NHS deficit accounting faces surprise axe

The NHS is likely to end the use of resource accounting for trusts, the
controversial method which means trusts have to carry over deficits from
previous years.

In a surprise move, the government admitted last week that the current
method, which has come under attack from the Audit Commission, was
‘unsustainable’.

But the proposed dropping of the method could lead to criticisms that
deficits disappear from accounts, and to less strict financial controls.

Under resource accounting a budget deficit is carried over into the next
year, creating a ‘double whammy’ effect on trusts by making it more difficult
for them to balance their books the second year.

Following last year’s Audit Commission report, which warned that resource
accounting made NHS financial recovery more difficult, health minister Andy
Burnham told MPs last week that the government agreed with the findings of the
report.

‘We accept the Audit Commission’s analysis on [resource accounting] and the
rationale of its review. Overall, its application provides a strong disincentive
for overspending, but it is becoming clear that it is increasingly unsustainable
for NHS trusts,’ said Burnham.

The commission had recommended the creation of a ‘resource buffer’, from
which trusts could borrow capital, and a small percentage of NHS budgets should
be pooled to provide the safety net.

Burnham would not commit to a timetable for changing the NHS’ accounting
regime, due to the time required to create the buffer.

‘I do commit, however, to accepting the principle of what was put to us. We
will bring forward further details soon,’ he said.

Senior NHS accounting sources welcomed the move, but raised concerns that it
was getting late to introduce the scheme prior to the beginning of the new
financial year, when budgets are finalised.

‘I understood they were planning to do something by the start of the
financial year,’ said one senior source.

‘But [the government] has accepted the analysis, it’s a dopey system. Next
year is expected to be the biggest growth year for NHS budgets, so it would be a
good time to introduce a buffer.’

The NHS nearly hit £1bn in deficits for the 2005/2006 financial year.