Scrap NHS Accounting System, Say MPs

MPs have called for the controversial NHS accounting system to be scrapped or refined as NHS trusts struggle with debts they have no hope of repaying. The cross-party health select committee inquiry into NHS deficits warned that the absence of financial control in the NHS was leading to cuts that affected staff morale and impacted on patient care.

The committee’s report, NHS Deficits, found “compelling evidence of a failure of financial management” within the NHS.

The NHS ended last year £512m in the red but the health secretary, Patricia Hewitt, has staked her job on achieving overall balance by the end of this financial year.

“The most basic errors have been made. There are too many examples of poor financial information, inadequate monitoring and an absence of financial control,” the report said.

The MPs called on the Resource Accounting and Budgeting regime (RAB) to be abolished in an attempt to move the situation forward. But the report’s recommendation comes a day after the government admitted that it could not afford the £600m cost of repairing the damage the system had already caused.

David Nicholson, the NHS’s chief executive, conceded yesterday that a dozen NHS trusts’ spiralling debts were irrecoverable, following a Guardian investigation that exposed the vicious cycle of deficits.

Mr Nicholson insisted that there was no scope for sorting out the system this financial year due to the scale of costs involved.

Under the punitive regime, a trust that makes a deficit in one financial year has that amount deducted from its income in the following year but must also make a surplus to compensate for the deficit.

The MPs assessed that the only way to achieve overall NHS financial balance for 2006-07 would be through cuts to the training budget.

It was unlikely that trusts with the biggest deficits would get into the black in the next five years, the report said. Many large deficits “are associated with the extraordinary growth in staff costs arising from pay rises and the large increase in staff numbers”.

Other “soft targets” such as mental and public health services should not suffer as a consequence of the financial crisis in the service, the MPs warned.

“The growth in staff costs points to serious underlying failures in the financial management of the NHS, which have occurred at all levels of the organisation, from the Department of Health to PCTs [primary care trusts].”

Targets such as the aim to see all patients in accident and emergency within four hours have also been imposed without regard to cost, it added.

The recovery plans of some struggling trusts were unsatisfactory as they encouraged trusts to focus on short-term measures “that may further destabilise their situation” and were not in the long-term interests of the NHS, it said.

The committee said that it was concerned that a desire to drive down debts rather than improve services was fuelling some of the changes taking place in the NHS.

“In recent years the NHS [has] veered from one priority to the next as the political focus has changed. It has concentrated on meeting targets with too little concern for finance,” it said.

The creation of a contingency fund and the top-slicing of PCTs’ budgets should not become a permanent part of NHS funding, the report said.

The committee chairman and Labour MP, Kevin Barron, said: “The government should be thanked for wanting NHS expenditure to be more transparent. In doing so, it has highlighted major weaknesses in NHS financial structures.

“It is important that we should all know what the NHS costs, and not just what it spends. I hope the rush for balancing all NHS budgets does not mean further top-slicing next year, particularly in areas of high health inequalities.”