The King’s Fund published its first quarterly monitoring report in April 2011 as part of its work to track, analyse and comment on the changes and challenges the health and care system is facing. This is the 22nd report and aims to take stock of what has happened over the past quarter and to assess the state of the health and care system. It provides an update on how the NHS is coping as it continues to grapple with productivity and reform challenges under continued financial pressure.

The quarterly monitoring report combines publicly available data on selected NHS performance measures with views from NHS trust finance directors and clinical commissioning group (CCG) finance leads. These were supplemented with interviews with four NHS leaders.

See the box below for further details of our methodology.

Survey of NHS trust finance directors and CCG finance leads

This report details the results of an online survey of NHS trust finance directors and clinical commissioning group (CCG) finance leads carried out between 18 January and 1 February 2017. We contacted 255 NHS trust finance directors to take part and 80 responded (31 per cent response rate). The sample included 39 acute trusts; 33 community and mental health trusts; 1 specialist trust; 1 ambulance trust and 6 unknown. In addition, we made contact with 155 CCG finance leads and 42 responded (27 per cent response rate). Between them these finance leads covered 51 CCGs (24 per cent of all 211 CCGs).

The new approach to NHS finances in 2016/17

After the £2.45 billion overspend by NHS providers in 2015/16, NHS Improvement and the other national NHS bodies have introduced a new approach to managing NHS finances. This approach has a number of key elements.

The Sustainability and Transformation Fund

Additional funding of £1.8 billion has been placed in the new Sustainability and Transformation Fund and is being allocated to trusts to help them manage deficits. This money will be paid out quarterly to NHS providers (overwhelmingly to acute providers), but only where they meet a set of finance and performance targets. Sustainability and Transformation Fund payments reduce an organisation’s reported deficit. It was hoped that the £1.8 billion Sustainability and Transformation Fund would be sufficient to return the NHS provider sector as a whole to net balance. But this looks unlikely; NHS trusts now forecast a net deficit of £873 million for 2016/17. If a range of additional measures are taken NHS Improvement states that this net deficit may be reduced to between £750 million and £850 million (NHS Improvement 2017).

Control totals

Control totals are the financial targets for each organisation – they set the maximum deficit (or minimum surplus) an organisation is allowed to run. Each organisation has its own control total, which is agreed with NHS Improvement depending on its financial strength. The financial position reported by individual NHS trusts includes any Sustainability and Transformation Fund money they have received.

Meeting finance and performance targets

If providers fail to meet the finance and performance requirements that underpin their control totals, access to all or some of their planned payments from the Sustainability and Transformation Fund can be withheld. While withholding funding will increase deficits reported by individual providers, it will not alter the net provider position as the Sustainability and Transformation Fund will be underspent by the equivalent amount and NHS Improvement counts this underspend against providers as a whole. This means deficits reported by individual organisations will overstate the overall provider deficit as NHS Improvement will have some offsetting unspent Sustainability and Transformation Fund money. By the third quarter of 2016/17, £356 million of sustainability funding was retained centrally by NHS Improvement and £994 million issued to providers (NHS Improvement 2017). If a provider cannot pay its bills – such as salaries for its staff – without Sustainability and Transformation Fund support, it may need to turn instead to the Department of Health for additional cash support usually provided as a loan.


In 2016/17 NHS commissioners have set aside 1 per cent of their total allocations (worth around £800 million) to offset risks to overall financial balance in the NHS. This creates an £800 million central risk reserve to set against potential overspends. If this reserve was not needed, the funding was to be released for investment in local priorities. NHS England has now confirmed that the reserve is required to meet deficits elsewhere in the NHS and will not be released for local investment.

Latest forecasts

Without further action, at the end of the third quarter NHS providers forecast a full-year net provider deficit of £873 million for 2016/17 but are aiming to reduce this to a net deficit of between £750 million and £850 million. This includes the unspent Sustainability and Transformation Fund money still sitting with NHS Improvement. For commissioners, NHS England reported that clinical commissioning groups (CCGs) had overspent by £437.2 million, but are aiming to reduce this to a £370.4 million overspend by the end of the year. Against this, NHS England expects to underspend its own budgets and retain ‘up to’ £800 million of its reserve taking all commissioner budgets together.

