“The sky turned black with the flapping wings of chickens coming home to roost.”[1]

The bizarre consequences of the last few years of NHS financial incontinence.

My post earlier in the week about the House of Commons Public Accounts Committee highlighted the anger it expressed about the lack of timely accounting by the DHSC of NHS expenditure (or ‘spend’).

This is but a tiny speck of snow on top of the tip of the iceberg that is the problem of the control of NHS money.

I’ve often mentioned CIPFA/IfG’s report of last August, This established that in the previous four years there had been a 19% increase in the numbers of hospital doctors and a 20% increase in the number if hospital nurses. The fact that it took CIPFA to convince the NHS that this had happened is important but not the issue for today.

What is important, is that if you have such a rapid rise in the number of staff the knock-on impact of such rapidity is considerable. Increasing staff numbers by about 5% a year over four years would put a strain on any organisation.

But it is also a financial problem. Given staffing is such a high proportion of NHS spend (about 66%), such a rapid increase bumps up the spend considerably. Such large numbers also make demands on other aspects of spend. It runs through the entire finances of a trust.

The problem really hits home when the annual increases in money under which new staff were recruited slows. This is often talked about (wrongly) as a cut. It isn’t, but it is a change that needs to be thought through when you take on extra staff. This is the cause of one of today’s financial problems.

The problem is worse because it appears that, in terms of output, some trusts haven’t seemed to notice the rapid increase in their staff between 2019-2023. This makes the problem today even greater.

Thus, one of trusts’ current financial problems is gaining control – in a year – of a smaller growth on top of 4 years of a larger spend when that rapid annual increase in resource slows.

Of course, having taken on new staff you have to continue paying them. (or terminate their contracts) There are also on costs in infrastructure and kit to help these new staff work. The costs go on.

Therefore, underneath the problems of day-by-day finances is the underlying financial problem of increased staff costs.

This is the problem for many trusts this year.

A much better-informed commentator, Steve Black, has discussed this and its implications in his HSJ blog. He carried out an analysis of the extra staff and came to two very important conclusions,

“The key takeaways from my superficial and back of an envelope look at trust accounts are,

·      a small percentage cut in staff is not that significant in the context of rapid growth since before COVID.

·      staff increases are not driven by activity increases.”

 

(to save his blushes Steve s back of the envelope accounting would win him praise from the Public Accounts Committee).

These are two really important points for this year in the NHS.

First, given that staff numbers have increased so rapidly, losing a small number of staff will not be significant.

Second, and even more importantly, the big increase in the number of hospital clinical staff 2019-2023 “ was not driven by increases in activity”.

This second point is a long-term issue for NHS hospital managers. Steve argues that they took on extra staff not because they were anticipating those staff doing extra work – but for a variety of other reasons. Certainly, this would help to explain the current productivity problem.

However we look at that recent past, this year there are acute trusts under great financial stress partly because they have taken extra staff    This is leading to a number of regional and national stories about cuts in staff.

As Steve comments,

“According to many stories now appearing in the mainstream and specialist media many hospitals are facing catastrophic cuts to staffing. The villain is often energised England from making highly unrealistic demand that trusts lived within their budget.”

The sarcasm of the last clause is the crux here. It is the duty of trusts to balance their books. Yet he is right, some find this unrealistic and blame NHSE for expecting them to do so. I would agree with Steve that this is primarily the trusts’ job. But as I have often commented over the last year, the way in which NHSE sets the incentive structure within finances is also important.

I have commented a few times that at the end of the year trusts that have made a surplus are expected to hand over that surplus to trusts that have made a deficit, Crucially this undermines their incentive to do the hard work of ending the year with a surplus. The phrase “it’s a mugs game “ has frequently been mentioned to me.

This, among many other experiences, led me to create the mantra that  the trouble with performance management is that it doesn’t manage performance. For example if you wanted to manage financial performance in such a way as to increase the number of trusts who make a surplus, you would find ways to incentivise that behaviour.

If you construct a performance management system which disincentivises that behaviour it does not encourage better performance.

At the moment I suspect, partly because of the select committee report, and almost certainly because the Treasury is running out of patience with NHS deficits, NHSE are constructing a new performance management regime for finance.

It is this that is receiving local and regional publicity about ‘cuts’. Because at its base if you are in an ICS system in deficit you are not allowed to advertise for staff without NHSE agreement.

Just work this through for a moment.

One of the reasons trusts were created is because the NHS is a very large organisation. That’s why the NHS employs very few people. It’s trusts that employ people. This has developed because you really can’t run things like vacancies at a national level.

Well, if you are in an ICS in deficit welcome to the adverts for your staff being run from the centre.

My point is that this does not manage performance. It does the opposite. The trusts who should be managing their performance now have to delegate some of that management upwards. We as a trust got into this mess because we made mistaken decisions about taking on more staff and the way in which we are going to get out of it is by making no decisions at all.

It all goes upstairs.

So, at the end of this year, if the accounts balance, it’s not because we in this trust are making better decisions – it’s because the people above us made better decisions.

The budget has balanced because we have learnt a bit more helplessness,

How does that make next year better? At the end of the year, I will be even more dependent on the people above me than I am at the beginning.

And just a political point. You may have noticed that during this financial year there will be an election. Choosing this year to crack down on deficits in such a way as to lead to 20 or 30 regional stories about NHS cuts is well, if I were the government, I would feel it was unfortunate.

But have they noticed?

If not, what are they paying attention to?

I’m pretty sure the public will notice, come the election.

[1] I’ve never been able to check out who first said this but am informed (unreliably) that Jim Callaghan said it just before the 1979 election – although it has also been attributed to both Dennis Healey and Alan Bennett.