The true scale of the NHS financial surplus for 2007-8 is being hidden by an end-of-year purchasing spree.
Prepayment of a range of suppliers by hundreds of millions of pounds is one tactic being used to disguise the true level of the NHS surplus for the 2007-8 financial year, according to a report in the Financial Times.

For some time, the Department of Health has let it be known that the NHS was on course to make a surplus of £1.8 billion in the financial year. Recently, NHS chief executive David Nicholson CBE pointed out that some of this surplus would be used for ‘double-running’ of existing services alongside the new ones recommended in every region’s ‘Next Steps’ Darzi Review of services.

FT public policy editor Nicholas Timmins quotes un-named senior NHS managers as saying that without these financial games, the actual surplus for the NHS in England in the financial year just ended is likely to have been nearer £3 billion.

This is distinct from the semi-autonomous NHS foundation trusts, which are not directly controlled by Whitehall and are allowed to keep their surpluses. Timmins estimates that NHS FTs “have a cumulative total of £2 billion of cash in the bank, much of it working capital, that foundation trusts are expected to hold as they generate their own surplus of perhaps £500 million”. He adds that the NHS’s local administrative primary care trusts paid their supplier FTs £300 million-£400 million in advance for services before the end of the last financial year.

Bill Moyes, the executive chair of Monitor (the independent regulator of foundation trusts), has spoken out repeatedly against FTs keeping large surpluses in cash and noting that the money should be spent on developing better services.

Avoiding Treasury clawback
Part of the reason for the surplus-hiding is to avoid the embarrassing publicity caused by the cumulative £571 million net deficit from the 2005-6 financial year. However, the real reason seems likely to be an attempt to head off at the pass any Treasury attempt to claw back unspent and unplanned surplus.

Health ministers and David Nicholson have already confirmed that the Treasury will allow the NHS to carry over its forecast surplus. Yet the Treasury broke a similar assurance in 2006-7, when it clawed back £2 billion of unspent capital from the Department of Health.

The FT reports that hospitals and PCTs are working to DH-set “control totals”, such that while they must deliver the surplus they were forecasting, they must also not exceed it – and that chief executives have been told their personal performance rating would be affected by non-compliance.

According to people close to the situation, foundation trusts, which as free-standing businesses can keep the cash, were paid £300m-£400m in advance by primary care trusts for services before the end of the last financial year.

Professor John Appleby, chief economist of thinktank The Kings Fund, points out that “we’ve known for some time of plans for quite a large surplus. I think the question remains how the planned figure of £1.8 billion was chosen – what was the basis in evidence for £1.8 billion (as opposed to £2.8 billion or £0.8 billion)? And the implicit question from the public will be ‘how do we justify raising this money from taxes and not spending it on healthcare?’