The health budget – under strain again

New light has been shed on the state of NHS finances, and from different angles.

Looking forward there has been a warning that the government's planned £8bn a year extra by 2020 will not be enough.

Looking back, it has become clear that the Department of Health only just kept within the budget agreed by Parliament last year.

First, the department's annual report for the 2014/15 year and what it tells us.

If this sounds dull and technical and not everybody's idea of a gripping read, please bear with me.

'Harrier jet'

The report was issued on Tuesday in the final hours of the parliamentary session and shone new light on what it costs to keep the NHS in England afloat.

On the important day-to-day spending definition (known to the cognoscenti as RDEL), the Department of Health shelled out £110.5bn in the financial year which ended in March.

The annual report says this was an under-spend of £1.2m on the total agreed by Parliament.

That may sound like a reasonable cushion but in Whitehall terms it's nothing - equivalent to 0.001% of the budget. It is rather like ending the month with one penny in the bank account after paying the mortgage and all the bills.

Given that only two years ago the department ended the year with an under-spend of £1.5bn, the £1.2m result in 2014/15 is put into some sort of context.

The job of finance chiefs in steering the department through to the end of the year within the agreed budget has been likened to landing a Harrier jet on a tennis court.

For the year just ended it must have been like landing that jump jet on a flower bed.

'Short shrift'

All this is more intriguing because the Department of Health only just scraped by despite an injection of £890m in extra funding over the course of the financial year.

This consisted of £250m of money quietly transferred from Treasury reserves, with the rest moved from investment budgets into covering day-to-day running costs.

So it was a close-run thing in 2014/15, and the current financial year does not look as if it will be any easier.

Deficits at health trusts seem set to be bigger than last year.

Simon Stevens, head of NHS England, told MPs on Tuesday that the single biggest factor was the rapid growth in spending on agency staff. It was critical, he said, that this was dialled back in the months ahead.

Further afield, ministers are hoping that the £8bn annual funding boost by 2020 which they have promised will be enough for the NHS in England to continue delivering current levels of care. But a report out on Wednesday by two leading think tanks challenges that assumption.

The Health Foundation and the King's Fund have called for more investment over and above the £8bn to create what they call a transformation fund.

This vehicle, the authors say, would invest in measures needed to create longer-term efficiency savings - for example, the retraining of some frontline staff and the development of new ways of caring for patients.

The NHS, they argue, will not become more productive without upfront investment of an extra £1.5 - £2bn per year.

But the think tanks received short shrift from the government, with a spokesperson pointing out that the NHS had asked in its five-year strategy paper for the £8bn by 2020 and now had to get on with the job of finding efficiency savings.

But the thorny question of money and what is deliverable by the health service will continue to cause furrowed brows in Whitehall and Downing Street as the autumn spending review approaches.