 
  Document detailing national priorities for the NHS in 2024/25 and how ICBs and providers should incorporate these priorities into their plans
• Revenue finance and contracting guidanceNHS England, Revenue finance and contracting guidance for 2024/25, March 2024 
  Guidance setting out financial expectations on NHS organisations
• Elective Recovery Fund technical guidanceNHS England, Elective Recovery Fund technical guidance 2024/25, March 2024 
  Guidance on how the Elective Recovery Fund (ERF) will operate in 2024/25
• Capital guidanceNHS England, NHS capital guidance for 2024/25, March 2024 
  Document detailing NHS capital allocations for 2024/25

2024/25 priorities and operational planning guidance

The overall priority for the NHS in 2024/25 is to recover core services and productivity following the Covid-19 pandemic. The planning guidance acknowledges that this is a major challenge, which will take several years. In terms of the resources available, the spring Budget 2024 included £2.45bn of extra funding for the NHS in 2024/25, which is intended to cover the recurrent cost of the 2023/24 pay deal, with NHS funding otherwise being held flat. 

As in 2023/24, finance is considered at a system level. ICBs, trusts and primary care providers are asked to work together to plan to deliver a net financial position which is balanced across the system. They should involve wider system partners as they decide how to balance various national and local priorities. 

The focus on recovery is the same as in the previous year’s planning guidance. Within this, there is however now a sharper focus on productivity, and on how the NHS can be a better and more responsive employer.

Recovery

Nationally, the NHS continues to prioritise the recovery of core services – in particular, elective care, urgent and emergency care, NHS dentistry and access to primary care. The most significant financial mechanisms to support recovery are the same as those used in 2023/24. The Elective Recovery Fund (ERF) continues into 2024/25, and the Better Care Fund is being used to shift activity to settings outside acute hospitals.

To help recovery, systems are asked to maintain their bed numbers for general and acute care in 2024/25 at the same level funded and agreed through operating plans in 2023/24. 

New in the 2024/25 planning guidance, NHS England is promoting NHS IMPACT, NHS England launched NHS IMPACT (Improving Patient Care Together) in April 2023, as a new national approach to improvement. NHS IMPACT is helping systems to develop the right conditions for continuous improvement and leading on a small number of national programmes which focus on patient flow. its national approach to improvement, as a way of driving recovery.

Productivity

Previous planning guidance has prioritised productivity, but there is a sharper focus on it in 2024/25, with clearer expectations on systems.

NHS England expects all acute trusts to recover their productivity towards pre-pandemic levels (adjusted for structural factors, casemix changes and uncaptured activity). It asks ICBs to work with acute trusts to analyse their productivity compared to that in 2019/20 and put in place improvement plans. It also asks systems to review their workforce establishment against 2019/20, justify any increases (for instance based on outcomes, safety, quality or new service models) and put in place plans to improve workforce productivity.

Nationally, NHS England will start reporting on productivity metrics in the second half of 2024/25. This will go down to an ICB and trust level to enable systems to benchmark their performance. The core metrics will include:

• measures of overall productivity at trust level
• measures of operational and clinical productivity (such as the no criteria to reside rate, capped theatre utilisation, the diagnostic utilisation rate and turnaround time)
• measures of workforce productivity (such as outpatient appointments per consultant, care hours per patient day, bank and agency spend as a proportion of pay costs)
• measures of efficiency (such as on delivery of the opportunity for medicines optimisation).

As in previous years, the planning guidance includes a target on temporary staffing, though this year it has been elevated such that it’s included as one of the national objectives. NHS England asks systems to reduce their agency spend to a maximum of 3.2% of the total pay bill across 2024/25 (compared to a target of 3.7% in 2023/24). It also expects trusts to end their use of off-framework agencies by July 2024, and stipulates that any use of off-framework agencies before this point should be signed off by the chief executive or a designated deputy. 

Supporting the NHS workforce

In 2024/25, the planning guidance has a much stronger focus on workforce than in previous years. It stresses the importance of improving staff experience, retention and attendance, saying ‘the evidence is clear that improving staff engagement will help to improve patient outcomes and safety’. 

This is an area which is still under development, with more policies and guidance likely to follow within the next 12 months and in the coming years. The planning guidance sets out some specific requirements, but describes these as ‘the floor, rather than the ceiling, of our collective ambition to be a better and more responsive employer’. 

