Financial debts and loans in the NHS

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Contents

  1. Introduction
  2. What was the size of the NHS debt problem?
  3. Why did this debt build up?
  4. What were the problems with the NHS loans scheme?
  5. How will the debt write-off work?
  6. Conclusion

Introduction

There are approximately 225 NHS trusts and foundation trusts – the public providers of ambulance, community hospital and mental health services. In , just under half (46 per cent) of these providers ended the year with financial deficits (ie, their expenditure was higher than their income).

Despite these deficits, the staff in these organisations were still paid, as were their suppliers of medicines, heating and medical equipment. In part, these obligations were met using financial assistance provided by the Department of Health and Social Care.

Prior to , several different types of financial assistance were available to NHS trusts and foundation trusts. But here we focus on the two that are most relevant to the debt write-off in : support in the normal course of business and interim financial support.

  • Support in the normal course of business. This financial assistance consists of long-term loans (generally up to 25 years), where there is a reasonable expectation that the loan will be repaid. This financial support is predominantly for capital investment in buildings and equipment.
  • Interim support. The Department for Health and Social Care can also provide financial support when additional investment is needed for the continued delivery of essential link services. This support is predominantly for revenue spending on day-to-day needs, such as paying staff salaries or purchasing medicines.

The Department of Health and Social Care could provide financial assistance to a provider either as non-repayable public dividend capital (PDC) (see below) or an interest-bearing loan.

The financial support from a loan did not eliminate the financial deficits in NHS providers when they overspent their annual budget. This is because the loans were not treated as ‘income’.

To take a very simplified example: a trust that earns ?100 million and spends ?110 million in a year will end the year with a ?10 million deficit. If the trust takes out a loan for ?10 million from the Department of Health and Social Care it will not raise the trust’s income to ?110 million that year, but the trust will have access to the cash it needs to meet its financial obligations.

What was the size of the NHS debt problem?

At the end of , NHS providers held ?13.4 billion of outstanding debt on loans taken out from the Department for Health and Social Care for ‘interim support’ (see Figure 1). At time of writing, figures were not available for how much debt was owed at the end of due to ‘normal course of business’ loans, but these debts totalled approximately ?3 billion by the end of .

Debts due to interim support loans were widespread, with more than 100 of the approximately 225 NHS providers having historical debts at the end of . In some cases, the level of loans was particularly high – two trusts alone held more than ?1 billion of interim financing loans between them, while the liabilities from interim loans in some trusts were more than 80 per cent of their annual turnover (see Figure 2).

Why did this debt build up?

In part, NHS providers built up cumulative debt because of wider issues facing the health and care system over the past decade. Rising demand for care and an unprecedented slowdown in NHS funding have meant that many NHS providers have overspent their annual budgets since . Because of these reoccurring deficits, providers increasingly relied on financial support from national bodies.

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