NHS needs to take £1bn out of costs after record £536m overspend

The National Health Service in England will have to take more than £1bn out of its costs this year after its overspend last year doubled to a record £536m. In the case of a small number of hospitals that have overspent by tens of millions of pounds, that "could be detrimental to patient care", the National Audit Office warned yesterday. It added that some have such large cumulative deficits that there is a question mark over whether they can remain "going concerns".

Patricia Hewitt, the health secretary, revealed that the NHS as a whole, including the deficits recorded by foundation trusts, overspent by £536m last year. The figure, at a time of record NHS spending increases, is 2½ times the target Ms Hewitt set in December of limiting it to £200m.

The unaudited figures, which last year deteriorated once audited accounts were in, show that 69 per cent of NHS organisations hit break-even or financial surplus. But 31 per cent failed to, with those that were already in financial trouble getting deeper into it.

This year, the service as a whole will have to repay the £536m overspend and take out the equivalent sum by which it overtraded last year - something over 1 per cent of its budget.

But on top of last year's overspend, NHS trusts are also carrying an accumulated deficit of £598m, the NAO revealed.

Ten big hospitals, including two of Bristol's three, the Royal United Hospital, Bath, two in Surrey and Sussex, along with St George's and the Hammersmith Hospital in London, account for close to £300m of that sum.

For some organisations, the levels of debt are reaching the stage where they may cease to be "viable entities". "If they are to remain going concerns, something will have to be done to redeem the position," said Steve Corbishley, the NAO's director of financial audit for the health service.

For a minority of bodies, "it will not be feasible to recover", nor would it be possible for them to apply to become foundation trusts, "without some form of financial assistance from the [health] department".

Ms Hewitt said that while the NHS as a whole would seek financial balance this year, some organisations would be given longer in order to avoid impacts on patient care "that would simply not be acceptable".

Niall Dickson, chief executive of the King's Fund think-tank, said the net deficit "masked the true scale of the financial problems in the health service".

Six months into the financial year, foundation trusts aside, those organisations in deficit were projecting a £948m overspend. Yesterday's figures showed that sum had increased to £1.27bn, he said, offset by surpluses elsewhere, some of which were achieved by reducing education and training budgets.

Sir Ian Carruthers, acting chief executive of the NHS, argued that the figures needed to be kept in perspective. Two-thirds of the overspend was accounted for by just 10 per cent of organisations, he said, with the health service delivering improved services.

But the tighter, and more transparent, NHS financial regime meant "organisations that get into financial difficulties, and do not address these immediately, find it increasingly difficult to pull back the position as they face income reductions to recover prior-year deficits".

The picture shows a north-south divide. Many of the worst problems are concentrated in and around London, in east England and parts of the west country. But neither the department nor the NAO had an explanation for that. Serious problems in just a few places "can skew the regional picture", Mr Corbishley said.

Last year, the service underspent its £3bn capital budget by more than £1.1bn, a measure partly taken to release cash to ensure that staff and suppliers could be paid.

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The National Audit Office belatedly warns that some hospitals are reaching the stage where they may cease to be "viable entities". As long as a year ago on April 16, 2005 Health Direct noted that the residents of Surrey had a serious problem: in Hospitals are bankrupt

Paul Miller, chairman of the British Medical Association's consultants committee, said yesterday that the involvement of the private sector and use of management consultants were wasting vast sums of money.

"Yes, bad management is a problem in some places, but the biggest cause is the interference from government. Something is going badly wrong and it is demoralising for staff."

Also the £536 million does not take into account the amount of money that the Trusts did not pay to it’s suppliers as the year end approached in March to maintain their cashflow.