FactCheck: Is the NHS in the worst financial health ever?

Or has greater transparency meant less is swept under the carpet?

Background

The Conservatives have been campaigning hard on the NHS, trying to persuade voters that they are the only party the public can trust to protect it.

But it's a difficult area to campaign on. Though there has been quite a flurry of negative headlines about the NHS in recent months, Labour can always point to the successes it has enjoyed in some areas, such as reducing waiting lists, and the fact that they have doubled the NHS budget in real terms.

So Andrew Lansley's claim that the NHS is in the worst financial health ever is a bold one. Given the stream of stories about deficits, redundancies, and doctors and nurses who can't get jobs, it's not hard to believe it.

But didn't Patricia Hewitt tell us last year that the NHS was having its best year ever? So who's right? Or are both wrong?

Analysis

First of all, let's look at the headline figures. And the most straightforward of these is the figure for the total NHS deficit. This is the difference between the amount the NHS has spent, and what it receives from government coffers.

A look at the past 10 years of NHS deficits shows that the current deficit is big, but not that big by recent standards.

The deficit in 1996-7 was £460m, but the NHS budget was £33bn, so the deficit was 1.4 per cent. In 2005-6, the deficit is expected to grow to £547m, but the NHS budget is up to £75bn, so it's only 0.73 per cent - just over half what it was when the Conservatives were in power.

However, this doesn't give you much of a sense of the true level of financial chaos within the NHS. A more relevant figure is to look at the number of trusts in deficit, and this presents a rather worrying picture. As Andrew Lansley correctly says, the number is large, and rising: 132 trusts will be in deficit in 2006-7, up from 123 last year.

That means that the number of NHS organisations which are having to take action to cut deficits is increasing - and those actions are where financial turmoil potentially affects patient care, by forcing trusts to delay operations, or reduce their recruitment of staff.

You could argue that looking at the number of organisations in deficit is a good measure of the financial health of the NHS. But once again, this is rather too simplistic.

The NHS has a proud history of running deficits, and using all sorts of creative techniques to cover them up. Hospitals in surplus have lent money to hospitals in deficit, bill payments have been deferred until after the end of the financial year, capital budgets have been used to cover current expenditure, and trusts have sold land and other assets to balance the books.

These various accounting 'fudges' have been used to cover up deficits, and disguise the level of financial chaos within the service.

However, many of these strategies have been banned over the past few years, through new rules brought in by the National Audit Office. So part of the rise in the number of organisations in deficit is down to the increased visibility of deficits, rather than the deficits themselves.

To an extent, hospitals and Primary Care Trusts which can't fudge their accounts are more likely to be forced into other measures to cut deficits, such as imposing minimum waiting times for surgical treatment. That's bad for patients.

But in the long term, more accurate accounts will make it easier to see which trusts aren't performing, and put pressure the inefficient trusts to improve.

Advocates would say that's the best way to make sure the taxpayer gets value for money - but it's not much comfort for anyone waiting for a new hip.

Lansley is talking about the entire history of the NHS, of course - a period of nearly sixty years. So we spoke to the NHS historian Geoffrey Rivett, a former Department of Health civil servant, author of a history of the NHS, and publisher of the NHS History website.

In his opinion, the worst financial crisis in the NHS was actually in 1950s. Back then, he says, GPs had begun to prescribe powerful but expensive antibiotics such as streptomycin. The result was a much better outcome for patients, but higher costs for the NHS.

When the NHS bill was drawn up, in 1946, it was estimated that it would cost £110m. But by 1950/51, the service was costing £384m. The financial strain was so severe that many feared the whole NHS project would become unaffordable.

The government set up the Guillebaud Committee to inquire into NHS financing. It concluded that the NHS was financially sustainable, but would be more expensive than people thought. And this report helped to redefine the political consensus in favour continuing to fund the NHS.

Later on, in the 1970s, after the oil shocks sent the economy into recession, there was less money for everything - including the NHS. And Rivett recalls Lambeth, Southwark and Lewisham running up massive deficits, and being threatened with a direct takeover by the government.

So, deficits are nothing new, nor is the scale of deficits. But what is unprecedented is the level of visibility we currently have into hospital accounts.

"We have always had ways of concealing deficits," says Rivett. "Bills have been delayed, trusts have subsidised each other, we have sold land. But he who is explicit is found out."

"I don't know that things are any worse than they have been in the past. But now there is nowhere to hide."

FactCheck Rating: 4

Verdict

There really isn't any evidence to say that the NHS is in the worst financial health ever. The rising number of NHS organisations (PCTs, SHAs, etc) in deficit is worrying, but the overall deficit is not great by historical standards. In fact, the government promises that the NHS will actually be in balance by the end of the year.

Besides, it's not clear how far that number is the result of financial mismanagement, or whether greater financial clarity is casting more light on financial problems which would previously have been swept under the carpet.

So, while the NHS finances are a very long way from hunky dory, there's no evidence to say it they're the worst ever.

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