How is the NHS performing?

  • 2017 has not started well for the NHS. Performance against the four-hour A&E waiting time standard fell sharply in December and anecdotal reports of longer waits have increased in January and February. For type 1 A&E units, the decline in performance returns the NHS to waiting times not seen since before the four-hour target was first introduced. It is only five years ago that NHS type 1 A&E units could routinely admit, transfer or discharge more than 96 per cent of patients within four hours and where the winter declines in performance were at a level that would now be seen as unworthy of mention. Performance in other areas, including the 18-week referral-to-treatment standard, ambulance waits and delayed transfers of care, is also on a downward trend.

  • Despite the focus on A&E in the media, trust finance directors’ main concerns are delayed transfers of care, staff morale and high bed-occupancy rates. Since 2013 A&E performance has been one of the top three concerns in every QMR but one, and its disappearance from the top three now may suggest that finance directors are increasingly concerned about the underlying drivers of poor performance rather than the standard itself.

Figure 1: Performance against the four-hour A&E waiting time standard, type 1 unit 2004/05 to 2016/17, quarterly data

Data source: A&E attendances and emergency admissions www.england.nhs.uk

  • What has caused this decline in performance? Public Health England’s weekly monitoring reports on influenza (Public Health England 2017b) and norovirus (Public Health England 2017a) show neither are putting a significantly greater demand on health services than in previous years. Nor has it been a particularly cold winter. While emergency admissions rose by 2.1 per cent in December 2016 compared to December 2015, this growth is not particularly high by historical standards. Instead, the challenge for many NHS organisations was how to admit more patients when bed occupancy was already high. So high, in fact, that in the normally 'quiet’ second quarter (July to September 2016) bed occupancy rates were above those of winter highs before 2012/13 and, unsurprisingly, bed occupancy rose again in quarter 3. Sustained increases in demand over many years, rising delayed transfers of care and seven years of low growth in NHS and social care spending have taken their toll. Unsurprisingly, more than half of finance directors from trusts and CCGs believe that the quality of care in their area has deteriorated over the past 12 months.
Figure 2: Bed occupancy at quarter 3, 2010/11 to 2016/17, general and acute beds

Data source: Bed availability and occupancy data www.england.nhs.uk

  • From our survey it is also clear that the deterioration over winter was not due to any lack of effort by NHS providers, commissioners and their staff. In an attempt to pre-empt the winter pressures, more than 70 per cent of trusts increased the number of staff and/or opened more beds and more than half suspended some elective care. A wide range of other measures, including more step-down facilities, paying higher rates for agency staff or using more outsourcing for elective care, were all common. More than 70 per cent of CCGs invested in more primary care and more community services and established new care pathways to try to help manage demand. It is sobering to consider what would have happened to performance if the NHS had not pulled out all the stops in an effort to meet increased demand.

  • Trust finance directors point to a number of causes of the difficulties in A&E. Eighty per cent noted rising numbers of patients with complex conditions or who are more acutely ill. Such patients are more likely to need admission to a hospital bed. Finance directors also identified delayed transfers of care as an issue – which means hospitals have fewer empty beds. Conversely, relatively few identified either poor access to general practice or shortages of clinical staff in A&E as key factors in increased pressure on A&E services.

  • Winter may now leave an unpleasant hangover into spring. Breaking agency caps and outsourcing elective work will hit finances, while suspending elective activity will hit the 18-week referral-to-treatment standard. This pessimist outlook is supported by NHS trust finance directors. Three-quarters report that they are fairly or very concerned that they will not retrieve the A&E and 18-week referral-to-treatment standards by April (which was the original plan for most), with a clear re-balancing towards 'very concerned’. As a share of all trust finance directors, this ‘very concerned’ group has jumped from under half to nearly two-thirds. Spring usually brings some reduction in the pressures on A&E, so attention may soon shift towards 18-week referral-to-treatment standards and rising waiting times for routine treatment.

