Hospitals in the red: the size of the NHS provider deficit

This article has been corrected.

"There was an £822 million deficit in the NHS last year"

"The NHS is now facing a £2 billion deficit this year."

Andy Burnham, Shadow Health Secretary, 2 June 2015

NHS trusts—which provide secondary care often to patients who've been referred there by a GP—are in the red.

NHS trusts in England had a shortfall of £830 million last financial year, according to the two bodies that oversee them. The Shadow Health Secretary's £822 million figure was based on the most up to date information that was then available, though it only refers to the provider side of the NHS. The bodies that commission services for them ended the year with a surplus of some £150 million.

The trusts would have had a bigger deficit, had NHS England and the Department of Health (DH) not put in some £350 million in funding over the course of the year. DH says the "underlying" deficit for providers was £1.2 billion.

Forecasts, as ever, are a bit trickier to check. NHS Providers, a charity which represents most NHS trusts, has told us feedback from its members is behind its estimate of a £2.1 billion deficit this year. Government body Monitor has already said this year's deficit "threatens" to reach £1 billion for the trusts it oversees, which make up about three fifths of trusts in total.

The government has said the growth in deficits is due to "appalling mismanagement" under the last Labour government. It says substandard care at Mid Staffs has meant hospitals are trying to sharply increase the number of nurses on their wards, raising the bill for agency staff, and that PFI debts arranged under Labour are making the situation more difficult. Labour says nursing shortages are due to cuts to by the Coalition at the start of the last Parliament.

We've looked at the cost of NHS staffing shortages before. We'll be looking at PFI and its effects on NHS finances soon.

There was a deficit of £830 million last year across all trusts

There are two types of trusts: NHS trusts and NHS foundation trusts. NHS trusts can become foundation trusts if they pass a number of tests, one of which is to do with how well their finances are managed. This gives them greater freedom from the Department of Health.

So in theory, foundation trusts should be in a better financial position than other NHS trusts, on average.

Overall, foundation trusts were £345 million in the red last year (2014/15), with 77 out of 153 of them losing money. That's according to Monitor, their regulator.

Other NHS trusts had an overall deficit of £485 million, with 43 out of 99 of them losing money, according to the Trust Development Authority, which oversees them.

So that makes a financial deficit of £830 million across all trusts. DH accounts at around the same time put it slightly higher at £842 million.

The situation would have been worse for trusts had it not been for one-off support from NHS England and the DH, which the government says totalled £350 million. It puts last year's "underlying deficit" for the provider sector at £1.2 billion.

As things stand, next year is likely to be even more difficult

Without action to bring costs down, foundation trusts alone face a £1 billion deficit in 2015/16, according to Monitor.

NHS Providers, the charity that represents NHS trusts and foundation trusts, estimates the total deficit will rise to between £2 billion and £2.5 billion. It told us this is based on feedback from its members.

Journalists at the Health Service Journal (£) have looked at May and June board papers for 142 'acute trusts'. These are trusts that run hospitals as opposed to mental health, community, or ambulance services, and they include both NHS trusts and foundation trusts. It found that together these trusts expect to have a £2.1 billion deficit for the year.

That doesn't mean that NHS providers as a whole would have that kind of deficit—acute trusts were more likely to be in deficit last year than other trusts were.

All three of the above figures are based on forecasts from trusts, which in practice are often off the mark. In the middle of last year, foundation trusts were predicted to end the year with a £271 million deficit rather than the £345 million shortfall that actually came to pass.

So going on past form we might expect the deficit for this year to be higher than those forecasts suggest.

Then again, trusts are now being told they must revisit their plans and cut deficits—Monitor has said it will "clamp down" on poor financial performance. If its successful then the overall deficits will be lower than forecast.

Senior staff at NHS providers seem to be pessimistic about the financial situation. When think tank the Kings Fund asked a panel of NHS 50 finance directors, two thirds said they expected their own trust to be in deficit in 2015/16.

The Nuffield Trust, another think tank, spoke to a panel of 78 'health leaders', including managers and clinicians. Of these, four fifths had concerns about the financial viability of their local provider and seven in ten thought providers would need to go into deficit on the basis of their current level of funding.

Correction 28 August 2015

This article originally used the term "NHS deficit" to refer to the NHS provider deficit. Following feedback we've corrected it to make clear that when finances for commissioners are included, the deficit is smaller.

We've also updated to include the DH's estimate of the underlying deficit, alongside the eventual deficit experienced by providers.