Specific requirements are that NHS employers:

• implement the new National pregnancy and baby loss people policy frameworkNHS England, National pregnancy and baby loss people policy framework, March 2024 
• implement the NHS sexual safety charterNHS England, Sexual safety in healthcare – organisational charter, September 2023 
• implement the actions and best practice available through the retention hubNHS England, Looking after our people – retention hub 
• embed the NHS equality, diversity and inclusion improvement planNHS England, NHS equality, diversity and inclusion (EDI) improvement plan, June 2023 
• align their training with the Core skills training frameworkHealth Education England, Core skills training framework (England), June 2021 
• implement the Growing occupational health and wellbeing together strategyNHS England, Growing occupational health and wellbeing together strategy 
• provide work schedules in advance, with compassionate on-call rostering and leave request management.

Detailed priorities, targets and actions

Beyond the key themes of recovery, productivity and supporting the workforce, the planning guidance explains the actions that systems should take to support a more detailed set of national objectives. 

Table 1 lists the national objectives and explains where they are different to those used in 2023/24. The page numbers refer to the Priorities and operational planning guidance 2024/25,NHS England, Priorities and operational planning guidance 2024/25, March 2024signposting systems to full details on the actions they should take. Even where there is no change to the wording of the objective, there may be additional actions included within the detail of the planning guidance.

There are two segments which instruct systems on the actions they should take, but which do not tie directly back to any of the national objectives listed in table 1. These are on digital and data (page 30) and system working (page 34).

In terms of finance, a segment on use of resources (page 31) explains where NHS England expects systems to find the greatest efficiency savings. It calls on systems to:

• reduce unwarranted variation in the cost of continuing healthcare placements
• optimise medicine value (by reviewing prescribing trend data each month, increasing the use of generics and biosimilars, and delivering against the national medicines optimisation opportunities)
• reduce the cost of running corporate services
• procure energy through a new national contract developed with Crown Commercial Services
• use the consolidated supplier frameworks agreed through NHS Supply Chain and procure from frameworks operated by an accredited framework host.

Some of the national objectives from 2023/24 are no longer included in the 2024/25 guidance. For example, there are no longer objectives on bed occupancy, the number of general practice appointments, or the Additional Roles Reimbursement Scheme (ARRS) for primary care. 

Table 1: Comparing the 2024/25 national objectives to 2023/24

Revenue finance and contracting guidance

The business rules in the NHS financial framework NHS England, NHS financial framework: integrated care board and system finance business rules, January 2023have not changed since 2023/24 (see Table 2). This means that systems remain the key unit for financial planning purposes. 

Each system will need to map the financial position of their ICB and trusts into their system plans. Separately, trusts are also asked to submit organisational financial plans to NHS England, and it is important that these match up to the plans submitted at a system level.

2024/25 is the first year that some systems will be making repayments on overspends from previous years. After overspending, systems are given two years to recover their finances before having to make repayments. Any system which overspent in 2022/23 will therefore start making repayments in 2024/25.

NHS England stresses that it does not expect widespread access to drawdown in 2024/25, and that systems should not assume access to drawdown unless NHS England has approved this in advance of the plan submission.

Table 2: ICB and system finance business rules

ICB revenue allocations

NHS England has updated its ICB revenue allocations for 2024/25.NHS England, 2024/25 allocation schedules, March 2024 These allocations have been adjusted since they were first releasedNHS England, Allocation of resources 2023/24 to 2024/25, January 2023 in January 2023. The revenue finance and contracting guidance explains the rationale behind each adjustment, and ICBs can see the precise impact on their allocations by consulting the revenue allocation schedules. 

Some key changes are that:

• The net cost uplift factor has reduced to 0.6% (originally expected to be 0.7%). This is made up of an estimated 1.7% inflation, netted off by a 1.1% general efficiency requirement (originally expected at 1.8% and 1.1%). Full details on the assumptions behind this calculation are set out in Annex D of the 2023/25 NHS payment scheme.NHS England, 23-25 NHS payment scheme - amended Annex D Prices and cost adjustments, March 2024 (see section 4 on ‘setting cost uplift and efficiency factors for 2024/25’) 
• Baseline adjustments have been made to include pay funding issued in 2023/24 on a recurrent basis, non-pay inflation as confirmed during 2023/24, and funding to cover the revenue impact of IFRS 16.
• Funding announced since the 2024/25 allocations were first released has been added in. This includes funding for ambulance services, urgent and emergency care capacity, and continued Covid-19 testing.
• Base growth has increased by 1.0% to reflect pressures since the original 2024/25 allocations were published, factoring in a revised growth domestic product (GDP) deflator.
• ICBs over their target allocation will move more slowly towards target, with convergence values scaled back to 80% of what was in the original allocations. The convergence value has not changed for ICBs that are under their target allocation. 

