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NHS financial system now fit for the future, says chief executive

28 March 2007

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The Department of Health (DH) today (Wednesday 28 March 2007) said that the NHS is set to move to a more transparent and fair financial regime, following the announcement of the reversal of Resources and Accounting Budgeting (RAB) deductions and the replacement of cash brokerage with a formal system of loans for NHS Trusts.

The move follows recommendations made by the Audit Commission to change the RAB rules for NHS trusts. The Commission said the rules were unfair because of the “double whammy” effect under which overspending trusts not only had to pay back their debts but received less income the following year as well.

Figures for the final quarter of the year will be published in May, but the latest forecast (Q3 figures) showed that the NHS as a whole was on track to deliver a surplus of £13m by the end of the year – compared with a deficit of £547m last year. The improved performance of the NHS overall means the DH is now confident it can move NHS trusts out of the RAB regime. The reversal of RAB will see £178m returned back into the local NHS.

In support of this change, the government also announced that it would now allocate, as planned, the £450m contingency to the NHS. This is being allocated to strategic health authorities (SHAs) on a fair shares basis, meaning that the most needy areas of the country will receive a larger share of the funding in line with the our needs based resource allocation formula.

NHS chief executive David Nicholson said: “The majority of NHS trusts have improved their financial performance over the last year, meaning we are now in a position to complete modernisation of the NHS financial regime.

“I’d personally like to thank all the staff in the service for the work they’ve done to achieve this during a tough year. We are moving NHS trusts out of the RAB regime as this was inconsistent and unfair. At the same time, we are replacing the opaque system of cash brokerage with a formal system of loans to further aid transparency and financial discipline.

“We have now introduced a system that ensures fairness, transparency and responsibility, a system that is fit for the future. Organisations can now understand clearly their financial performance and the consequences and benefits of the management decisions they make.”