News that the Department of Health and NHS England have agreed a formula to write off the staggering £13.4 billion of loans that have been propping up NHS trusts and foundation trusts will be welcomed by many – but is little more than belated recognition that the “debts” were so huge they could never have been paid off in the first place.
The government press release announcing the decision itself admits that while a handful of NHS trusts had managed to keep their accounts in the black, the vast bulk of the NHS has been massively under-funded over the last ten years of austerity:
While many NHS trusts manage strong finances, under the existing rules, some took out loans to plug financial gaps in their day-to-day (revenue) or capital (infrastructure) budgets.
The scale of this is substantial: according to the government’s statement “107 trusts have an average of £100 million revenue debt each, with the 2 trusts with the highest debts reaching a combined total of over £1 billion.”
This is an understatement: many more trusts have run up loans in the tens of millions, and most of these have long ago passed the point where there was any hope that the loans could be repaid.
However the austerity squeeze has also driven the substantial reductions in numbers of acute and mental health beds, resulting in the soaring waiting list, missed waiting time targets and worsening crises each winter and often year-round. It has led to management efforts to centralise and downsize acute hospital services, dilute skill mix, cut use of agency staff and leave growing numbers of nursing and professional posts unfilled – all of which have left the NHS desperately ill-prepared to tackle the Covid-19 epidemic. Cash constraints were also one reason why Jeremy Hunt and the Department of Health decided in 2017 to override professional advice to stockpile eye protection after plans to deal with a potential pandemic were found to be inadequate.
While the NHS is widely and reasonably seen as an inherently socialist system of provision of collectively (tax)-funded services free at point of use on the basis of clinical need, it has always been constrained by the limits set by central government on the resources it can deploy. In 1976 the financial crisis forced Harold Wilson’s Labour government to seek a bail-out from the International Monetary Fund which came with strings attached – including the establishment of “cash limits” to restrain spending by local health authorities.
The Thatcher government from 1980 made these limits legally binding, and there were confrontations between central government and over-spending health authorities as the government cut spending increases to below inflation for several years in the mid 1980s. But after the 1987 election the scale of the cutbacks and resultant closures of services and queues for treatment triggered hostile headlines from the Conservative newspapers and forced a change of approach by the government.
The whole notion of the NHS being in debt to the government flows from the subsequent three decades of “reforms” that since 1990 have disintegrated a formerly integrated system, splitting it into a competitive market, in which limited cash is allocated to “purchasers” or “commissioners,” forcing the providers to compete with each other for contracts and increasingly behave like businesses, while central government increasingly stood back from acknowledging any responsibility for local cuts and deficits.
In 2012 Health and Social Care Act, pushed through by Health Secretary Andrew Lansley with the key support of the Liberal Democrats, consolidated this separation, establishing a separation between NHS England and the Department of Health/Secretary of State.
However as the austerity regime, reversing the previous decade of real terms increases in spending, has increasingly forced plans for cutbacks and centralisation and undermined trust performance, the ability of ministers to stand back from the NHS and deny responsibility has been more theoretical and actual.
Lansley’s successor Jeremy Hunt repeatedly and actively intervened in NHS decisions, and clearly recognised that whatever the legislation might say, the government remained responsible in the public’s eyes for anything and everything that goes wrong in the NHS.
The attempt to escape from this in 2016, with the requirement for NHS commissioners and providers in 44 strategic areas to draw up “Sustainability and Transformation Plans” to bridge an estimated “do nothing” deficit of £23 billion by 2020/21 failed miserably, as a succession of half-baked plans aimed at implausible reductions in bed numbers while assuming a hefty £14 billion total of capital funding.
All the while as STPs were followed by equally impractical proposals for “integrated care” systems, the deficits were mounting, more performance targets were being missed, and ministers, especially in the unstable period from the 2017 election were increasingly recognising that any attempt to force trusts and commissioners to balance the books could trigger immense and politically damaging cutbacks; instead trusts were given loans, and deficits were largely ignored.
The Johnson election campaign last year blagged and blustered its way through these questions with the aid of a deceptive promise of an “extra” £33.9 billion in revenue by 2024 which in fact meant further decline. This was not properly exposed by the media, and indeed was largely ignored as a result of the all-consuming, irrational obsession of so many voters with the Brexit issue.