ICB running cost allowance

NHS England has previously announced that ICBs must reduce their running cost allowance by 30% in real terms by 2025/26, with at least 20% to be delivered in 2024/25.NHS England, Integrated care board running cost allowances: efficiency requirements, March 2023 This requirement still applies but is made more complicated by NHS England delegating services to ICBs. Separate to the planning guidance, NHS England will give ICBs an additional recurrent running cost allowance to reflect the 2023/24 transfer of staff. ICBs will then be held to account against their total running cost allowance (including delegated services). 

Service Development Fund (SDF) and Elective Recovery Fund (ERF)

SDF and ERF will both continue into 2024/25 in much the same format as in 2023/24. NHS England has streamlined the number of individual allocations it makes by bundling SDF categories together into high-level groupings. Several categories (including for mental health) are still ringfenced, with funding to be returned if it is underspent. Further details are available from NHS England, and each ICB should receive a separate schedule and technical guidance. On the ERF, NHS England has produced additional guidance, which is summarised on page 11 of this document. 

Delegation in 2024/25

Selected acute specialised services are being delegated to ICBs in the East of England, Midlands and North West regions from 1 April 2024. ICBs in other regions will work with NHS England through statutory joint commissioning arrangements, whereby regional commissioners submit their specialised commissioning plans at an ICB level, with approval from the relevant ICBs. (Statutory joint commissioning will also be used for specialised services which are out of scope for delegation in the East of England, Midlands and North West regions.)

NHS England introduced a new allocations methodology for specialised services in 2023/24 and has made further updates in 2024/25. A needs-based formula replaces the previous formula which was based on consumption of services, and convergence requirements mean that funding in some areas will be reduced such that ICBs move towards their fair share.

Arrangements for specialised high-cost drugs and high-cost devices will stay the same as in 2023/24 (even for ICBs where specialised commissioning has been delegated). Allocations will stay with NHS England, and NHS England will manage the reimbursement to trusts.

Future delegation

The revenue finance and contracting guidance refers to a number of services which will be commissioned by NHS England through 2024/25, but may be delegated in the future. These are:

• Specialised mental health, learning disability and autism services
  Phase 1 NHS-led provider collaboratives have now been set up. NHS England’s regional commissioning teams currently contract these services with lead providers, and they may be delegated to ICBs in 2025/26. 
• Public health services
  NHS England’s regional commissioning teams currently contract services that form part of the NHS public health functions (Section 7A) agreement. To help prepare for future delegation, the regional teams will produce 2024/25 financial plans for public health services at an ICB level.

Revenue support for capital

The government recently agreed additional revenue resources to support the NHS with depreciation and amortisation expenditure. Owned assets and leased right-of-use assets may be in scope for additional funding if, at a system level, the depreciation and amortisation on these assets exceeds a level set by NHS England. To claim this funding, systems will need to come together to plan their depreciation and amortisation expenditure.

As in previous years, New Hospital Programme (NHP) schemes are eligible for relief on public dividend capital (PDC) on their assets under construction, such that trusts will not pay PDC before the asset is operational. This is now being extended to a small number of schemes outside the NHP.

As in 2023/24, ICBs have been given dedicated revenue funding to contribute to the set up and running costs of community diagnostic centres. Further guidance will follow, but to pay trusts for this work, ICBs will need to submit a request to NHS England for a locally-agreed adjustment to the aligned payment and incentive (API) rules.

NHS payment scheme

A new version of the NHS payment scheme came into effect on 1 April 2024.NHS England, 2023-25 NHS payment scheme (amended), updated March 2024  Aside from updating prices for inflation and efficiency, the changes are relatively minor, and the key principles and payment mechanisms remain the same as in 2023/24. 

The NHS payment scheme applies to all secondary healthcare and give rules for four payment mechanisms: aligned payment and incentive (API), low volume activity (LVA), activity-based payments, and local payment arrangements.