Financial prospects for 2016/17

  • With quarter 3 results for NHS England and NHS Improvement now in the public domain, concerns over this year’s finances have also risen. On the provider side, the latest results for quarter 3 show that trusts now forecast a net deficit for the year of £873 million. If a further set of actions are taken in quarter 4, NHS Improvement hopes to bring this down to between £750 million and £850 million. As the accumulated year-to-date deficit had already reached £886 million by the end of quarter 3, achieving any of these forecasts relies on NHS trusts running a surplus in quarter 4.

  • A significant number of trusts we surveyed report that they are paying above the agency cap for temporary staff or are outsourcing elective work to the private sector to cope with increasing demand for emergency care over winter. This will make it more difficult to run a surplus in quarter 4 even once the last £450 million payment from the Sustainability and Transformation Fund is included. Thirty one per cent of trust finance directors report they will miss their control total but of those that are still reporting they will meet their financial targets, another 17 per cent say they remain fairly or very concerned that they may ultimately fail. This represents a substantial risk this late in the year.

  • Our QMR in September identified risks that CCGs’ financial performance could deteriorate. This risk has materialised as CCGs reported a year-to-date overspend of £437 million by quarter 3. This worsening position has been driven by difficulties in delivering the higher efficiency targets set by CCGs in 2016/17. Higher savings targets for commissioners were needed as 1 per cent of their budgets were held back to create the £800 million central risk reserve. While rising underspends in NHS England central budgets and direct commissioning (which includes spending on specialised services and primary care) have so far largely offset this slide in CCG finances, the NHS England quarter 3 finance report referred to 'up to an £800m managed underspend’ (NHS England 2017) suggesting it is unlikely that NHS commissioners will be able to deliver any larger underspend. Indeed, CCGs, like their trust counterparts, may also find it hard to dramatically improve their financial performance in quarter 4 given the pressures of winter.

  • This creates the risk that the provider deficit will be greater than the commissioner underspend. This happened in 2015/16 as well, but then the Department of Health found sufficient savings to (largely) offset the NHS net deficit. This year, the Department provided the resources to establish the £1.8 billion Sustainability and Transformation Fund and may well struggle to find significant additional savings. The risk that the Department will break its constitutional spending limits has grown materially greater.

Beyond 2016/17

  • When asked about the future, trusts and CCGs remain very pessimistic about finances. Looking ahead, 53 per cent of trusts and 63 per cent of CCGs are fairly or very pessimistic about reaching financial balance in 2017/18. For CCGs, this has doubled from 30 per cent who were fairly or very pessimistic when they predicted their financial position for 2016/17 this time last year, underlining the spread of financial distress into the commissioning sector. Looking further ahead, when asked about whether they would achieve the efficiency gains underpinning the NHS five year forward view, 74 per cent of trust finance directors and 86 per cent of CCG finance leads say there is a high or very high risk of failure.

  • Financial pressures mean some trusts are reducing their workforce, with 29 per cent of finance directors reporting that their organisations have plans to reduce permanent clinical headcount. Most organisations (74 per cent) also plan to reduce the number of agency staff that they use. However, it will be very challenging to reduce the clinical workforce at a time when many NHS hospitals are routinely running at high bed-occupancy levels and demand continues to rise. We have already witnessed this tension over winter, with 40 per cent of finance directors reporting that they have broken the spending caps on agency staff. It is not surprising that staff morale remains a key concern for finance directors.

  • Previous QMRs have charted the rise and fall of provider deficits as money from the Sustainability and Transformation Fund has been released (or not), growing concerns over CCG finances and the (relatively) slow slide on performance. However, this slide in performance has clearly accelerated, at least in the acute sector, and the concerns expressed over both performance and quality of care by many finance directors are worrying not just in the long term, but for the next few months as well. With financial difficulties rising for providers and CCGs, the NHS may be facing the uncomfortable combination of missing both finance and performance standards.

  • Meanwhile, although many agree that sustainability and transformation plans (STPs) may provide at least part of the answer to the underlying problems facing health and social care, very few think they can provide an answer quickly enough for there to be any optimism about the near future.