Prioritising the financial stability of local health economies has resulted in very slow progress by the Department of Health and NHS England towards allocating local healthcare commissioners their fair share of funding, says the National Audit Office.

A total of £79 billion has been allocated to local commissioners in 2014-15, equivalent to £1,400 per person. Following 2013’s health system reforms, the three different sets of commissioners - clinical commissioning groups (CCGs) , NHS England area teams and local authorities - receive separate funding allocations to commission services for their local populations.

The DOH/NHS England approach to allocating funding is generally sound; decisions are informed by independent, expert advice and are increasingly transparent, the NAO has reported. However, it adds, the tighter financial position in recent years has made it difficult for them to allocate funding in a way that achieves the twin aims of fairness and financial stability.

The report sees wide variation in the extent to which funding received by local commissioners differed from their target allocations, which are based on relative need. In 2014-15, over three-quarters of local authorities and nearly two-fifths of CCGs are more than five percentage points above or below their fair share of funding per person. Funding for CCGs varies from £137 per person below target to £361 per person above target.

Department/NHS England decisions about how quickly to move commissioners towards their target funding allocations are not based on evidence - they are essentially a matter of judgement about the changes that local health economies can tolerate without being financially destabilised and the effects of organisations not receiving their target allocations, says the NAO. However, exploratory analysis by the Office suggests that local bodies may be able to tolerate more significant changes in funding than those currently allowed.

Local populations are taken into account when calculating target funding allocations, and NHS England has taken steps to address the risk that population changes my jeopardise financial stability. It uses GP lists to estimate population size, which makes target allocations more responsive to changing needs, but there is limited assurance about data accuracy, with a tendency for lists to be inflated, says the Office.

NAO head Amyas Morse comments that funding allocations have reflected, among other factors, “a desire not to upset local health economies” by taking funding away or even by increasing it by less than inflation, and this has significantly slowed progress towards a fair distribution where funding fully reflects needs nationwide.

“The Department and NHS England need to consider carefully whether this approach is fast-moving enough to sustain hard-pressed local areas in the next few years,” he says.