However it was already clear during the winter crisis period that the cumulative under-funding of the NHS was set to be a major political liability for a government which had marketed itself as offering new hospitals, new resources and a new attitude to our most popular public service.
The coronavirus has concentrated minds, led to an effective abandonment of the structures and mechanisms of the 2012 Act, to full government acceptance of responsibility for the NHS – and now the write-off of deficits that were politically created by ten years of austerity.
It’s like a gang of burglars seeking gratitude after handing back some of the jewels they have stolen: £13.4 billion averages to a refund of just £1.3billion per year for the last ten years – far less than the real terms cuts that have been imposed by the virtual freeze on funding while the population and its health needs have grown.
Of course it’s better to have these loans scrapped than not scrapped, although the trusts were not going to pay them off anyway, and even the government press release makes clear that the entire exercise is not costing the government any real money:
The debt being effectively written off is a transaction within the DHSC group. This will not create additional borrowing or fiscal cost for the Exchequer.
Tax expert Richard Murphy summed up:
“The government supposedly wrote off £13.4 billion of NHS debt yesterday.
It didn't: as I have already pointed out, all it did was make a book-keeping adjustment.
What it actually did was allow NHS Trusts to record the sums they had spent for the populations they served as having been funded by central government when previously the government were claiming they had overspent.
As Murphy points out, a more valuable move for many trusts would be for government to write off their even more extensive outstanding payments for new buildings paid for through the Private Finance Initiative (PFI).
Over 100 trusts between them have another £51 billion to pay on their PFI projects, with some payments running right up to 2048.
18 trusts, including some first wave PFI projects that were built in the early 2000s, still have more than £1 billion to pay off, of which five (Manchester University NHS FT, St Helens and Knowsley Hospitals , University Hospital Birmingham, University Hospital of North Staffordshire, and University Hospitals Coventry and Warwickshire) have more than £2 billion still to pay and the biggest PFI of all, Barts Health, still has a staggering £4.5 billion to pay, with a final payment of over £200m in 2048.
The Johnson government has already made clear its rejection of PFI as a funding model for future infrastructure investment, which states clearly that after the “retirement” of PFI: “It is therefore clear that public capital funding will be needed to deliver new large hospital replacements in the future.”
As part of a fresh approach, clearing the decks of the NHS for a post-Covid-19 future, the Treasury – which largely forced the policy on to the public sector – should take the burden of PFI payments from the shoulders of trusts, or better still, as Labour’s John McDonnell has proposed, the government should nationalise the small companies (“special purpose vehicles”) which funnel the PFI payments from the NHS and public sector into the pockets of shareholders and banks, many of them held off shore .
However it appears the PFI investors can be reassured that the government has no such plans. The paywalled Partnerships Bulletin which covers news from the industry point of view is reporting “Guidance note clarifies PFI payments protected: Authorities told to maintain unitary charges despite Covid-19 challenges”.
What is also clear is that the cancellation of the £13.4 billion loans does not in itself put any extra money into the coffers of cash-strapped trusts: they could not have paid the debts off anyway, and were planning more borrowing to get through 2020/21.
But while trusts are being told that for the duration of the crisis they can spend what it takes and that money is no object, we need assurance that the end of the crisis will not bring them down to earth with a bump and a resumption of the cash squeeze.
It appears that the financial discipline, which Thatcher used to try to force the NHS to privatise support services and drive greater “efficiency” measures, is decisively broken. Now as Richard Murphy argues, the NHS needs three things, beginning with the scrapping of the 2012 Act and all of the wasteful trappings of competition and the market:
First, the renationalisation of the NHS: there is no longer time for the farce created by the fracturing of the NHS by the so-called internal market. It has simply created burdens that must be swept away now. Integrated care and systems are essential from now on.
Second, the NHS needs proper funding in the future.
And third, PFI debt needs to be bought in and cancelled, for good. This disaster has to be consigned to history now.
By John Lister, Secretary Keep Our NHS Public, Joint Editor The Lowdown