National Health Service finances are back in balance overall, with the Service and the Department of Health achieving a surplus of £515 million in 2006-7 after two years of rising deficits. However, there are still wide variations, with more than 20% of NHS organisations still in deficit and collectively running up a gross deficit of £917 million in the year, according to the House of Commons’ Committee of Public Accounts.

In its Report on the NHS Summarised Accounts for 2006-7: Achieving Financial Balance, which is published today, the Committee applauds the progress made during the year by the Department and the NHS in restoring overall financial balance. The achievement of turning two years of increasing deficit in the NHS into a surplus in 2006-07 of over half a billion pounds “is very commendable, but the headline figures mask some unwelcome evidence that the NHS is not yet travelling along the road to long-term financial health,” said Committee chairman Edward Leigh, Conservative MP for Gainsborough.

The surplus is concentrated in Strategic Health Authorities, whilst overall Primary Care Trusts and NHS Trusts remain in deficit, the Members of Parliament report. Out of a total 372 NHS organisations, 82 recorded a collective deficit of £917 million during 2006-7, and 80% of this was reported by just 10% of NHS bodies. There are also regional variations, with the East of England SHA area having a deficit of £153 million and the North West achieving a £189 million surplus. Financial recovery is therefore inconsistent and more needs to be done so that all parts of the NHS achieve financial balance, says the report.

Examining how financial balance was reached, the MPs say there is “some evidence” that this was achieved by slowing down or postponing some healthcare. The Department required certain allocations to be withheld from NHS organisations, notably through the top-slicing of PCT budgets and through diversion of training expenditure to support deficits. Therefore, even though the overall quality of healthcare looks to have been improved in the year (as rated by the Healthcare Commission), 14 PCTs limited the amount of healthcare they delivered either to make savings or because their budgets were cut, said Mr Leigh.

To minimise the risk of this happening again, NHS organisations need to agree annual work plans and supporting budgets before the beginning of the financial year, to profile the work as far as is practicable and to have reliable information early enough to take remedial action where health service provision is put at risk, the MPs stress.

However, the Committee concludes that the year's return to financial balance was in fact due to the Department’s tighter performance management of NHS finances in the way funding flowed through the Service, together with a programme of support for local organisations with particular financial difficulties, and it considers that, in the short term, this “largely centralist” approach was “appropriate.” However, if the NHS is to remain in financial balance in the longer term, greater numbers of Service organisations locally need to improve their financial management, with more robust costing systems and more reliable financial forecasting. Failure to keep a tight grip on financial performance will undermine health care for patients, they caution.

“Bad financial management at local level can have significant consequences for patients: there is a clear link between the financial performance of a body and the quality of its clinical services. This is a lesson which must be driven home across the NHS, to both financial and clinical staff,” said Mr Leigh. Another lesson is that local bodies must be able to demonstrate that they have provided a level of healthcare that meets local needs; while the Department and the NHS are forecasting a surplus of £1.8 billion in 2007-8, large surpluses will prompt the question why this money could not have been used to deliver a higher level of healthcare, he warned.