Audit Commission

NHS finances have improved markedly, moving from deficit to surplus, according to the Audit Commission's Review of the NHS Financial Year 2006/07, published today, 23 October 2007(1). However, nearly a third of NHS bodies are still in poor financial health.

Auditors assessed NHS trusts and primary care trusts (PCTs) across England on how well they manage taxpayers' money. In general, they found that the steps taken by the Department of Health and by NHS bodies to return the NHS to financial balance were successful. However, regional variations remain. Rating the trusts on a scale from 1-4 on how well they use NHS resources, auditors found that:

• 27 per cent of trusts and PCTs (91) were in the top two categories, performing well or strongly, in their use of resources (compared with 12 per cent in 2005/06);
• 31 per cent of NHS trusts and PCTs (104) scored 1 out of 4, failing to meet minimum requirements (compared with 39 per cent last year); and
• 8 per cent of trusts and PCTs (27) not only scored 1 overall for use of resources, but also failed across all three key areas: financial management, financial standing and value for money.(2)

Steve Bundred, Chief Executive of the Audit Commission, said:
'The NHS is no longer in deficit, which is good news for patients and for taxpayers. Managing money well goes hand in hand with providing better patient care. Trusts that fail to manage their money well are unlikely to be doing their best for patients. There is a worrying gap between the top performers and those still failing to meet their duty to balance their books. We are concerned about the variation of financial performance across the country. A number of NHS bodies are failing to manage their finances adequately and there appears little hope that they can get out of trouble by themselves. The NHS needs to focus urgently on the management of this small group of NHS bodies that are failing across the board.'

The scale of NHS reorganisation in 2006/07 is reflected in the scores for their use of resources. NHS bodies that were not subject to merger tended to perform better: only 7 per cent of newly merged bodies were in the top two categories compared with 35 per cent of unchanged organisations. There are also short-term costs of the reorganisation, with £192 million costs so far. The NHS will need to demonstrate that this translates into savings in the medium to long term.

Notes to editors

1. The overall financial position of the NHS recovered by over £1 billion, from a deficit of £547 million (2005/06) to a year-end surplus of £515 million this year (excluding NHS foundation trusts). The Department of Health forecasts an aggregate £983 million surplus by the end of this financial year.
2. Financial standing, financial management and value for money: Financial standing: This theme focuses on how the organisation manages its spending within available resources. Assessments are largely based on the achievement of year-end breakeven and statutory financial targets. Financial management: The financial management theme assesses how well the organisation plans and manages its finances. Auditors assess: the organisation’s medium-term financial strategy/plan and whether budgets and the capital programme are soundly based and designed to deliver strategic priorities; whether the organisation manages performance against budgets; and the management of its asset base. Value for money: This theme assesses the organisation’s arrangements for managing and improving value for money. Auditors considered, amongst other things, whether the organisation had proper arrangements for securing strategic and operational objectives and whether the organisation had established arrangements for managing its financial and other resources, which demonstrate that value for money is being managed and achieved.
3. The Auditors’ Local Evaluation (ALE) scores are combined into a single overall score, from 1 to 4. The scores are as follows: 1 Below minimum requirements – inadequate performance. 2 At minimum requirements – adequate performance 3 Consistently above minimum requirements – performing well 4 Well above minimum requirements – performing strongly
4. The Audit Commission's ALE applies to NHS trusts and PCTs in England.
5. 2006/07 is the second year in which the Commission has carried out the evaluation.
6. The Audit Commission is an independent body responsible for ensuring that public money is spent economically, efficiently and effectively, to achieve high-quality local services for the public. Our remit covers around 11,000 bodies in England, which between them spend more than £180 billion of public money each year. Our work covers local government, health, housing, community safety and fire and rescue services.
7. As an independent watchdog, we provide important information on the quality of public services. As a driving force for improvement in those services, we provide practical recommendations and spread best practice. As an independent auditor, we ensure that public services are good value for money and that public money is properly spent.
8. For further information about the Audit Commission, visit our website at www.audit-commission.gov.uk