NHS Finances

I reported to Plenary in February that the forecast net deficit for 2005-06 for the NHS in Wales was approximately £20 million. This comprised of a deficit of approximately £25 million for trusts, and a surplus of approximately £4 million to £5 million for local health boards. The final audited outturn was a deficit of £26 million for NHS trusts and a net underspend of £2 million for local health boards. Two local health boards and seven NHS trusts therefore failed to meet their financial targets.

The Welsh Assembly Government recognised that 2005-06 would be a difficult financial year for the NHS. We acknowledged that significant levels of efficiency would be required to bridge the gap between the increases in funding and the estimated increases in costs. We set challenging targets for further reductions in waiting times and there were increased efficiency requirements and the implementation of the pay modernisation programme to consider. Overall, the health service budget increased by 7 per cent. This included additional funding of £32 million to support reductions in waiting times and approximately £108 million to support NHS pay reform for staff, including consultants. We required that our priorities be delivered within the financial resources available.

The NHS still has significant opportunities to increase efficiency to achieve financial balance and meet service targets without impacting on the quality of care provided to patients. This is a theme that we will be progressing more systematically with the service in 2006-07. The extent of the financial gap in the NHS was the subject of much speculation early in the last financial year. At one point, the NHS Confederation had estimated a gap of £70 million, but financial monitoring information provided by NHS organisations indicated that this forecast was significantly overstated. There have been a number of criticisms in the past about the ability of the NHS to produce robust financial forecasts. One of the main difficulties in forecasting an accurate position last year was the progress in implementing ‘Agenda for Change’. Even at the end of the financial year, less than 50 per cent of staff had been assimilated onto the new pay spines. This meant that trusts were using incomplete information to estimate the full-year cost of the new contract. Despite these uncertainties, the forecast deficit for 2005-06 remained relatively stable from September onwards, at approximately £20 million, and the year-end outturn was very similar to these forecasts.

The Assembly Government takes the financial health of the NHS seriously. A number of initiatives and controls have been introduced to ensure that the financial position is managed. The financial performance of NHS organisations is monitored throughout the year by the regional offices. They will work with any organisation that is reporting difficulties to ensure that speedy action is taken to remedy the problem. If an organisation is facing problems that it cannot recover in-year, or has underlying problems that affect its ability to meet its statutory financial targets, that organisation must produce a strategic change and efficiency plan. The plan is approved by senior officials within the department. In such instances, senior officials may instigate an independent review of the financial management of an organisation to ensure the production of a robust plan. If concerns persist, they will send in a financial recovery team to help the board to seek alternative ways of improving the value for money of their services. This has happened in three communities to date.
Ultimately, the responsibility for meeting statutory financial targets lies with an organisation’s accounting officer and the Welsh Assembly Government’s head of the Department of Health and Social Services, as an accounting officer, has the power to intervene when she considers it necessary. In addition to these controls, support is provided by the delivery and support unit to help organisations to achieve their key service targets. Further assistance has been provided by the modernisation assessments, undertaken by the National Leadership and Innovation Agency for Healthcare towards the end of the financial year.


Although 2005-06 was forecast to be a difficult financial year, the outturn deficit was significantly less than originally anticipated and represented less than 1 per cent of the total funding. The Assembly Government has put in place a series of measures to support NHS organisations that are in financial difficulty, and ultimately to intervene when necessary. The pressures experienced in 2005-06 are continuing in some areas in the current financial year, and officials are working closely with the organisations that are in difficulty. While acknowledging that all areas are under some pressure, it is still only a relatively small number of organisations that are failing to manage the situation resolutely. A joint plan is being prepared by the west Wales health communities to restore financial balance across the area. Officials have also approved joint plans for the Conwy and Denbighshire communities and Swansea. Also, plans for north-east Wales, north Glamorgan, Gwent and the ambulance trust are still under discussion.