Most healthcare provided by trusts will come under an API agreement, which includes both a fixed element and a variable element for elective activity. Appendix 1 of the Revenue finance and contracting guidance gives advice on how to calculate the fixed and variable elements.NHS England, Revenue finance and contracting guidance for 2024/25, March 2024

As before, LVA arrangements will apply to most trust-ICB relationships with an expected annual value below £0.5m. To simplify the mechanism for delegated services, in 2024/25, ICBs should add the LVA value of delegated services onto existing LVA contracts so that a single payment can be made for all services. There will be a small number of exceptions to this, where NHS England considers delegated services to be of significant value and therefore better managed under API.

NHS England has decided to pause its nationally-mandated commissioning for quality and innovation (CQUIN) incentive scheme in 2024/25. Fixed payments should include the 1.25% funding previously identified for CQUIN as guaranteed income for providers.

Financial commitments and key assumptions

The revenue finance and contracting guidance sets out a number of financial commitments and key assumptions that it expects systems to make as part of their planning process. These are set out in Table 3.

Table 3: Financial commitments and assumptions for planning

Elective Recovery Fund technical guidance

NHS England is running the Elective Recovery Fund (ERF) in much the same way as in 2023/24, to make it as easy as possible to understand and apply in 2024/25.

There is £3.2bn of funding for ERF in 2024/25 (compared to £3.1bn in 2023/24). Nationally, the NHS is expected to use this to deliver 107% of the activity delivered in 2019/20 – the same level as in 2023/24 before NHS England adjusted for industrial action. Each commissioner will be set the same target as at the start of 2023/24.

The ERF will have the same funding flows between NHS England and ICBs. NHS England will hold back 18% of each ICB’s ERF allocation and release it when the ICB reaches the required levels of elective activity. It will also provide additional funding for any ICB that exceeds its overall target.

Providers will continue to be paid for the elective activity they deliver. Commissioners will pay providers at 100% of the prices in the 2023/25 NHS payment scheme,NHS England, 2023-25 NHS payment scheme (amended), updated March 2024adjusted for market forces factor. The scope of activity that comes under ERF remains the same, as detailed in appendix 1 (page 9) of the guidance.NHS England, Elective Recovery Fund technical guidance 2024/25, March 2024

Changes to baseline

There are minimal changes to baselines. The baselines take 2019/20 value-weighted activity (as agreed for 2023/24) and adjust for the profile of working days in 2024/25. The activity is then valued using 2024/25 NHS payment scheme unit prices. 

For simplicity, low value activity relationships ‘Low volume activity’ covers most provider/commissioner relationship with an annual value below £0.5m. Further details are included in the NHS payment scheme (footnote 19).are being removed from the ERF in 2024/25, which reduces ICB baselines by around 0.7%.

Changes to targets

There are minimal changes to targets. At a national and a commissioner level, the targets in 2024/25 are the same as at the start of 2023/24 (before later adjustments for industrial action).

NHS England will publish a detailed set of activity baselines and targets, which will break down what each individual provider is expected to deliver with each individual commissioner. Commissioners and providers can negotiate alternative targets, but the NHS England figures will be used as a default if they cannot agree.

One change in 2024/25 is that NHS England’s detailed, provider-level targets now reconcile fully to the overall commissioner targets. Any commissioner which agrees different targets with its providers must make sure that these agreements still add back to their overall commissioner target.

Changes for specialised commissioning

The most significant changes relate to specialised commissioning, as NHS England is delegating more of its specialised commissioning to ICBs in 2024/25.

NHS England is aiming to maintain the position for providers as much as possible, though different commissioners will be involved. In 2023/24, NHS England had one ERF agreement for specialised services with each relevant provider. In 2024/25, it is saying that for specialised services, each provider will have only one commissioner dealing with the variable ERF payments. 

Where specialised services have been delegated to an ICB, the ICB will make ERF agreements with all providers within its system for all the specialised services it delivers (including to patients from other ICBs). Where specialised services have not been delegated, NHS England make ERF agreements with providers as before. NHS England will also pay all specialist top-ups, even where specialised services are delegated. No ICB should make an ERF agreement with a provider outside of its system. Further details are included at Appendix 3 to the guidance (page 15).NHS England, Elective Recovery Fund technical guidance 2024/25, March 2024